Week in Review: SEC, "Cram-Down" and Torture Prosecutions

Tuesday 24 March 2009

by: Matt Renner, t r u t h o u t | Report

(Photo-illustration: Everett Bogue / t r u t h o u t)

Washington, DC - As the fallout over the millions of dollars going to American International Group employees who helped sink the company boiled over last week, a couple of other issues continued to develop.

Here is a quick look back at some of the other issues in the news last week.

Questions Remain at Securities and Exchange Commission Over "Hotline"

The Securities and Exchange Commission (SEC) has not yet refuted allegations made by Congressman Stephen Lynch (D-Massachusetts) that their "hotline" for Wall Street firms to call in and complain about examiners sent a signal to SEC employees to go easy on the businesses that they were supposed to oversee. (See the Truthout report here.)

A 2007 Government Accountability Office (GAO) report looked at the performance of the SEC Office of Compliance Inspections and Examinations. The report criticized the design of the hotline, but failed to raise the issue of possible abuse.

Orice Williams, the GAO contact person on the report, confirmed that the GAO did not look at the possibility that the hotline could be used by Wall Street insiders to go over the heads of the on-the-ground examiners to pressure top SEC officials on inspections or investigations.

William Black, a financial regulation expert and law professor famous for his role in the re-regulation efforts after the savings and loan scandal, called the existence of the hotline "very disturbing."

"When you let the regulatees jump over the investigators - as every management theorist knows - you destroy a place," Black said, adding, "It's disturbing that the GAO was so clueless that it missed the problem."

The SEC declined to comment when asked if the hotline has ever been used by the industry to push off examiners in any specific instances.

Kucinich Investigating Stanford Financial, Federal Agency X

An investigation by SEC into the Stanford Financial Group's alleged $8 billion Ponzi scheme was halted by an unknown federal agency according to reporting by The New York Times. Congressman Dennis Kucinich (D-Ohio), the chairman of the House domestic policy subcommittee, wrote to new SEC director Mary Schapiro to request documents in an attempt to figure out who called off the investigation.

In the very last paragraph of the February 19 report, the Times quotes Stephen J. Korotash, an associate regional director of enforcement at the SEC's Fort Worth office, as saying the SEC "stood down" on its initial investigation of Stanford which had begun in October 2006, after a routine examination. According to the Times, Korotash said the SEC backed off "at the request of another federal agency," which Korotash declined to identify.

In his letter to Schapiro, Kucinich said the Times report raised "serious questions about the Commission's dedication to its mission of protecting investors."

The letter went on to request all documents related to Stanford, Stanford Financial Group and all subsidiaries, as well as any documents received by or sent by SEC to any other federal agency about Stanford.

The letter set a deadline of 5 PM, Monday, March 9 for SEC to provide the documents. Kucinich's spokesman Nathan White said that members of Kucinich's staff have been working with the SEC, but declined to comment on the progress of the document request.

Cram-Down Legislation Delayed

So-called "cram-down" legislation that would allow bankruptcy judges to change the terms of a mortgage during bankruptcy stalled in the Senate. The House passed a cram-down bill after business-oriented Democrats watered down some of the provisions. Senate majority leader Harry Reid previously indicated that the Senate would be able to pass a similar "cram-down" bill, but the process has been halted because of opposition from conservative Democrats and moderate Republicans.

Proponents of the cram-down bill say it is the perfect stick to encourage lenders to negotiate with homeowners before they go broke.

Opponents say that the legislation will lead to increased interest rates and even tighter credit markets.

Congressional Quarterly reports indicate that Sens. Evan Bayh (D-Indiana) and Arlen Specter (R-Pennsylvania) are leading an effort to change the bill to advantage lenders. It is unclear exactly what changes they are seeking, but they have successfully delayed consideration of the bill until after the Congressional spring break (April 4 to19).

Torture Investigations Gain Momentum

Mark Danner's report, "US Torture: Voices From the Black Sites," in the New York Review of Books last Monday changed the dialog in Washington, DC. Danner got his hands on a closely held International Committee of the Red Cross (ICRC) report which detailed the rendition and torture of 14 prisoners held in the so-called "War on Terror." Their treatment included suffocation by water (aka waterboarding), beating, exposure to cold temperature/water, confinement in a box, prolonged nudity, continuous solitary confinement, deprivation/restricted provision of solid food, and more. According to Danner, the detainees, who were imprisoned and interviewed separately, told the investigators almost identical stories, corroborating even small details.

The conclusion of the report is striking:

The allegations of ill-treatment of the detainees indicate that, in many cases, the ill-treatment to which they were subjected while held in the CIA program, either singly or in combination, constituted torture. In addition, many other elements of the ill-treatment, either singly or in combination, constituted cruel, inhuman or degrading treatment.

This report came on the heels of a hearing held by the Senate Judiciary Committee, which was held to take testimony from experts on the possibility of setting up some kind of commission to investigate the detention and interrogation policies of the Bush administration. Critics, including the American Civil Liberties Union (ACLU) and the Center for Constitutional Rights, have called for Attorney General Eric Holder to appoint an independent prosecutor to investigate and prosecute crimes instead of spending time on commissions and further investigations.

The ACLU dug out a document using the Freedom of information Act, which revealed that the CIA has about 3,000 documents relating to their destruction of 92 videotapes, which showed "harsh interrogations," which suggest a lengthy dialog between interrogators and Bush administration officials. (See Jason Leopold's report on the issue here.)

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