Brad Miller and Eric Schneiderman. AP Images
A central focus for progressives that want to see the Residential Mortgage Backed Securities working group get tough on the financial industry has been the role of executive director. Currently, the group has five co-chairs from four different federal and state agencies, and the staffers are spread through ten different US Attorney offices and several more state attorney general offices—that is, there are a lot of chefs in the kitchen.
A strong executive director could focus the work of the task force and help smooth over any potential disagreements between the varying departments and chairmen. Several progressive activists pushed early on for Representative Brad Miller, a Democrat from North Carolina, to get the job. He has a strong record of getting tough on Wall Street from his seat on the House Financial Services Committee, and is also a Columbia Law School graduate with twenty years of private litigation experience before coming to Congress.
But David Dayen reported earlier this month that Miller would not get the job. In a phone interview last night, Miller told me about his experience with the working group and the reasons he believed he was not selected—reasons that will likely give advocates for getting tough on Wall Street some serious heartburn.
Miller said he received a phone call from the office of New York Attorney General Eric Schneiderman only two days after this year’s State of the Union address, in which President Obama announced the formation of the working group and named Schneiderman a co-chair. “It was out of the blue for me. I was not expecting a call like that,” Miller said.
The conversations with Schneiderman’s office continued almost daily for about a month, Miller said, and he got the strong impression he was a top candidate for the job. “It would be an exaggeration to say I was offered the job, but it certainly did appear that I was Schneiderman’s candidate for the job,” Miller said. “They were looking for someone who knew the issue, who would be credible to those who worked on the issue, the housing advocates, and knew the politics of the issue so that when others were trying to hobble the work of the task force, they would have an executive director who would know the politics of Washington and the politics of this issue to protect the work of the task force.”
Suddenly, however, the conversations ended, and Miller said he hasn’t spoken with anyone on the task force in two months. But he did get an answer as to why he wasn’t selected—because the working group was afraid of Wall Street.
“[One reason] was that Republicans were watching the work of the task force very closely and very critically, and that they would oppose my playing that role. And presumably they would be speaking for the industry,” Miller said.
“I knew, from the moment I got that call, that the industry would not be happy about that choice,” Miller added. “But if [the working group] was serious about criminal prosecutions or even civil enforcements—not many people in society get to pick the prosecutor if they are potential defendants.”
Miller also said he was told the working group wanted an executive director with prosecutorial experience, which Miller does not have. But he found this justification confusing for several reasons. The first is that he said he was told early on that the executive director would have two deputies, one for civil litigation and one for criminal litigation, to “fill in the gaps of legal experience.”
The second reason that Miller finds it odd the task force suddenly wanted a director with prosecutorial experience is that he was initially told by Schneiderman’s office that the task force did not expect to do any criminal prosecutions.
“People being indicted and looking at the possibility of prison sentences—they were saying they did not expect any of that,” Miller said. “They expect civil litigation or civil enforcement but not criminal prosecution.”
Miller’s understanding is not that the working group is philosophically opposed to criminal prosecutions, but given the rapidly expiring statutes of limitations on fraud claims (they last for five years, and the mortgage-backed securities market unraveled in 2007), action would likely have to come under FIRREA [the Financial Institutions Reform, Recovery and Enforcement Act]. That would make criminal prosecutions almost impossible.
Schneiderman’s office strongly contested Miller’s assertion the working group was not planning on criminal prosecutions. “We are fully committed to following the facts wherever they lead, including criminal prosecutions if the facts warrant them,” said spokesman Danny Kanner. “Any suggestion to the contrary is simply misinformed.”
He also praised Miller, but declined to comment on the earlier communications with him about an executive director role. “Congressman Miller has been a leading advocate on these issues, and our hope is that he will continue to play a major role in all efforts in support of bringing real accountability for the conduct that led to the foreclosure crisis and more significant relief for homeowners,” Kanner said.
The Department of Justice, reached for comment, also said criminal prosecutions are still on the table. “Members of the Residential Mortgage-Backed Securities Working Group are wasting no time in aggressively pursuing any and all leads and working is being done right now by state and federal partners on active investigations,” said Adora Andy, a Justice spokeswoman. “This effort is about justice for the American people: rooting out fraud and holding accountable any institutions or individuals that violated the law. Working Group members are aggressively pursuing any and all leads—civil or criminal.”
A source close to the working group told me that Miller wasn’t selected because he not only didn’t have criminal prosecutorial experience, but didn’t have white-collar civil litigation experience—and that to avoid the appearance of political motivation, the working group wants a real prosecutor to fill the executive director role. The source added that a staffing announcement is forthcoming.
Overall, Miller stressed that while he has had no contact with the task force in two months and is not familiar with what’s going on the inside, he’s not particularly heartened by what he’s read in the press—particularly reports about the task force having only about fifty staffers so far.
“I think it is a massive undertaking. If the United States government is going to bring criminal charges—and it doesn’t apper that the government is going to, but if it did—based upon pervasive fraud in the creation of mortgage-backed securities, that will be a massive undertaking that will require many, many investigators, and many, many lawyers,” Miller said.
“If there is civil litigation that has as its aim recovering not $5 billion up front, and $20 billion in principal reduction that in most cases would have happened anyway, but in fact brings in hundreds of billion of dollars, almost equal to the market capitalization of the biggest banks, that’s also a massive undertaking that will require an enormous commitment of lawyers, of resources, of investigators, and it does not appear at this point that that is happening,” he said.
Miller added, however, that he remained hopeful the task force could get real results, even just through FIRREA prosecutions, which do allow for disgorgement of profits resulting from fraud and restitution to victims—in this case, homeowners. “Although there’s not a long history of FIRREA actions, there may still be opportunities for significant litigation that would do justice,” Miller said, adding that the vicious cycle of foreclosures, declining property values, and underwater homeowners must be addressed.
“The relief that would be available through the work of this task force could break that cycle,” Miller said. “It would satisfy Americans’ sense of justice, which has been offended. My sense of justice has been offended by the lack of serious investigation of what appears to be fraudulent conduct, and probably criminally fraudulent conduct.”