On June 8, about twenty million Americans, plus many more incredulous spectators around the globe, tuned in to daytime TV and the timeless internet to witness the high-noon drama of a sitting U.S. President and a former FBI Director calling each other “liars” in public. The previous day, President Trump had nominated a virtual unknown, Christopher A. Wray, to be James B. Comey’s replacement. This was less than a month after Trump had fired Comey. In 1977-78, Jimmy Carter took a year to pick a successor to Clarence Kelley. But President Trump was clearly in a hurry to find a candidate who is not only capable of commanding support on both sides of the aisle, but also “more loyal”—a tricky combination.
The relatively obscure Wray quickly attracted quite a bit of bipartisan support. Most colleagues who had served with him in George W. Bush’s Department of Justice agreed that he is “a fine lawyer and pubic servant,” “smart, serious, and professional,” a “super smart, a great lawyer and highly experienced,” and a “respectable” choice. Comey himself called Wray a “total pro.” Even the liberal media were mildly supportive. The New York Times designated Wray a “safe, mainstream pick.” Rolling Stone conceded that he might be “eminently qualified.”
Not surprisingly, then, Wray was treated very gently by the Senate Judiciary Committee at his July 12 confirmation hearing. The main priority for Republican and Democratic Senators alike seemed to be to move as quickly as possible beyond the rather impolitic Comey, who in three short years had managed to alienate key leaders in both parties.
Unfortunately, because of this haste, it turns out that the Senate really may have failed to do proper due diligence. This is true not only with respect to Wray’s personal qualifications for the job but also with respect to his intimate connections to the incestuous professional network that operates at the very highest levels of the U.S. criminal justice system.
Since the median term for FBI Directors is seven years, it is critical that the post be filled by someone who not only has the necessary law enforcement experience but also strong commitments to civil liberties and the rule of law. These are commitments that should transcend loyalties to political parties, clients, professional networks, and even Presidents. As we’ll see, it is by no means clear that Christopher Wray is really the right man for this job.
Other observers have already raised questions about a few specific issues. For example, the ACLU and an Australian investigator have raised questions about Wray’s involvement in several controversial Bush-era programs after he became acting Assistant Attorney General/Criminal Division in June 2003.1 He had also earlier supervised the “Enron Task Force,” which some have criticized for several prosecutorial excesses and premature “victories” that were reversed on appeal.
A few critics have also questioned Wray’s role as a defense attorney for New Jersey Governor Chris Christie in the “Bridgegate” affair.2 Their relationship dates back to the early 2000s, when Christie became a U.S. attorney by bundling contributions for George W. Bush. Partly because of this scandal, Christie’s popularity now stands at 15 percent, the lowest for any U.S. Governor in twenty years.3 So Wray’s assistance was perhaps not all that decisive.
Questions have also been raised about Wray’s Russian clients. King & Spalding, the giant Atlanta-based law firm that has been Wray’s home base since the 1990s, has reportedly represented key Russia companies like Gazprom and Rosneft. The Guardian also discovered that in January 2017 Wray deleted a single line from his bio on the King & Spalding website that pertained to his representing an unnamed “energy company executive in a criminal investigation by Russian authorities.” But this was five months before Comey’s firing and Wray’s nomination—besides which, defending an American accused by the Russian government of crimes sounds like a perfectly reasonable thing to do.4
As discussed below, a more pertinent concern is a pattern noted by Ralph Nader’s Corporate Crime Reporter having to do with Wray’s history of involvement in the defense of big-ticket white-collar criminals, especially during the 2005-17 period after he returned from the Justice Department to King & Spalding. Of course, every successful Justice Department criminal lawyer is vulnerable to this “revolving door” criticism to some extent. But Wray set something of a record on this score.
Beyond these specifics, the Senate should have more carefully examined Wray’s background and experience. Had it done so, it would have come clear that Wray is in three respects an outlier compared to his seven Senate-confirmed predecessors (Hoover, Kelley, Webster, Sessions, Freeh, Mueller, and Comey): His patrician upbringing and his lack of law enforcement experience; his potentially conflict-ridden professional Justice Department network; and the extent to which Wray’s career has been devoted to defending the interests of some pretty nasty white-collar banksters and corpsters. Each of these themes deserves a closer look.
Wray’s distinctive legal/class background, in addition to the way he arrived on the scene, may create some initial distance from the FBI workforce. Born in 1967 and raised in New York City, Wray is the son of a senior partner at the Wall Street law firm of Debevoise & Plimpton whose wife is an alumna of Smith College and Columbia and who helped run the Cosmopolitan Club, the Junior League, and several private foundations. His maternal grandfather was another Debevoise & Plimpton partner, who even practiced law on Wall Street. They divided the rest of their time between Park Avenue and an estate in Southampton New York.
Wray attended Phillips Academy (‘85) and Yale (‘89), and married a member of the Atlanta Debutante Club and a graduate of Connecticut’s exclusive Westminster School. Jimmy Carter’s former U.S. Attorney General and managing partner at the Atlanta “mega-firm” King & Spalding, Griffin Bell, recruited Wray to join the Atlanta firm in 1993. He spent his first four years in an introductory tour with the firm’s fast-growing white-collar defense team. In 1997 he joined the U.S. Attorney’s office in Atlanta as an assistant prosecutor, reporting to Sally Yates, a former King & Spalding attorney who had been an assistant prosecutor since 1989. They collaborated on several key prosecutions, including an anti-bribery case against the country’s largest minority-owned investment bank. Twenty years later, Yates became Loretta Lynch’s Deputy U.S. Attorney General, then President Trump’s first acting U.S. Attorney General and his first prominent dismissal after just ten days on the job.
However, it was Larry D. Thompson, another King & Spalding partner, who got the nod to be President Bush’s first Deputy AG back in 2001. Unlike the more experienced Yates, Wray was already a registered Republican, like Thompson. So it was he who was asked to tag along. For the next two years Wray served as “Associate Deputy AG,” working directly with Thompson as well as John Ashcroft, Bush’s first Attorney General (2001-05), Michael Chertoff, the Assistant AG/Criminal Division (2001-03), and FBI Director Robert Mueller III (2001-13). In June 2003, when Chertoff left to become a Federal judge, Wray became Assistant AG/Criminal Division, in charge of the country’s 600 Federal prosecutors and 93 U.S. attorneys. In August 2003 Thompson revolved back to King & Spalding, and his successor, SDNY U.S. Attorney James B. Comey, arrived in December 2003. Wray stayed on as Assistant AG/Criminal Division until February 2005, when he also revolved. The sum is that Wray has pursued a successful but narrow-gauged two-track career, alternating between prosecuting bad guys (30 percent) and defending them (70 percent).
One major contributor to Wray’s success has simply been good fortune. A good example is the fortuitous timing of his arrival at the Justice Department in 2001-05, a period when the criminal justice world experienced three great discontinuities back-to-back: “9/11” and the rise of counterterrorism; the huge Enron/Worldcom corporate fraud surge; and a dramatic surge in transnational organized crime, which cleverly exploited the insecurities and loopholes created by the first two discontinuities.
Nevertheless, this pocket career history shows that Wray’s experience has been strikingly different from most of his FBI predecessors, who had far more law enforcement and military experience, and who were also far more middle-class, Midwestern, public-schooled, and down to earth. Even the Princeton-educated Robert S. Mueller III is an ex-Marine.
Wray’s professional network, meanwhile, consists of a wide range of past and present senior officials at the Justice Department, the FBI, the Federal courts, a few other agencies, and the handful of prominent Wall Street and K Street law firms where these folks often tend to end up. These people, some mentioned above but most not (yet), are part of a group of just a few hundred people who dominate the decision process of the entire U.S. criminal justice system. Access to this network, whose influence has only been growing, is undoubtedly one of Wray’s key assets—but it also poses potentially paralyzing conflicts of interest. Let us see how.
A review of more than a hundred Justice Department press releases shows that between 2001 and 2005 Wray prosecuted a wide range of Federal crimes: software piracy, Federal election law violations, identity theft, expelling former Nazi guards, Chiquita’s bribes to Colombia’s FARC, terror finance, the shoe bomber case, political corruption, the UN oil-for-food scandal, and human trafficking.
However, more than half of Wray’s cases involved non-financial corporate accounting fraud. The Enron case and its spinoffs alone accounted for more than a third.5 Indeed, from 2002 on, supervising the “Enron Task Force”—established by Deputy AG Thompson in January 2002 in the wake of Enron’s shocking $63.5 billion bankruptcy in December 2001—appears to have been Wray’s key assignment. In addition, the handful of non-Enron fraud cases during this period all reported up through Wray.6
By conventional Justice Department scorekeeping, the Enron Task Force was wildly successful. By 2005 it had charged 33 Enron-related defendants and convicted 21. The Task Force also recovered $162 million for the “victims,” some 20,000 former employees and 200,000 stockholders. This was a small fraction of the $11.4 billion they ultimately won by suing Enron’s complicit bankers (JP Morgan, Citigroup, Credit Suisse, Barclays, RBC, FleetBoston, TDC, and Merrill Lynch), but at the time many were grateful to recover anything.
Looking back through the night-vision scope of the 2008 global financial crisis, however, we see that much of this apparent “success” was illusory. First, as other critics have noted, several of the Enron Task Force’s key “victories”—including its verdicts in Arthur Andersen, Enron Broadband, and Enron Nigerian barges cases—were overturned or sharply limited on appeal. Second, several of the charges against Skilling and Lay were also substantially narrowed by unanimous Supreme Court decisions. Third, certain aggressive tactics employed by the Task Force were subject to fierce complaints of prosecutorial misconduct by other lawyers, legal scholars, and the courts. Fourth, a large chunk of the dollars recovered by all the Enron civil lawsuits were digested not by “victims” but by lawyers on all sides, including several who switched sides.
Finally, and most important from the standpoint of preventing future frauds, Wray’s Justice Department failed to prosecute almost any leading financial institutions whatsoever.7 We now know that the cost of subsequent bankster fraud has been many times the cost of Enron-type non-financial corporate fraud, since bank fraud creates systemic risks.8 And we also know that from the late 1990s on, all of the world’s largest private banks—plus giant public ones like Fannie Mae—had their snouts in the trough, stuffing their gullets with the proceeds of mortgage and securities fraud, tax dodging, money laundering, illegal trading, bribery, and other forms of financial chicanery.9 This was all going on right under the noses of Wray and his colleagues at DOJ, even as they worked so hard on Enron. If they had looked for bankster crime, they would have found it.
But DOJ did not look. To be fair, neither did the SEC, the Federal Reserve, the Congress, or most other bank regulators. This was only partly because of Federal Reserve Chairman Alan Greenspan’s hallucinations about rational markets, or the fact that the DOJ, the FBI, and the newly created Department of Homeland Security were obsessed with “fighting terrorism.” Prosecutors, like generals, tend to fight the last war; Wray’s DOJ was reacting to Enron, Worldcom’s Chapter 11 in July 2002, and Congressional preoccupation with Sarbanes-Oxley. They left bankster crimes to the future.
This did not prevent prominent DOJ alums from profiting handsomely from financial chicanery themselves, however—right across party lines.10 For example, in July 2001, Wray’s boss Larry D. Thompson sold $2.5 million of stock in a company where he had been a board member, amazingly enough, just three days before it disclosed significant restatements of income. Across the political isle, Jamie Gorelick, Janet Reno’s Deputy AG in 1994-97, had proceeded directly to become Fannie Mae’s Vice Chairman despite having no discernable banking experience. The clouds parted and Gorelick ended up collecting $26.5 million in “compensation.” Not long after, in May 2006, a Federal audit revealed that on Gorelick’s watch, from 1998 to 2004, Fannie Mae had overstated its income and capital by $10.6 billion, mainly in order to hit compensation targets for senior managers like her and CEO Franklin Raines, who personally walked away with $90 million. Fortunately for them, there were no claw-backs.
Despite this, after a brief stint at the 9/11 Commission, Gorelick moved on to become a partner at the DC law firm WilmerHale, where she represented such distinguished clients as the Duke Lacrosse team, BP of 2010 Deepwater oil spill fame, the fraud-prone University of Phoenix, the Clinton Foundation, Amazon (cf. board seat), and Jared Kushner. In 2014 Gorelick was also joined at WilmerHale by former FBI Director Robert S. Mueller III, on the way to his next assignment.
Meanwhile, as the head of the Justice Department’s Criminal Division and manager of the Enron Task Force from 2002 until 2005, Wray developed close relationships with a host of senior prosecutors, several of whom had fascinating subnetworks of their own. Most of them had worked together in the Eastern District of New York (EDNY), a judicial district that includes Brooklyn, Queens, Staten Island, Long Island, New York Harbor, and the East River. These are all traditional stomping grounds for New York’s five “mafia” crime families. Consequently, the area also produces more than its share of corrupt politicians, judges, and prosecutors. Indeed, there is still a park in Queens named after Second Circuit’s Chief Justice Martin T. Manton, the only U.S. Federal judge ever convicted (in 1941) of receiving bribes—at least so far.
Beginning in the 1970s, and especially since the early 1990s, the EDNY saw a huge influx of fresh criminal talent and dirty money from Russian/FSU, Eurasian, and Russian/Israeli-based organized crime groups. At first they concentrated in neighborhoods like Brooklyn’s Brighton Beach (“Little Odessa”), but they soon diversified to more affluent neighborhoods farther east.
By the mid-1990s this had produced “Silly-Con Valley,” a seedbed for new forms of financial fraud and money laundering beyond the traditional muscle-bound staples of extortion, loan-sharking, and drugs. This led to new partnerships that bridged the traditional mafia family networks. Long Island soon became known for mob-financed penny-stock “boiler rooms” with fancy street names like Jason Belfort’s “Stratton Oakmont“ in Lake Success, Hauppauge’s “Investor Center,” Mineola’s “Kensington Wells,” Melville’s “Sterling Foster,” White Rock Partners, and State Street Capital. But the operatives were mainly a mix of Italian, Russian/FSU, Russian-Israeli, and Irish names. All this contributed to a rise in EDNY criminal prosecutions by more than 163 percent from 1988-90 to 1998-02. (See Chart 1).11
The leadership at the EDNY during these critical years was provided by U.S. Attorney Zachary W. Carter (1993-99), his right-hand deputy and successor Loretta Lynch (1990-2001, 2010-15, then U.S. Attorney General, 2015-17),12 and her successor Alan Vinegrad (1990-2002).13 Chris Wray knew all these people, but worked most closely on the Enron Task Force with half a dozen or so lower-level EDNY prosecutors—Leslie Caldwell, Andrew Weissmann, Lanny Breuer, and a few others—many of whom went on to higher-level positions in DOJ. A diagram of who hired and reported to whom over the years would display an impressive density of professional indebtedness and associations.
Obviously, all these prosecutors and others have worked on scores of criminal cases over the course of their careers. From 1987 to 2001, for example, in the EDNY alone, the names Carter, Lynch, Vinegrad, Caldwell, and Weissmann appear directly on the dockets of 166 EDNY “CR” cases involving 449 criminal defendants. It would be astounding if there had not been a few screw-ups along the way. But a handful of cases do stand out, all of them known to Christopher Wray and all involving top-secret “cooperation” deals cut by U.S. Attorneys Carter, Lynch, Vinegrad, Weissmann, Caldwell, and a handful of AUSAs who reported to them in the EDNY back in 1998-2002.
That sounds like a long time ago. But financial fraud can have a long fuse and powerful indirect impacts. It turns out that this handful of secret deals set the table for more than $1 billion of dodgy Trump real estate deals projects in New York, Florida, Arizona, Toronto, Panama, Baku, and elsewhere. In effect, these deals allowed Trump business partners to conceal their felonious backgrounds from legitimate potential investors, condo buyers, and creditors. Without what amounts to concealment fraud, many of these Trump real estate projects in the 2000s would have been stillborn, with huge negative consequences for Trump’s reputation and hence presidential prospects.
There is also evidence that Donald Trump, some of his business associations, and perhaps even some of the prosecutors, judges, and FBI agents involved in these cases may have been aware of this concealment fraud, yet did nothing about it. That would mean that this behavior might not just be of historical interest. Subject to the statutes of limitations for crimes like financial fraud, money laundering, and criminal tax evasion, it might mean that it could still be indictable, at least for a few more months. In other words, what we may here is a kind of financial “Whitey Bulger” case on steroids.14
From this angle, the key question for Wray is not whether he was involved in any of this personally. There is no evidence that he was. Rather, the question is how he plans to handle the fact that several of the prosecutors—and their bosses—may have been personally involved in this and are far from strangers to him.
At the center of many of these deals is a well-connected Russian-American, Felix Sater, who has been adroit at playing games on all sides of the law. By now his basic story is familiar to anyone following the “Trump Russia” investigation. A good introduction is my own overview of Sater’s case in the context of Trump’s extensive private Russia/FSU connections, plus several recent documentaries by Dutch and German public television and the BBC.15 The essence is that Sater and his father were associated with the Mogilevich crime syndicate, which in turn was connected with several of Trump’s business ventures around the world.
By the early 1990s young Felix, a commodity trader, got into trouble: convicted of a felony, he was reportedly sent to prison. But by 1993 Felix was back in business at two fraud-filled brokerages, “White Rock Partners” and “State Street Capital.” Five years later, Sater and two key partners secretly pled guilty to racketeering, securities fraud, and money laundering charges, along with 19 other U.S.-and Russian mob traders, related to a $40 million “pump and dump” securities fraud scheme.16 Facing twenty years in prison, Felix turned snitch. In December 1998 he, his childhood friend Gennady (Glen) Klotsman, and Salvatore Lauria, another “trader,” all signed secret cooperation deals with EDNY prosecutors.
It is hard to know how valuable the information provided by this rat pack actually was. Since the secrecy shield started to crumble in 2013, Sater has become more loquacious, talking big about helping “the CIA” as well as EDNY prosecutors and the FBI. Indeed, in the wake of 9/11, according to Klotsman, the ever-inventive Sater pitched the notion that he and his Russian mob friends had access to invaluable information about the black market for Stinger missiles. According to Klotsman, this tale “bought Felix his freedom,” allowing him to return to the United States.
These tales are not easy to evaluate. Nevertheless, several EDNY AUSAs have asserted in court that the contributions of Sater and Lauria to unspecified prosecutions have been valuable. In 2015, during her Senate testimony, U.S. Attorney General-designate Loretta Lynch also commended Sater personally for sharing information that she described as “crucial to national security”—though she gave no clues as to what it was and also recalled, inaccurately, that his case was “before my time.”
On the other hand, say the skeptics, this is precisely what Lynch and the EDNY prosecutors would say, given the growing number of flies on these deals and the intrinsic difficulty of checking such claims. We do have some hard evidence on what Sater’s “cooperation” actually achieved. For example, in USA v. Coppa et al., the $40 million, 19-defendant stock fraud case where Sater, Klotsman, and Lauria cooperated, the median prison sentence was one year. Five of the 19 defendants got probation. One case was dismissed outright. Just three defendants received the maximum sentence of 63 months, and in all but one case their sentences ran concurrently with sentences already imposed in other cases.
Of course there may be other cases, not yet revealed, where Sater and his fellow cooperators made greater contributions; and there could be national-security related aid they provided that is not public knowledge. But at least on the basis of USA v. Coppa, it is hard make it look like much of an achievement, even before we consider the costs of these secret cooperation deals.
The first cost of Sater’s secret cooperation deal is that it permitted him to avoid any penalties for his frauds entirely until October 2009, 13 years after they were committed. The most important cost of Sater’s secret EDNY cooperation, however, was that the secrecy shroud permitted him to engage in a series of much larger on-going financial frauds, several of which may involve President Trump.
As noted, Sater’s role in the brokerage frauds was sealed up by EDNY prosecutors and judges and filed away under “USA v. John Doe,”17 with the information (almost) off limits until June 2012.18 At that point it was partially disclosed in the course of a petition for certiorari filed with the U.S. Supreme Court by two determined lawyers who had represented several disgruntled employees at Bayrock Group LLC—the key real estate partnership in which felons Sater and Lauria had concealed interests.19
In March 2013, on the verge of a SCOTUS conference on this petition, Judge Glasser ordered most of the sealed documents in Sater’s case unsealed. But several key ones remain under wraps to this day. They are now the subject of a heated legal battle in the Second Circuit, in which several publishers and journalists, including DCReports.Org, The American Interest, Michael Moore, the BBC, the German and Dutch TV networks, several other leading investigative journalists, and this author, have become interveners or amici, representing the public’s right to know.20
Regardless of this litigation’s outcome, however, we already know that the secret deals struck by EDNY prosecutors and enforced by EDNY judges for more than 13 years basically enabled Sater, Lauria, and their business partners to engage in a series of lucrative “concealment” frauds in which their criminal histories were systematically concealed from investors and creditors.
As Bayrock’s COO, Sater negotiated aggressive property deals all over the planet. But the Trump Organization was his wet dream: a perfect combination of desperation for capital (given its multiple 1990s bankruptcies), raw greed, and a popular brand. So Bayrock courted Trump deals aggressively from 2003 on. Bayrock even acquired an office in Trump Tower for the purpose. By 2007, all this appeared to be paying off with more than $2 billion of Trump-branded deals in the works, and with at least $500 to $700 million of credit and investment secured from legitimate banks and other investors. Then the 2008 financial crisis hit, and almost all of the projects turned out to have false bottoms.21
Overall, by now Sater’s Bayrock has become just one more spectacularly unsuccessful New York real estate company. Not surprisingly, Donald Trump has recently had great difficulty recalling who Felix Sater even is despite the fact that Sater’s concealment frauds, and the key EDNY prosecutors and judges who enabled them—especially Lynch, Caldwell, Weismann, and Judge Glasser—may turn out to have been among Donald Trump’s greatest benefactors.
Furthermore, it now appears that in addition to “concealment fraud,” these secret EDNY deals may have enabled Bayrock to become involved in other financial crimes, including international money laundering. According to a 2015 lawsuit by one of Bayrock’s former employees, as early as 2004 Bayrock started to receive millions of dollars in unexplained “equity contributions.” And just last week the FT reported that Sater is cooperating in the investigation of an alleged Kazakh kleptocrat’s alleged money laundering by way of the Netherlands and the Trump SoHo.
So what does any of this have to do with Christopher Wray? It is not yet clear whether Special Counsel Robert Mueller is focused on Bayrock money laundering, but he probably should be. But will Chris Wray be able to help him? Let us briefly summarize the most salient potential dilemmas Wray might face.22
Andrew Weissmann, who now reports directly to Special Counsel Robert Mueller:
- …was Chris Wray’s former Enron Task Force colleague; worked with and for Leslie Caldwell (EDNY, Enron Task Force, DOJ), Loretta Lynch (EDNY, DOJ), and Robert Mueller (FBI);
- …was the former EDNY senior prosecutor who signed off on Felix Sater’s December 1998 original cooperation deal as “Supervising Assistant US Attorney,” as well as on the cooperation deals for Sater’s associates;
- …was the former FBI General Counsel who must have been aware of the continuing relationships that Sater, Lauria, Klotsman, and other cooperators maintained with the FBI during the 1998-2017 period, while they were committing new frauds; and who may well have been aware of the continuing battles over the unsealing of Sater’s documents.
Leslie Caldwell, now a senior partner at Latham+Watkins LLP’s San Francisco office:
- …was Chris Wray’s former Enron Task Force colleague, and former boss of Andrew Weissmann both there and at Lynch’s DOJ; worked with Mueller (SFO, DOJ), Lynch (EDNY, DOJ);
- …was the former EDNY senior prosecutor who teamed up with Weismann to prosecute a least one large-scale stock fraud case to which Felix Sater and his fellow cooperators contributed;
- …joined Morgan & Lewis as a partner in 2004, and represented Felix Sater personally from July 2009 to February 2011?
- …vouched for Sater’s bona fides and good character at his semi-secret sentencing before Judge Glasser in October 2009, together with Ms. Kelly Anne Moore, another former EDNY prosecutor and Morgan & Lewis partner;
- …continued arguing for keeping Sater’s documents under seal throughout this period;
- …represented Donald Trump throughout this period via the law firm Morgan & Lewis, and also maintains a prize-winning Moscow office.
Loretta Lynch, the former U.S. Attorney General, former US Attorney and Chief Assistant US Attorney (EDNY):
- Is the EDNY Chief Assistant U.S. Attorney who signed off on Felix Sater’s original 1998 “information” and his cooperation agreement;23
- …signed off on the cooperation deals with Sater, Klotsman, and Lauria, approved by Weissmann, which facilitated their subsequent frauds;
- …approved Mikhail Sater’s generous plea bargain and cooperation deal in 2000;
- …delegated AUSAs to argue before Judge Glasser to keep the documents in Sater’s case under seal while she was EDNY U.S. Attorney in 1998-2001 and again in 2010-15?
- …sent an AUSA to get Judge Glasser to reverse an unsealing motion that had been approved in 2011;
- …signed off on numerous other sealing deals like Sater’s while she was in office;
- …appointed both Caldwell and Weissmann to senior positions at the DOJ during her tenure.
- …and has continued to argue that Felix Sater has made a profound contribution to U.S. national security, without providing any evidence.
Overall, therefore, if FBI Director Wray is really going to do his job, he may well have to take a closer look at these particular relationships. Is he really prepared to do that?
The third distinctive pattern in Wray’s career is relatively simple to explain. As noted, in 2005 he returned to King & Spalding and chaired its “Special Matters/White Collar Defense and Government Investigations Practice Group.”
At last count, this group now consists of 143 professionals, including “over 40 former federal prosecutors.” They are all focused on the worthy cause of defending white-collar criminals, many of whom turn out to be very large, influential banks and corporations.
One good case study can do most of the talking on this third. I first encountered Wray in May 2014, when he adroitly negotiated a plea bargain with the U.S. DOJ’s Eric Holder and Lanny Breuer on behalf of one of his best clients, Credit Suisse AG.
Indeed, it turned out that Wray has been advising this serial offender since at least 2009, when, under his guidance, Credit Suisse entered into an earlier “Plea Agreement“ and “Deferred Prosecution Agreement” and paid a $536 million fine with respect to a serious case involving systematic violations of U.S. trade sanctions against countries like the Sudan and Burma.24 At the time, Attorney General Holder had commented rather harshly: “In both its scope and its complexity, the criminal conduct perpetrated by Credit Suisse in this case is simply astounding.”
Indeed, it was. Accordingly, in exchange for the DPA, Credit Suisse had solemnly sworn to “demonstrate its future good conduct and full compliance with . . . international anti-money laundering . . . best practices.” This 2009 DPA was signed by Wray and his partner Andrew Hruska.
This time around, in May 2014, the same two King & Spalding partners were back at DOJ to sign a deal in which Credit Suisse pled guilty to a felony for conspiring to facilitate massive amounts of tax dodging by at least 22,000 wealthy American taxpayers, all of whom were the bank’s private banking clients. The price was a bit steeper: $2.7 billion in fines and restitution, payable to the U.S. DOJ, the IRS and the SEC.
This may sound like a much stiffer penalty than the 2009 one. Actually, though, it was still light given the sheer scale and duration of the bank’s transgressions. No senior managers did any jail time or faced any other penalties. The bank retained all its U.S. operating licenses. And, especially ironic in this case, most of this sum was tax-deductible by the bank’s Swiss parent. In other words, having bilked the U.S. Treasury, Credit Suisse (which is probably not even Swiss owned) was now laying off at least a third of the penalty on Swiss taxpayers.
After all, this was no fly-by-night pirate bank. This was Switzerland’s second largest bank, one of its oldest, with 45,000 employees in 50 countries, 9,000 in the United States, and over $1 trillion of assets under management. At the time, this penalty amounted to less than a quarter of the bank’s annual earnings.
Nor was the pirate banking conspiracy that it pleaded guilty to a mere rogue operation by a few bad apples. What we had here was a serial criminal enterprise that had been operated on a transnational and industrial scale for decades. According to the “statement of facts” that Wray signed, Credit Suisse admitted that “for decades” at least 685 of its private bankers, plus a few senior managers, presumably, had operated a huge, grossly illegal tax-dodging business in total secrecy. They had violated dozens of U.S. tax laws, anti-money laundering laws, broker-dealer laws, financial reporting laws, and securities laws “willfully and knowingly, with specific intent.” As the bank admitted, without this kind of tax dodging, wealthy Americans would have never have any reason to become Swiss bank clients, because Swiss banks are notoriously high-cost and low-return. In other words, tax dodging was not peripheral to Credit Suisse’s private banking business model. It was Credit Suisse’s business model.
From the bank’s standpoint, the good news about all this was that for decades the resulting “pirate banking” business had been wildly profitable. The 22,000 wealthy American clients (at least) concealed $12 billion (at least) of their wealth offshore and helped them dodge taxes on $20 billion (at least) of unreported income. And that’s Credit Suisse talking. The real numbers are anyone’s guess.
To pull this off, Wray’s client essentially had to become a global money launderer. It had to send its private bankers under cover to meet ultra-rich Americans several times a year in their home country. It had to arrange for them to visit secret “no-name” offices in Zurich’s airport. It had to offer many services that it is illegal for Credit Suisse to offer in the United States. It had to encourage these same clients to lie repeatedly under oath to their own governments. It had to carefully structure money transfers and pre-paid credit cards in order to dodge money laundering controls, just to provide their give clients with round-the clock access to their loot from all over the world. It also had to lie repeatedly itself to the Federal Reserve, the U.S. Treasury, the IRS, and all other regulators about all its activities, day in, day out.
Now of course it simply defies belief that such a large-scale effort was not approved and regularly reviewed by top management, including Credit Suisse’s in-house lawyers. However, one of the key things about the lengthy “Statement of Fact” that Wray signed on behalf of his “Swiss” client in May 2014 (actually, Qatari- and Saudi-owned, so far as anyone knows25) is that it did not disclose precisely who really did know about it, or who was responsible for running this giant U.S. “pirate banking” operation.
But, as the saying goes, a good Swiss cobbler never makes just one shoe. It was clear to everyone except perhaps Wray—who could not, of course, as a Member of the Bar, ever become involved in knowingly facilitating such an ongoing criminal enterprise—that something institutional was going on at Credit Suisse, because these were hardly the only crimes in which it has been involved.
Indeed, similar tax dodging cases had also recently been commenced against Credit Suisse by two German states, Brazil, and India. These also resulted in large fines. Indeed, since 1998, Credit Suisse AG has received fines and penalties of at least $10 million for at least a dozen other criminal offenses. All told, by May 2014, Wray’s best client had settled cases involving at least 35 other corporate financial offenses around the globe since 1998, and had paid fines and settlements totaling $6.8 billion.
It often takes years to prosecute such cases, because the big banks have the bling not only to hire huge, tax-deductible legal defense teams led by folks like Chris Wray, but also—in Credit Suisse’s case—high-powered lobbyists like Obama Presidential Assistant Broderick Johnson,26 John Podesta’s brother,27 and even Attorney General Eric Holder’s old law firm, Covington & Burling.28 This meant that the $6.8 billion figure was low. As of May 2014, the fines from the previous decade of rampant bankster criminality were just starting to role in. Indeed, they have continued to do so.29
In all likelihood, this will provide the new FBI Director exciting new opportunities to see whether, this time around, his best former client’s behavior has really changed. But there are disturbing signs that it has not. For example, it is reliably reported that, contrary to the terms of the plea bargain signed by Wray, Credit Suisse has been helping its really big U.S. clients to re-domicile their offshore wealth in the names of offshore companies and trusts that, technically speaking, belong to “independent” trustees who reside in less transparent havens like Singapore and Dubai. Director Wray may be truly shocked to learn about all this new misbehavior. Indeed, a good Swiss cobbler never makes just one shoe.
From another angle, this case study is unfair to Credit Suisse. After all, when we tally up all the financial chicanery been committed by the world’s top 22 banks from 1998 through 2014, we find that they committed an average of thirty serious offenses each during this period, for a grand total of 655. Credit Suisse’s 35 offenses are only slightly higher than the average, and well below the fifty recorded by its larger Swiss brother, UBS.
All told, these 22 banks paid out a grand total of $246.1 billion in fines and settlements because of this misbehavior during this period, $50 billion since then. All these fines have helped to enrich the white-collar defense bar and fill DOJ’s budgetary coffers, but there is no evidence that they have had any impact on the marginal propensity of such huge large financial institutions to engage in financial crimes. Banks have simply become too big, too systemically important, and too politically influential to jail. (See chart 2.)
Credit Suisse is hardly the only major bank that Wray and his team have represented. We’ll let Wray’s own web site do the talking. During the 2005-17 period, he and the “Special Matters—White Collar Defense and Government Investigations Practice Group” have also represented: Bank of America, Deutsche Bank, HSBC (most recently, in Saudi Arabia), Wells Fargo, and JPMorgan. Like Credit Suisse, all of these banks figure prominently on the list of DOJ and other prosecutions summarized in Chart 2. Indeed, their crimes include many of those that were overlooked by the DOJ back in the early 2000s, during the Enron case furor.
Furthermore, if major banksters are missing from this King & Spalding client list, they can easily all be found on the client lists of the other leading law firms where Wray’s former DOJ cronies now work: Covington & Burling, WilmerHale, Latham & Watkins, Cahill Gordon, Dorsey & Whitney, and Morgan Lewis.
At age fifty, Wray would become the third-youngest FBI Director in history. But the 17 years that he has already devoted to defending white-collar crime is already more than 70 percent of all the years that all previous FBI Directors have devoted to similar work.30 All told, this white-collar defense work has consumed 68 percent of Wray’s years since law school, compared to the median share among previous directors of zero percent. On the other hand, public service at the Justice Department or the FBI has accounted for 28 percent of Wray’s post-law school years, compared with 62 percent for all previous FBI Directors.
As we’ve learned the hard way for decades, from J. Edgar Hoover right on down to Robert Mueller and James Comey, the position of FBI Director is one of the most powerful and sensitive positions in the Federal government. Is someone with Chris Wray’s background and experience really the best person for that job? Alas, the Senate didn’t really bother to ask.
1Among the most problematic would be any involvement in the design of CIA and Defense Department rules for interrogating so-called “non-combatants” or NSA meta-snooping programs. His immediate boss at DOJ, Deputy AG Larry D. Thompson, was involved in signing a rendition order for a Canadian citizen of Syrian extraction who, although entirely innocent, ended up spending a year being tortured in a Syrian prison. There is also the matter of Wray’s “less-than-truthful” answers—according to Vermont Senator Patrick Leahy—to the Senate Judiciary’s questions back in 2004, when asked about whether he’d been informed about a CIA detainee homicide in Iraq. The ACLU has demanded that Wray be questioned about these national security-related controversies. For the ACLU’s concerns about Wray’s knowledge of interrogation programs, see here.
4For USAToday’s concerns about King & Spalding’s representation of Gazprom and Rosneft, see here.
5Author’s analysis, 46 Department of Justice press releases mentioning Christopher A. Wray, Assistant Attorney General—Criminal Divison. All of these releases were from June 2003 to February 2005, after he became acting AG. Of these, thirty pertained to “fraud” cases, and 26 of these were corporate fraud, including 16 for Enron, four for Healthsouth, one for AIG, one for Computer Associates, and a smattering of other individual corporate fraud cases. The next-in-line offense category that Wray’s case press releases disclosed were corruption and bribery (5), counterterrorism (4), and evicting former Nazis (4). See here, 2001-2005.
6The other key corporate fraud cases pursued in 2003-5 were Healthsouth, AIG, and Computer Associates.
7There was one investigation of the giant insurance company AIG in 2004 for abetting corporate fraud in November 2004, but this was settled by Wray. See here.
8There is no careful study of the net social costs ultimately incurred by investors, creditors, employees, competitors, and the US Treasury from non-financial accounting frauds of the early 2000s like those at Enron, Worldcom, and Healthsouth. Many analysts just report “gross” losses to creditors and investors, much of which may be offset by the gains realized by investors and creditors of the competitors of these firms. My rough $50-$100 billion estimate for maximum losses is based on https://en.wikipedia.org/wiki/Enron_scandal; https://en.wikipedia.org/wiki/MCI_Inc.; and http://www.accounting-degree.org/scandals/. For one more careful analysis that yields a $49 billion net social loss estimate for Worldcom alone, see here.
9See the summary of more than 655 serious offenses across 14 categories of financial transgressions that were committed by world’s top 22 banks from 1998 to 2014, in James S. Henry, “Let’s Tax Anonymous Wealth!” in Thomas Pogge and Krishen Mehta, Ed., Global Tax Fairness. (Oxford U. Press, 2016), pp 31-95 and especialily pp . 57-64.
11Source: Source: Attorney case data from the EDNY’s on line “Pacer” case database, available here, accessed June 2017. This case data is highly imperfect, and should be taken as a rough index of activity over time rather than an accurate absolute count. For example, cases with one defendant, which accounted for 58 percent of percent of cases in 1999, are double counted in both the CR and MJ series. But there is no reason to believe that this proportion has grown over time. Author’s analysis. Note that these cases per year include just “CR” criminal prosecutions involved an Article III judge, while “MJ” cases, handled by EDNY magistrate judges, generally involve lesser offenses.
12Loretta Lynch has a 1980 BA from Harvard College in “Literature” and a 1984 law degree from Harvard Law School, seven years ahead of Obama. From 1984 to 1990 she joined the white-collar defense team at the New York law firm of Cahill Gordon & Reindel LLC, a firm best known for anti-trust defense, Floyd Abram’s pioneering First Amendment work, and for defending HSBC against a litany of money laundering charges. In 1990 she became an AUSA at the EDNY’S Brooklyn “Violent Crimes” unit, in charge of its “intake unit” and its Central Islip office from 1994 to 1998. In March 1998 US Attorney Zachery Carter named her to be Chief Assistant US Attorney, his deputy. During her tenure at the EDNY from 1990 to 2001 and from 2010 to 2015 she appeared on the dockets in 38 criminal cases involving 87 separate defendants. The top 4 accounted for 50 defendants – a reflection of the special role of “organized crime” in her EDNY cases. Source: Attorney case data from the EDNY’s on line “Pacer” case database, available here, accessed June 2017; author’s analysis. Note that these cases per year include just “CR” criminal prosecutions, where an Article III judge was involved. In addition, as shown in Chart 1, there were also “MJ” cases that are handled by EDNY magistrate judges. These generally involve lesser offenses and fewer defendants per case. As shown in Chart 1, they also escalated sharply in the 1990s. In July 1999 Bill Clinton nominated her to succeed Carter as US Attorney. She remained there from 1999-December 2001, after President Bush was elected, and then moved to Hogan & Hartson, another leading New York law firm from 2002 to 2009. After President Obama was elected in November 2008, she returned to the EDNY as US Attorney from 2010 to 2015. In November 2014 President Obama nominated her to succeed Eric Holder as US Attorney General, and she occupied that role from February 2015 to January 2017, when her deputy Sally Yates succeeded her for two weeks.
13Alan Vinegrad has a 1980 BA from Penn/Wharton and a 1984 NYU law degree. Joining the EDNY as an AUSA in 1988, over the next 12 years he prosecuted 84 defendants in 48 cases, with the top 4 cases accounting for 52 percent of his defendants. In 1998-2001, he headed the EDNY’s Criminal Division, reporting to Carter and Lynch, and then became her deputy in 2001. When she departed in December 2001, he became interim US Attorney General for a year. At that point, after a controversy over his role in the Louima police brutality prosecution, he left to join Eric Holder and Lanny Breuer at Covington & Burling, on its white collar defense team. He has remained there ever since. His private clients include Deutsche Bank, Chevron, the Swiss insurance company General Re, and Suffolk County DA Thomas Spota, recently reportedly under investigation by the FBI for corruption.
14The Whitey Bulger case is a notorious example of a Boston organized crime figure who managed to exploit his relationship as a confidential informant for the FBI to secure a kind of immunity for a continuing life of crime. See for example, here.
15See (1) https://zembla.vara.nl/dossier/uitzending/the-dubious-friends-of-donald-trump-the-russians; (2) https://www.zdf.de/dokumentation/zdfzoom/zdfzoom-gefaehrliche-verbindungen-100.html; (3) https://zembla.vara.nl/dossier/uitzending/the-dubious-friends-of-donald-trump-part-two-king-of-diamonds; (4) http://www.bbc.co.uk/programmes/b08bls3s.
16See USA v. Coppa et al (EDNY, March 2000), 1:00-cr-00196-ILG.
17See “USA v. John Doe“ (aka USA v. Sater), 98 CR 01101, filed 12/3/1998.
18The identifies of the three cooperators were inadvertently revealed by US Attorney Lynch in an obscure March 2000 press release, but this passed without notice. In 2004 Salvatore Lauria published a novel about the episode with Felix Sater’s identity concealed by an anagram, bu this also quickly sank from view. Technically, Sater’s October 23 2009 sentencing was also in “open” court, but no advance notice of it was provided to the press, it was very secretive, and it received zero press coverage.
19The petition for certiorari was filed by New York attorney Richard Lerner on behalf of Frederick Oberlander, another New York attorney who had represented some of Sater’s disgruntled former employees since 2008.
20See USA v. DOE, Second Circuit Court of Appeals Docket #10-2095 (2011-2017); 17-mc-1302 (2017, Judge Pamela K. Chen). The original intervenor in the case is Forbes’ Richard Behar, represented by Yale’s First Amendment law clinic. The amici now involved in the case, represented by New York attorney Henry R. Kaufmann, include DCReport.Org, BBC, Germany’s ZDF, Michael Moore, the Netherlands’ Zembla, Russ Baker and WhatWhereWhy.Org, Joe Conason and The National Memo, Dan Wise and WiseLaw(NY), and this author.
21The “white elephants” included the 46-story Trump SoHo condo-hotel on Spring Street in New York City. In 2005 Trump became an 18 percent minority equity partner with Bayrock in the Trump SoHo, while also agreeing to license his brand and manage the building. The principle developer was a partnership formed by Bayrock and FL Group, a curious Icelandic investment company. Completed in 2010, the SoHo quickly became the subject of prolonged civil litigation by disgruntled condo buyers. Eventually the building was foreclosed by creditors and resold in 2014 after more than $3 million of customer down payments had to be refunded. But not before it had provided an outlet for Russian/ FSU flight capital and the proceeds of kleptocracy.
Similarly, Bayrock’s Trump International Hotel & Tower in Fort Lauderdale, which also provided an outlet for Russian/FSU funny money, was foreclosed and resold in 2012. Several other Trump-branded properties in the US, plus many other “project concepts” also never happened.
22We could extend this to include former EDNY US Attorneys Carter and Vinegrad, but the issues posed by Caldwell, Weissmann, and Lynch are the most important.
23An “information” may be used by prosecutors as an alternative to an indictment when no grand jury is involved.
24See the discussion of the 2009 Deferred Prosecution Agreement that Wray signed on behalf of Credit Suisse below.
25The most recent share ownership for Credit Suisse shows that Qatar’s Investment Fund and a Saudi construction magnate own at least 25 percent of the bank between them. Five U.S. hedge funds own another 20 percent. A full third of the bank’s shares are owned by anonymous owners of bearer shares, who might well all be Swiss dentists—but I doubt it.
26Obama’s White House advisor Broderick Johnson was retained by Credit Suisse. See here.
27Podesta Group has been one of Credit Suisse’s most dependable lobbyists. See here.
28See here for Credit Suisse’s spending on Covington and Burling in 2014.
29For example, in October 2014, the EU Competition Commission fined Credit Suisse AG €9.2 mm for helping to rig the Swiss franc LIBOR rate. (Source.) In October 2014, Credit Suisse was also one of six banks named in a civil “anti- terrorism finance” law suit that was filed brought by 200 US veterans and their families in New York. (Source.) In January 2016 Credit Suisse and Barclays paid $154 million in fines for “dark trading,” the largest US fines for this practice in history (Source). In October 2016 Credit Suisse was fined $90 million by the SEC for falsifying performance data (Source). In December 2016 Credit Suisse was hit with a $5.3 billion DOJ fine for mortgage back securites fraud (Source), plus a $16.5 million fine from FINRA for money laundering. Source.
30Wray’s only real competitor is Robert Mueller, who has devoted about 25 percent of his post-law school years to white collar defense work.
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