By Pam Martens and Russ Martens: April 26, 2016

Donald Trump Blasts Ted Cruz and John Kasich for Collusion at a Rally Stop in Rhode Island

Yesterday, speaking before a rally audience in Rhode Island, Donald Trump called the coordination of election strategy between presidential candidates Senator Ted Cruz and Governor John Kasich “collusion.” (See video clip below.) He then made the following off the wall statement: 

“If you collude in business, or if you collude in the stock market, they put you in jail.”

That statement is profoundly important on multiple levels. For one, it raises the question of just how closely Donald Trump has followed the serial crimes of Wall Street and the Justice Department’s failure to deliver jail time.

Despite holding a degree from the Wharton School, perhaps Trump thumbs through the real estate section of the New York Times and skips over the Wall Street news. Maybe Trump is entrenched in an illusion that it’s his charisma and star quality that is responsible for his meteoric rise in the primary races rather than a citizenry outraged that one percenters on Wall Street created the greatest financial crash since the Great Depression through fraud, deceit, cooked books, and yes, lots of collusion, and not one of the executives of these firms has seen the inside of the Hoosegow.

A retired, veteran trial lawyer at the Securities and Exchange Commission, James Kidney, is one such outraged citizen. In April 2014, Kidney set off pandemonium inside the SEC by giving an interview with Bloomberg News and releasing the full text of his March 27 retirement speech. In the speech, Kidney excoriated the SEC’s leadership for policing “the broken windows on the street level” while ignoring the “penthouse floors.” Kidney linked the demoralization at the agency to its revolving door to Wall Street since the most talented and ambitious “see no place to go in the agency and eventually decide they are just going to get their own ticket to a law firm or corporate job punched.” (Retirement Remarks of SEC Attorney, James Kidney (Full Text)

Last week, investigative reporter Jesse Eisinger revealed that Kidney had taken an even bolder step to get the truth out to the American people. He had turned over to Eisinger his investigative files, including emails, on one of the most explosive cases from the subprime era: the infamous Goldman Sachs Abacus deal that looked and smelled like outright collusion between Goldman and a hedge fund run by Wall Street billionaire John Paulson. According to Eisenger’s article, the “documents provided by Kidney show that SEC officials considered and rejected a much broader case against Goldman and John Paulson & Co.” but then dropped it.

In its April 16, 2010 complaint, which mysteriously did not charge Paulson, the SEC explained the arrangement as follows: “The SEC alleges that one of the world’s largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.” “Credit events” means that Paulson wanted to put dogs in the portfolio because he wanted to make bets they would fail.

The SEC complaint goes on: “…after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS [Residential Mortgage Backed Securities] portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.’s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.”

Paulson made approximately $1 billion on the deal according to the SEC while unknowing investors lost about the same amount. In a profile piece on Paulson in the December 2013 issue of CIO Magazine, Kip McDaniel summed it up like this:

“Upon the revelation of Paulson’s historic year, everyone had an opinion, not all of them favorable. Paulson had grown rich on the backs of America’s poor; he was lucky, not skillful; he’d actually helped foster the bubble by getting Goldman Sachs and others to create structured products designed to fail: ‘It’s like being the Miami Heat and playing the Chicago Bulls—but being able to pick the Bulls’ starting lineup from the crowd,’ according to one investor.”

In 2010 the SEC settled the charges against Goldman Sachs for $550 million. Paulson skated free, never even charged. In fact, after all of this news broke, New York University saw Paulson as the model of moral fortitude and plastered his name on the auditorium at the Stern School of Business – following a $20 million donation from the hedge fund mogul. Only a low level individual at Goldman was charged, Fabrice Tourre, who faced only a civil trial – not a criminal trial. Tourre eventually paid a fine and moved on.

Not only was the SEC derelict in not charging individuals but according to an in-depth investigation by the PBS program Frontline, so was the Justice Department under Obama’s U.S. Attorney General Eric Holder.

In 2013 Frontline aired a program titled “The Untouchables,” revealing that the U.S. Justice Department under its Criminal Division chief, Lanny Breuer, who came from the same corporate law firm as Holder, Covington & Burling, had shown no serious interest in conducting a meaningful investigation against the powerful Wall Street firms for their role in the financial collapse. The exchange in the program between producer and moderator Martin Smith and Breuer went as follows:

MARTIN SMITH: We spoke to a couple of sources from within the Criminal Division, and they reported that when it came to Wall Street, there were no investigations going on. There were no subpoenas, no document reviews, no wiretaps.

LANNY BREUER: Well, I don’t know who you spoke with because we have looked hard at the very types of matters that you’re talking about.

MARTIN SMITH: These sources said that at the weekly indictment approval meetings that there was no case ever mentioned that was even close to indicting Wall Street for financial crimes.

In a post at his blog last week, James Kidney explained why he had turned over the SEC documents to Eisinger. He also pointed the media to this under-reported aspect of the Justice Department’s dubious failure to prosecute individuals for their role in the financial collapse:

“The settlements with Goldman and other Big Banks were resolved under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), which allows the Feds to ignore the normal five-year statute of limitations for fraud, but does not permit suit by private party victims.  As has been the practice with DOJ [Department of Justice] when dealing with Wall Street, no criminal charge was brought.  In fact, no complaint was filed in any of these cases.  Instead, DOJ entered into contractual arrangements with the banks.  Failing to fulfill their obligations under the contract would subject them to civil enforcement as a breach of contract matter, not a contempt charge in federal District Court…Law enforcement by contract? Clearly, the banks made it a condition of settlement that no complaint, civil or criminal, be filed. That might gum up the works by requiring state regulators to take action under their own rules, or cause other collateral consequences.”

Systemic collusion was also at the heart of the previous Wall Street crash when technology stocks and the dot.com bubble burst in 2000. From peak to trough, Nasdaq transferred over $4 trillion from the pockets of small investors to predominately the wealthy market manipulators.

As hundreds of court cases, internal emails, and insider testimony now confirm, the dot.com bust turned collusion into an art form. None of the key culprits went to jail in that massive fraud either. Here’s how it went down:

First, Wall Street brokerage firms issued knowingly false research reports to the public to trumpet the growth prospects for a specific company; second, the firms lined up big institutional clients who were instructed how and when to buy at escalating  prices to make the stock price skyrocket. This had an official name inside the walls of the manipulators: “laddering.” Next, managers of the fleets of stockbrokers at the various brokerage firms instructed their flock to stand pat as the stock prices soared. If the stockbroker tried to get his small client out with a profit, he was hit with a so-called “penalty bid,” effectively taking away his commissions on the trade. This sent the clear warning to other stockbrokers to leave their clients in the dubious deals. Only the wealthy and elite were allowed to capture the bulk of profits on these deals.

One other practice was called “spinning.” This is how the SEC explained that technique in its charges against brokerage firm Salomon Smith Barney:

“SSB, in a practice known as ‘spinning,’ provided preferential access to hot IPO shares to officers of existing or potential investment banking clients who were in a position to direct their companies’ investment banking business to SSB. The officers sold the shares provided to them for substantial profit. Subsequently, the companies for which the officers worked provided SSB with investment banking business. Executives of five telecom companies made approximately $40 million in profits from approximately 3.4 million IPO shares allocated from 1996-2001, and SSB earned over $404 million in investment banking fees from those companies during the same period.”

Jack Grubman, a stock analyst at Salomon Smith Barney, was at the center of this era of collusion. He was charged by the SEC for “fraudulent research.” He never went to trial or was criminally charged. He paid a $15 million fine, was barred from the industry, and walked away. His haul while at Salomon Smith Barney according to the SEC, “exceeded $67.5 million, including his multi-million dollar severance package.”

There is one critical demand of the Presidential contenders that the American public must make. That is to have a knowledgeable command of how Wall Street has become a criminal enterprise and how that enterprise is being propped up by gutless or compromised Federal law enforcement. If the Presidential candidate does not have that working knowledge, and a genuine commitment for change, he or she is just another empty suit.

By Pam Martens and Russ Martens: April 25, 2016

Brad Deutsch, Lead Counsel for the Bernie Sanders Campaign

Brad Deutsch, the attorney who authored the letter last week charging the Hillary Clinton campaign’s joint fundraising committee with dubious dealings that appear to violate Federal election law, isn’t just any ole lawyer. Prior to joining the law firm Garvey Schubert Barer in July 2014, Deutsch worked for more than a decade at the government’s top watchdog over Federal campaign financing – the Federal Election Commission (FEC).

Deutsch, now lead counsel to Senator Bernie Sanders’ campaign for President, would seem to be well qualified in defining what is and is not legal under Federal election law. From 2006 to 2014, Deutsch was Chief of Staff and Senior Legal Advisor to Commissioner Steven T. Walther at the FEC. Prior to that, he served as Assistant General Counsel at the FEC from 2004 to 2006 where he supervised a team of Federal election law attorneys.

The joint fundraising committee set up by the Clinton campaign is called the Hillary Victory Fund. Its Treasurer, Elizabeth Jones, doubles as the Chief Operating Officer for Hillary Clinton’s main campaign fund, Hillary for America. The joint committee was supposed to financially benefit the Hillary campaign, the DNC, and 32 state committees that agreed to come on board. The concept, in theory, is to raise joint funds to benefit the broader Democratic party and congressional candidates running for office. But by ramping up the joint fundraising committee before the primary races have concluded, before Hillary is even the party’s nominee, and with her own people in charge of the joint committee, it has created the growing perception that this so-called joint effort is really just a ham-fisted appendage of a political machine that wants to skip the quaintness of primary voting and let big donors install the Democratic party’s candidate.

The arrogance of this attitude has outraged Bernie Sanders’ supporters and piqued curiosity about what’s really going on inside the Hillary Victory Fund. The picture hasn’t been pretty to date and, unfortunately, it is adding to the negative public perception that Hillary Clinton can’t be trusted.

Under Federal election law, all that the Hillary for America primary campaign committee can accept from an individual donor is a maximum of $2700 for the primary election and an additional $2700 for the general election. But by setting up the Hillary Victory Fund as a joint committee between the DNC, 32 state party committees and the Hillary Clinton campaign, the super wealthy are able to contribute a whopping $712,200, with much of that finding its way into Hillary’s main campaign fund, Hillary for America.

Here’s the specific math. In addition to the $2700 an individual can contribute to a Federal candidate’s primary campaign, a donor can also contribute up to $33,400 to the DNC and $10,000 to each of the state parties. With 32 state parties signing on to the Hillary Victory Fund, that’s $320,000 plus $33,400 for the DNC for a total of $353,400. If that individual has not previously given to Hillary Clinton, you can add another $2700 for a total of $356,100. A single check can be written to the joint fundraising committee for that stunning amount.

But it gets a lot worse in terms of the 99 percent having a voice in politics in America. Because the first $356,100 is counted toward the primary phase of the election, the same amount can be donated again by the same individual for the general election once the calendar turned to 2016, the year of the general election, allowing Wall Street billionaires and hedge fund moguls the ability to pony up a total of $712,200 by writing a mere two checks to the Hillary Victory Fund. (The same billionaires and hedge fund moguls are writing out checks for millions more to Priorities USA, a Super PAC that is supporting Hillary.)

So if all of this stinks to high heaven but is legal, why is Brad Deutsch, the campaign finance legal eagle crying foul. According to Deutsch, the Hillary campaign is double-dipping. Deutsch writes in the letter:

“…these extremely large-dollar individual contributions have been used by the Hillary Victory Fund to pay for more than $7.8 million in direct mail efforts and over $8.6 million in online advertising, both of which appear to benefit only HFA by generating low-dollar contributions that flow only to HFA, rather than to the DNC or any of the participating state party committees…at best, the joint fundraising committee’s spending on direct mail and online advertising appears to represent an impermissible in-kind contribution from the DNC and the participating state party committees to HFA. At worst, using funds received from large-dollar donors who have already contributed the $2,700 maximum to HFA may represent an excessive contribution to HFA from these individuals.”

The firm conducting the direct mail campaign for the Hillary Victory Fund, Chapman Cubine Adams + Hussey, now says on its Facebook page, in response to an article we published about its overt bias against Bernie Sanders, that it no longer works for the DNC. But how can that be? According to the Center for Responsive Politics, based on FEC records, Chapman Cubine Adams + Hussey has been paid $2.4 million by the Hillary Victory Fund in this election cycle. (Our own review of FEC records show these payments continuing into the first quarter of this year.) Under Federal campaign law, expenditures of a joint fundraising committee must be split proportionally to the amount raised for each participant. Since large sums are flowing to the DNC from the Hillary Victory Fund, and the DNC signed a joint agreement to be part of this fund, it would seem that the direct mail campaign of the Hillary Victory Fund would legally have to be on behalf of all parties to the agreement: the DNC, Hillary Clinton and the 32 state party committees that signed this joint fundraising agreement.

Equally curious, Chapman Cubine Adams + Hussey (known as Adams Hussey & Associates until 2011) did not ask us to correct our article in any way, including its assertion that it has stopped working for the DNC. It simply posted a small blurb to its Facebook page. That may well be because it also recognizes that there is a much larger story here.

According to a press release issued on April 28, 2009, when it was still called Adams Hussey & Associates, it was “selected as agency of record by the Democratic National Committee (DNC) and Organizing for America, a project of the DNC.” According to SourceWatch, Organizing for America “was the rebranded successor to Obama for America, the election campaign organization for Barack Obama in 2008. It was moved into and run by the Democratic National Committee to mobilize support for Obama’s policy agenda.” This suggests that not only did this direct marketing firm have the intellectual capital gleaned over many years from work at the DNC but it also had intellectual capital gleaned from Obama’s campaign. That’s a powerful amount of intellectual capital – a treasure trove that a rational person might perceive as belonging to the DNC, to be used for the equitable benefit of all candidates.

But by Chapman Cubine Adams + Hussey being allowed to move their operation over to the Hillary Victory Fund where Hillary’s own people are in charge, and openly calling Hillary the “future President” on the firm’s Facebook page while Bernie Sanders is still a contender against her in the primary elections, there is the distinct impression of foul play.

According to FEC records, Adams Hussey & Associates (including its successor name Chapman Cubine Adams + Hussey) was paid more than $7.5 million directly by the DNC for work in the 2010, 2012, 2014 and 2016 campaign cycles. Indeed, records show that beginning in 2010, the firm consistently won awards for its work on behalf of the DNC. In this 2011 article, the intellectual capital derived from its telemarketing work on behalf of the DNC was described as follows:

“In the world of fundraising, where organizations are planning their year-end appeals while the ice-cream trucks are still beckoning to vacationing students mid-week mid-day, two months doesn’t seem like a long time. But that was all it took for the Democratic National Committee to pull off the highest-grossing major-donor phone campaign in its history. Created by Chapman, Cubine, Adams & Hussey on behalf of the DNC, the ‘Final Days’ (as in there were 40 days left until the 2010 elections) campaign actually beat the highest-income-producing campaign from the record-setting 2008 presidential election by 10 percent. Plus, according to CCA&H’s Lon Chapman, ‘the astonishing 72 percent credit card pledge rate meant that nearly three quarters of the money was collected within 72 hours.’ ”

Another potentially serious violation at the Hilllary Victory Fund is called out by Deutsch in his April 18 letter to the DNC:

“Finally, the Hillary Victory Fund’s FEC disclosure reports indicate that all of the joint fundraising committee’s $2.6 million in spending for salaries and overhead expenses so far has been in the form of reimbursement to HFA [Hillary for America] for providing these services. This fact raises equally serious concerns that joint committee funds, which are meant to be allocated proportionally among the participating committees, are being used to impermissibly subsidize HFA through an over-reimbursement for campaign staffers and resources.”

In a February 20 article in the Washington Post, Lawrence Noble, a former general counsel at the FEC, currently with the nonpartisan Campaign Legal Center was quoted as follows:

“I’ve never seen anything like this. Joint victory funds are not intended to be separate operating committees that just support a single candidate. But they appear to be turning the traditional notion of a joint committee into a Hillary fundraising committee.”

If Bernie Sanders hopes to make good on his call for a political revolution, the next step is to bring the machinations of the Hillary Victory Fund to a higher authority than the DNC, a willing participant itself in the scheme.

Chapman Cubine Post on Facebook,                  June 29, 2015

By Pam Martens and Russ Martens: April 22, 2016 

Bernard Madoff Outside Federal Court in 2008

Buried in a report released yesterday by the Government Accountability Office (GAO) was a stunning piece of news. Customers of JPMorgan Chase, the bank that Wall Street analyst Mike Mayo has preposterously called the “Lebron James of banking,” were major victims of Bernie Madoff’s Ponzi scheme – to the tune of $5.4 billion – because of negligence on the part of the bank. The report states the following:

“In 2014, DOJ [Department of Justice] assessed a $1.7 billion forfeiture – the largest penalty related to a BSA [Bank Secrecy Act] violation – against JPMorgan Chase Bank. DOJ cited the bank for its failure to detect and report the suspicious activities of Bernard Madoff. The bank failed to maintain an effective anti-money-laundering program and report suspicious transactions in 2008, which contributed to their customers losing about $5.4 billion in Bernard Madoff’s Ponzi scheme.”

The JPMorgan Chase settlement with the Justice Department came in January 2014, more than two years ago, but thus far, according to the GAO, Madoff victims haven’t seen a dime of the money. According to the Special Master for the Justice Department, he’s still wading through 64,000 claim forms. The Justice Department’s Madoff Victim Fund functions separately from the victims fund being operated by the bankruptcy trustee, Irving Picard. That fund has already distributed $8.6 billion out of $11.1 billion recovered to date. The forfeiture laws under which the Justice Department’s fund will be operated allowed Madoff victims who invested through feeder funds, as well as through a direct account with Madoff, to submit a claim.

JPMorgan Chase and banks it had purchased had held the Madoff business account for more than two decades. According to the Securities Investor Protection Corporation (SIPC), the Justice Department prosecutors who settled the criminal case against JPMorgan Chase in the Madoff matter used the investigative material that Picard had already unearthed. That investigative material showed that JPMorgan Chase had relied on unaudited financial statements and skipped the required steps of bank due diligence to make $145 million in loans to Madoff’s business.

Lawyers for Picard wrote that from November 2005 through January 18, 2006, JPMorgan Chase loaned $145 million to Madoff’s business at a time when the bank was on “notice of fraudulent activity” in Madoff’s business account and when, in fact, Madoff’s business was insolvent. The JPMorgan Chase loans were needed because Madoff’s business account, referred to as the 703 account, was “reaching dangerously low levels of liquidity, and the Ponzi scheme was at risk of collapsing, ” according to Picard. JPMorgan, in fact, “provided liquidity to continue the Ponzi scheme,” the Picard investigators found.

According to the Picard investigation, JPMorgan Chase and its predecessor banks also extended tens of millions of dollars in loans to Norman F. Levy and his family so they could invest with the insolvent Madoff. (Levy died in 2005 at age 93 without being charged with any crimes.) According to Picard, Levy had $188 million in outstanding loans in 1996, which he used to funnel money into Madoff investments. Picard’s lawyers said in a court filing that JPMorgan Chase (JPMC) “referred to these investments as ‘special deals.’ Indeed, these deals were special for all involved: (a) Levy enjoyed Madoff’s inflated return rates of up to 40% on the money he invested with Madoff; (b) Madoff enjoyed the benefits of large amounts of cash to perpetuate his fraud without being subject to JPMC’s due diligence processes; and (c) JPMC earned fees on the loan amounts and watched the ‘special deals’ from afar, escaping responsibility for any due diligence on Madoff’s operation.”

According to Picard’s court filings, Levy’s relationship with JPMorgan’s predecessor banks predated his relationship with Madoff by 31 years. After Levy became a Madoff client, what was transpiring in the Levy and Madoff accounts at JPMorgan Chase or its predecessor banks should have triggered legally-mandated Suspicious Activity Reports (SARs) to be filed with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Even after another bank detected the activity in the late 1990s and reported the transactions to FinCEN, JPMorgan Chase and its predecessor banks failed to file the mandated SARs reports. Instead, the bank not only allowed the activity to continue but permitted it to increase dramatically.

Picard told the court that “during 2002, Madoff initiated outgoing transactions to Levy in the precise amount of $986,301 hundreds of times — 318 separate times, to be exact. These highly unusual transactions often occurred multiple times on a single day.”

In November 2013, Picard asked the U.S. Supreme Court to review an appellate court’s ruling that would bar him from suing JPMorgan and other banks for aiding the Madoff fraud in order to recover additional funds for victims. In his petition for review, Picard told the Supreme Court that JPMorgan Chase stood “at the very center of Madoff’s fraud for over 20 years.” Picard based this claim on his previous filing to a lower court that demonstrated that the bank was aware that Madoff was claiming to invest tens of billions of dollars in a strategy that involved buying large cap stocks in the Standard and Poor’s 500 index while simultaneously hedging with options. But the Madoff firm’s business account at JPMorgan, which the bank had access to review for over 20 years, showed no evidence of payments for stock or options trading.

Picard’s petition to the Supreme Court stated:

“As JPM [JPMorgan] was well aware, billions of dollars flowed from customers into the 703 account, without being segregated in any fashion. Billions flowed out, some to customers and others to Madoff’s friends in suspicious and repetitive round-trip transactions. But in the 22 years that JPM maintained the 703 account, there was not a single check or wire to a clearing house, securities exchange, or anyone who might be connected with the purchase of securities. All the while, JPM knew that Madoff was using the account to run an investment advisory business with thousands of customers and billions under management and knew that Madoff was using its name to lend legitimacy to his enterprise…”

Picard told the Court that employees inside JPMorgan were well aware of the suspicions surrounding Madoff. Its own Chief Risk Officer, John Hogan, had warned his colleagues 18 months prior to Madoff’s revelation of his Ponzi scheme that “there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a ponzi scheme.”

In a lower court lawsuit, Picard wrote: “Evidence of Madoff’s fraud permeated every facet of JPMC [JPMorgan Chase].  It ran from the Broker/Dealer Group, where BLMIS [Bernard L. Madoff Investment Securities LLC] maintained a bank account that no one honestly could have believed was serving any legitimate purpose, to Equity Exotics, where JPMC learned of the red flags inherent in BLMIS’s investment strategy, to JPMC’s London office, which learned that individuals might be laundering money through BLMIS feeder funds, to the Private Bank, which maintained intimate relationships with one of BLMIS’s largest customers, to Treasury & Security Services, which was responsible for investing the balance of the 703 Account in short-term securities.”

Despite its serious suspicions about Madoff, JPMorgan Chase invested over $250 million of its own money with Madoff feeder funds while it simultaneously created structured investment products that allowed its own investors to make leveraged bets on the returns of the feeder funds invested with Madoff, according to Picard.

In September 2008, just two months before Madoff would confess to running an unprecedented investment fraud, JPMorgan conducted a new round of due diligence and decided it was time to get out of its own $250 million investment with the Madoff feeder funds.

Perhaps the largest smoking gun in the government’s case against JPMorgan Chase was the fact that on October 28, 2008, JPMorgan Chase sent a “suspicious activity report” not to the U.S. government but to the United Kingdom’s Serious Organized Crime Agency (SOCA). The document stated:

JPMorgan’s “concerns around Madoff Securities are based (1) on the investment performance achieved by its funds which is so consistently and significantly ahead of its peers, year-on-year, even in the prevailing market conditions, as to appear too good to be true – meaning that it probably is; and (2) the lack of transparency around Madoff Securities’ trading techniques, the implementation of its investment strategy, and the identity of its OTC option counterparties; and (3) its unwillingness to provide helpful information. As a result, JPMCB has sent out redemption notices in respect of one fund, and is preparing similar notices for two more funds.”

In addition to paying the forfeiture of $1.7 billion to the Justice Department, JPMorgan Chase was charged by the DOJ with two felony counts and given a deferred prosecution agreement. It promised to do better. The following year, on May 20, 2015, JPMorgan Chase was charged with a new felony count, which it admitted to, for involvement in rigging foreign currency markets. Four other banks were charged as well.

After a series of ignored written warnings to the SEC by Harry Markopolos, a financial professional, that Madoff was highly likely to be running a Ponzi scheme, what finally brought Madoff down was his own admission to the epic fraud in December 2008. Madoff pleaded guilty and is serving a 150-year sentence in Federal prison. None of the individuals at JPMorgan Chase who ignored the red flags for years was ever charged.

Two lawyers have now written the seminal book on the nexus between Madoff and JPMorgan Chase, JPMadoff: The Unholy Alliance Between America’s Biggest Bank and America’s Biggest Crook. It takes a far different view of JPMorgan Chase than Mike Mayo’s characterization of the bank as the Lebron James of banking, comparing the bank’s serial charges of crimes to the Gambino crime family and providing the legal foundation for why the bank should be charged under RICO statutes.

Related Article:

The Craziest Video You’ll Ever Watch on JPMorgan’s Jamie Dimon

By Pam Martens and Russ Martens: April 21, 2016 

President Obama Walking in Cross Hall at the White House. (Official White House Photo by Pete Souza.)

According to a study released by the Federal Reserve Bank of New York in March of last year, U.S. taxpayers have already injected $187.5 billion into Fannie Mae and Freddie Mac, two companies that prior to the 2008 financial crash traded on the New York Stock Exchange, had shareholders and their own Board of Directors while also receiving an implicit taxpayer guarantee on their debt. The U.S. government put the pair into conservatorship on September 6, 2008. The public has been led to believe that the $187.5 billion bailout of the pair was the full extent of the taxpayers’ tab. But in an astonishing acknowledgement on February 25 of this year, the Government Accountability Office, the nonpartisan investigative arm of Congress, issued an audit report of the U.S. government’s finances, revealing that the government’s “remaining contractual commitment to the GSEs, if needed, is $258.1 billion.”

This suggests that somehow, without the American public’s awareness, the U.S. government is on the hook to two failed companies for $445.6 billion dollars. And that may be just the tip of the iceberg of this story.

The official narrative around the bailout of Fannie and Freddie is that they were loaded up with toxic subprime debt piled high by the Wall Street banks that sold them dodgy mortgages. While that is factually true, the other potentially more important part of this story is the counterparty exposure the Wall Street banks had to Fannie and Freddie’s derivatives if the firms had been allowed to fail.

The New York Fed’s staff report of March 2015 concedes the following:

“Fannie Mae and Freddie Mac held large positions in interest rate derivatives for hedging. A disorderly failure of these firms would have caused serious disruptions for their derivative counterparties.”

Exactly how big was this derivatives exposure and which Wall Street banks were being protected by the government takeover of these public-private partnerships that had spiraled out of control into gambling casinos?

According to Fannie and Freddie’s regulator of 2003, OFHEO, “The notional amount of the combined financial derivatives outstanding of Fannie Mae and Freddie Mac increased from $72 billion at the end of 1993, the first year for which comparable data were reported, to $1.6 trillion at year-end 2001.”  A 2010 report from the Federal Reserve Bank of St. Louis updates that information as follows:

“Fannie and Freddie presented considerable counterparty risk to the system through its large OTC derivatives book, similar in spirit to Long Term Capital Management (LTCM) in the summer of 1998 and to the investment banks during this current crisis. While often criticized for not adequately hedging the interest rate exposure of their portfolios, Fannie and Freddie were nevertheless major participants in the interest rate swaps market. In 2007, Fannie and Freddie had a notional amount of swaps and OTC derivatives outstanding of $1.38 trillion and $523 billion, respectively.

“The failure of Fannie and Freddie would have led to a winding down of large quantities of swaps with the usual systemic consequences. The mere quantity of transactions would have led to fire sales and invariably to liquidity funding problems for some of Fannie and Freddie’s OTC counterparties. Moreover, counterparties of Fannie and Freddie in a derivative contract might need to re-intermediate the contract right away, as it might be serving as a hedge of some underlying commercial risks. Therefore, due to counterparties’ liquidating the existing derivatives all at once and replacing their derivative positions at the same time, the markets would almost surely be destabilized due to the pure number of trades, required payment and settlement activity, and induced uncertainty, and the fact that this was taking place during a crisis.”

Did the bailout of Fannie and Freddie save the same cast of characters on Wall Street as were saved under the bailout of AIG (which funneled more than half the money out the backdoor  to Wall Street banks and hedge funds who were counterparties to AIG)?

According to Fannie and Freddie’s prior regulator, OFHEO: “At year-end 2001, five counterparties accounted for almost 60 percent of the total notional amount of Fannie Mae’s OTC derivatives, and 58 percent of Freddie Mac’s.” The report also notes that “The market for OTC derivatives is highly concentrated among a small number of dealers, primarily brokerage firms and commercial banks that are counterparties for at least one side of virtually all contracts. The largest dealers include JPMorgan Chase, Citigroup…Deutsche Bank, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley Dean Witter.”

According to a current report from the Office of the Comptroller of the Currency, those same banks (minus Deutsche and Lehman) account for the vast majority of derivatives in the U.S.

Lehman Brothers filed for bankruptcy one week after the government placed Fannie and Freddie into conservatorship. Merrill Lynch was taken over by Bank of America the same week. If you’re looking for a potential list of names of Wall Street players that needed a quick bailout of Fannie and Freddie, the above list is an excellent start.

Matt Taibbi reported at Rolling Stone three days ago that the government has been fighting a pitched battle to keep 11,000 documents pertaining to Fannie and Freddie under seal in a court case. You can rest assured that some of those documents relate to Fannie and Freddie derivatives and counterparties. But that pile of 11,000 documents pales in comparison to the 25 million documents the Justice Department withheld from the public when it settled its case against Citigroup in 2014 for $7 billion. What the public got instead was a meaningless 9-page statement of facts.

Thanks to Occupy Wall Street and Senator Bernie Sanders, the public knows two concrete things about Wall Street: banks got bailed out, we got sold out and, the business model of Wall Street is fraud.

But until we have a President in the Oval Office who believes that the citizens of a genuine democracy deserve the right to sift through the documents of the most epic fraud in the history of financial markets so they can reach their own conclusions, all we really have are slogans, including the one that says we live in a democracy.

By Pam Martens and Russ Martens: April 20, 2016

Hillary Clinton Tells Senator Bernie Sanders That There’s No Evidence She Can Be Swayed by Wall Street Money During CNN Debate, April 14, 2016

New York State has the toughest financial fraud law in the country. Under New York’s 1921 Martin Act, the State Attorney General’s office can bring both criminal or civil charges.

Despite that important fact, no CEO or CFO or key executive of any major Wall Street bank has been prosecuted by the New York State Attorney General for their role in the 2008 crash — which crippled the U.S. economy and has left the nation with GDP growth of two percent or less ever since. Despite the Martin Act’s unique anti-fraud statutes, Wall Street banks have been churning out serial new crimes since the 2008 crash, proving that both Justice Department prosecutors in Washington and timid prosecutors in New York are failing miserably at their jobs in deterring Wall Street crime.

What power brokers in New York do best is flood presidential campaigns with money and then fill key cabinet posts with cronies who understand how the game is played between New York and Washington. President Obama nominated Jack Lew to be his Treasury Secretary, despite the fact that he had been Chief Operating Officer of the very unit of Citigroup that crashed the bank. After the bank received the largest taxpayer bailout in U.S. history, Lew was given a $940,000 departing bonus from the insolvent bank because his employment contract at Citigroup guaranteed it as long as Lew accepted “a full time high level position with the United States Government or a regulatory body.” In other words, the serially charged Citigroup needed to add another regulator’s name to its speed dial to Washington.

The Treasury Secretary’s post gained even more clout after Obama signed into law the Dodd-Frank financial reform legislation in 2010. Under the new law, the Treasury Secretary would chair the newly created Financial Stability Oversight Council, consisting of every major regulator of Wall Street.

The one progressive Senator who stood up to the mountain of hubris attached to Lew was Senator Bernie Sanders. He voted against his Senate confirmation, stating the following:

“We need a secretary of the Treasury who does not come from Wall Street, but is prepared to stand up to the enormous power of Wall Street. We need a Treasury secretary who will end the current Wall Street business model of operating the largest gambling casino the world has ever seen and demand that Wall Street start investing in the job creating productive economy. Do I believe that Jack Lew is that person? No, I do not.

“The decisions made by the next Treasury secretary will determine whether financial institutions need another taxpayer bailout or do not. In my view, we need a Treasury secretary who will work hard to break up too-big-to-fail financial institutions so that Wall Street cannot cause another massive financial crisis. Do I believe Jack Lew will work to break-up large financial institutions? No, I do not.”

When it came to nominating the Chair of the Securities and Exchange Commission, President Obama picked another New Yorker, Mary Jo White, who had headed up the litigation department for one of Wall Street’s key go-to law firms, Debevoise and Plimpton, which represented JPMorgan, UBS, Bank of America, and Morgan Stanley. White’s husband, John White, is a partner at law firm Cravath, Swaine & Moore LLP. Between the two law firms, every major Wall Street bank had been represented. Under Federal law, the conflicts of the spouse become the conflicts of the regulator. As a Harvard law graduate, the President knew or should have known that the SEC Chair would be forced to recuse herself from voting on key prosecution cases.

The lack of forward motion at the SEC became so intolerable that last June Senator Elizabeth Warren sent Mary Jo White a 13-page letter calling her out on a long laundry list of failures at the SEC. Warren detailed White’s failure to finalize rules requiring disclosure of the ratio of CEO pay to the median worker’s salary; her failure to curb the use of waivers for companies that violate securities law; the SEC’s continued practice of settling the vast majority of cases without requiring meaningful admissions of guilt; and White’s repeated recusals related to her prior law firm employment and her husband’s current employment.

Americans know that our political system is completely rotten. Just two days ago, NBC News published the results of a new national NBC News/Wall Street Journal poll. It found the following:

“Nearly seven-in-10 registered voters say they couldn’t see themselves supporting Republican frontrunner Donald Trump; 61 percent say they couldn’t back fellow Republican Ted Cruz; and 58 percent couldn’t see themselves voting for Democratic favorite Hillary Clinton.”

Consistent with numerous other polls, the NBC News/Wall Street Journal poll also found that “just 19 percent of all respondents give Clinton high marks for being honest and trustworthy.”

So how did Hillary Clinton beat out the popular Senator Bernie Sanders in New York State where he was born and raised? Where he was drawing rallies of tens of thousands of supporters in the week before the primary? Where his ground game had the engaged support of thousands of members of the Working Families Party and Occupy Wall Street activists? The system was rigged to guarantee the outcome just as the revolving door between Wall Street and Washington guarantees that looting the little guy remains a lucrative business model on Wall Street.

Sanders has won by landslides in states that are open primaries – meaning Independents can vote. New York is one of only 11 states that are closed primaries, meaning Independents can’t vote nor can third parties like members of the Working Families Party and Greens. Even more outrageous in this critical election season, if a voter wanted to change their party affiliation to Democrat in order to vote for Bernie Sanders, they had to have the awareness that they needed to do that by October 9 of last year – an incredible six months before the primary. No other state in the U.S. imposes such an onerous cutoff for changing party affiliation.

Now allegations are coming forward of outright voter fraud and/or voter suppression. CNN reported the following last evening:

“Bernie Sanders’ campaign on Tuesday called reports of voting irregularities in New York state ‘a disgrace’ as local officials rushed to condemn the city Board of Elections for stripping more than 125,000 Democratic voters from the rolls.

“ ‘It is absurd that in Brooklyn, New York — where I was born, actually — tens of thousands of people as I understand it, have been purged from the voting rolls,’ Sanders said during an evening campaign rally at Penn State University.

“In an email to CNN, Sanders spokesman Karthik Ganapathy called the state’s handling of the primary a ‘shameful demonstration.’

“ ‘From long lines and dramatic understaffing to longtime voters being forced to cast affidavit ballots and thousands of registered New Yorkers being dropped from the rolls, what’s happening today is a disgrace,’ he said.”

During Jack Lew’s confirmation hearing, Senator Chuck Grassley asked Lew why he took almost $1 million from an insolvent bank being propped up by the taxpayer. Lew answered: “I will leave it to others to judge.” When Hillary Clinton was asked by CNN’s Anderson Cooper why she took $675,000 for three speeches from Goldman Sachs, her response was: “Well, I don’t know. That’s what they offered.”

Moments later (see video below) Hillary stated to CNN’s national audience that “I’m proud to have 90 percent of my donations from small donors.” According to the Center for Responsive Politics, just 18 percent of Hillary’s campaign money comes from small donors. That figure was also 18 percent at the time she made her statement to Anderson Cooper. During that same exchange, Hillary attempted to play down the money coming from Wall Street. We pulled back the dark curtain on her campaign’s tricky maneuver with hedge funds in this article on April 5.

There’s a sound underpinning for why only 19 percent of Americans give Hillary high marks for honesty and trustworthiness. What there is not a sound underpinning for is her 58 to 42 percent victory over Sanders in New York’s primary.

But the most tragic part of this sordid election season is that we’re the country asserting the right to teach democracy to the rest of the world.