ERIC HOLDER NEWS CONFERENCE
ATTORNEY GENERAL ERIC HOLDER NEWS CONFERENCE
Attorney General Eric Holder press conference on financial fraud
DC Slug: 1015 HOLDER RS35 75
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Disc # 880
NYRS: WASH2 (4522)
10:23:42 ERIC HOLDER: Good morning, and for the record, I am Eric Holder. Well, thank you all for -- for being here.
I'm joined today by my colleagues from the Justice Department; Associate Attorney General Stuart Delery, Acting U.S. Attorney Stephanie Yonekura of the Central District of California.
I also want to thank our distinguished state partners including, Attorneys General George Jepsen of Connecticut, Jim Hood of Mississippi, Greg Zoeller of Indiana, Kathleen Kane of Pennsylvania, and District of Columbia, Karl Racine.
10:24:18 We are here today to announce another major step forward in the Justice Department's ongoing effort to safeguard the American people from financial fraud and misconduct, to protect the integrity of our financial system, and to hold accountable any individual or institution that violates the law and abuses the public trust.
10:24:39 The Department of Justice has reached an agreement totaling nearly $1.4 billion with the credit rating agency Standard and Poor's Financial Services, or S&P, along with its parent corporation McGraw Hill Financial.
This agreement will resolve the Justice Department's 2013 law suit against S&P in addition to suits gratifying 19 states as well the District of Columbia.
Our lawsuit alleged that S&P engaged in a scheme to defraud investors in structured financial products known as Residential Mortgage-Back Securities, or RMBS, and Collaterized Debt Obligations or CDOs.
On more than one occasion, the company's leadership ignored senior analyst who warned that the company had given top ratings to financial products that were failing to perform as advertised.
As S&P admits under the settlement, company executives? complained that the company declined to downgrade underperforming assets because it was worried that doing so would hurt the company's business.
Now, while this strategy may have helped S&P avoid disappointing its clients, it did major harm, major harm, to the larger economy, contributing to the worst financial crisis since the great depression.
Under the terms of the settlement, S&P will pay a total of $1.375 billion, which will be divided between the federal government, 19 states, as well as the District of Columbia.
10:26:07 S&P has also agreed to comply with the Consumer Protection Statute of every state that is involved, as well as Washington D.C., and to respond, in good faith, to request for information or material concerning any possible violation of those laws.
Finally, the company has agreed to a detailed statement the facts acknowledging the improper conduct that led to this settlement, contrasting what S&P said it was doing with what the company actually did.
Now this conduct was uncovered by a thorough Justice Department investigation that began November of 2009 and precipitated a law suit the department filed nearly 2 years ago. I want to make special mention of Assistance US Attorney George Cardona who I think has done a superb job in this regard.
Our suit alleged that from at least 2004 until 2007, S&P engaged in a scheme to defraud investors by knowingly issue ?- issuing completed credit ratings for CDOs that misrepresented their credit worthiness and understated their risks ultimately causing investors, including many federal insured financial institutions, to lose billions, billions, of dollars.
10:27:22 At the time, S&P claimed that its rating were independent, objective, and non-influenced by the company's relationship with the issuers who hired S&P to rate the securities in question. Well, in reality, the ratings were affected by significant conflicts of interest and S&P was driven by its desire for increased profits in market share to favor the issue -- favor the interest of issuers over investors.
The settlement we have reached today not only makes it clear that this kind of conduct will never be tolerated by the Justice Department. It also underscores our strong and ongoing commitment to pursue any company or any entity that violated the law and contributed to the financial crisis of 2008.
10:28:10 We have been aggressive in working to address every part of the financial system that contributed to the crisis from those who originated loans to those who serviced them, securitized them, and rated them inappropriately.
We've never hesitated to investigate and prosecute any individual, institution, or organization that attempted to exploit our markets and take advantage of the American people.
And as I've made clear from the moment I took office as Attorney General 6 years ago today, we will never rest in our determination to use every legal tool at our disposal to achieve justice for all Americans.
Now, this agreement also reaffirms that this justice department will never shrink from litigation no matter how difficult or complex and we have proven time and again, as we made clear when we initiated legal action against S&P 2 years ago, we will not be deterred and we will not be outlasted.
No lawful -- unlawful conduct is too complicated to pursue in the financial institution, at home, or abroad is too powerful to be held accountable for wrong doing.
I'd like to thank everyone whose tireless efforts over the past 6 years has made this resolution possible, including our investigators, prosecutors, support staff, U.S. Attorneys, state Attorneys General, and members of the President's Financial Fraud Enforcement Task Force.
It has been my honor to chair this task force since its launch in 2009, and I'm extremely proud, not only of the outstanding work it made possible in this case, but of the really remarkable track record that I think we have established in our ongoing efforts to bring perpetrators of financial fraud to justice.
10:29:52 So at this time I'd like to turn things over to the Associate Attorney General Stuart Delery who will provide additional details.
10:30:02 STUART DELERY: Thank you, Mr. Attorney General.
During the lead up to the financial crisis S&P served as a gatekeeper in the world of sophisticated finance. S&P repeatedly promised that its ratings were objective, independent, and not influenced by S&Ps relationships with the investment banks that issued the securities it was rating.
When the department brought this lawsuit, we alleged to the contrary that S&P limited, adjusted, and delayed updates to the ratings criteria and analytical models it used in order to preserve market share and profits.
In addition, we contended that S&P issued inflated ratings on billions of dollars' worth of securities despite knowing that the quality of the underlying assets was impaired and that the ratings would not hold.
Put simply, the department brought this case because S&P committed fraud and now, as part of today's settlement, S&P has agreed to a statement of facts that makes clear the (inaudible) of the departments law suit.
Among other things, S&P has admitted that it promised investors that the fees it collected in connection with its ratings would not be a factor in giving those ratings, that nonetheless, as it was developing its ratings models its executives set explicit goals for maintaining and increasing S&P?s market share and interfered with the rollout of an updated rating model so as to protect the company's business interest.
That many of the securities that S&P rated highly were based on packages of mortgages that relevant people within the company knew were likely to default and that as the financial crisis gave (inaudible) in 2007, S&P continued to issue and confirm positive ratings despite receiving streams of information that made abundantly clear that those ratings were not justified.
Thus, just as the department alleged in filing its complaint in February of 2013, the admissions by S&P, after 2 years of litigation, now confirm that S&P misrepresented itself to the investors in the public putting profits ahead of unbiased ratings in a manner that fueled the over valuation of RNBS and contributed to the financial crisis.
I want to draw particular attention to a few features of the resolution we're announcing here today.
First, this resolution appropriately reflects the seriousness of S&Ps misconduct. S&P will pay by far the largest penalty ever recovered from a rating agency and the company will through the settlement pay substantially more than it earned from rating the securities at issue in our law suit. Defrauding the American people has consequences.
Second, as the Attorney General said, this resolution proves yet again that those who violate the law cannot escape responsibility through aggressive litigation tactics designed to weaken our resolves and diminish our resources. S&P propounded sweeping discovery requests and in response the department produced some 290 million documents, more than in any other case in the department's history.
During the investigation and litigation the parties took over 100 depositions and S&P also alleged that the department brought this case in retaliation for S&Ps decision to downgrade the government's credit rating that was simply wrong.
In response, the department answered the allegation and after an exhausted 2 year phishing expedition, S&P has withdrawn the allegation and acknowledged that nothing in the mountains of information that has received from the government supports S&Ps claim of an improper motive, just as, of course, the department has said from the beginning. And this retraction will be reflected by (inaudible) S&P in a court filing.
Third, the resolution also highlights the importance of a critical legal tool in our fight against financial fraud. The Financial Institutions Reformed Recovery and Enforcement Act of 1989, or FIRREA. An act with a wake of the savings and loan crisis, FIRREA allows the department to seek civil penalties for certain criminal violations effecting financial institutions including mail fraud, wire fraud, and bank fraud.
In this case, the department once again has demonstrated the FIRREA is a powerful weapon for combating financial fraud and a vital tool for holding accountable those who violate the law.
Finally, this settlement confirms the strength of the partnership between the states and The Department of Justice in fighting financial fraud.
I want to thank the committed people from the governments of the 19 states and the District of Columbia that joined us to hold S&P accountable for its actions. Your commitment to this effort from the very beginning was crucial in achieving the strong result that we're announcing today.
So throughout this investigation and litigation our team remains focused on holding accountable those who broke the law no matter what was thrown at them. Of course, perseverance in this -- in a case of this size requires personal sacrifices by many and I want to take this opportunity to recognize the department's many outstanding attorneys, investigators, staff, principally from the Civil Division and the Central District of California who built this case.
I also want to recognize the department's superb technology professionals who tackled the challenge of maintaining, organizing, and disclosing data on a scale never previously experienced by this department.
This case epitomizes what I see every day, which is the department's dedicated career professionals working tirelessly to protect the interest of the American people.
Although there are many people who deserve personal recognition, I want to specifically acknowledge the contributions of two exceptional attorneys. First, former Associate Attorney General Tony West, my predecessor, whose vision and passion played a crucial role in getting us here to this point and, second, is the Attorney General mentioned, Assistant U.S. Attorney George Cardona. George performs much of the heavy lifting to litigate this case and did so with unyielding professionalism, sound judgment, and considering it all, remarkable good humor. So thank you very much.
And now I'd like to introduce Connecticut Attorney General Jepsen.
10:36:37 GEORGE JEPSEN: Sorry (inaudible), I've been under the weather a little bit.
For the first time a Wall Street ratings firm has been held accountable for its role in the 2008 financial collapse and the message is clear, no business is too big to be pocketed or politically connected to escape responsibility for its misconduct.
We will leave no stone unturned in our efforts to protect the public from those who manipulate markets for their own financial advantage. The operative pronoun is we. Today's successful conclusion is made possible by the cooperation of team work of the Justice Department and a diverse 20 state coalition.
Once again, state Attorneys General have demonstrated that we are capable of working together on a fully bipartisan basis to tackle national issues abroad public interest.
I am especially proud of the outsized role that staff in the Connecticut office and the Attorney General played in bringing the settlement about. First, in developing the novel legal theory that frames the lawsuits filed by all 20 states plus Justice. Next, by working closely with Justice to build the evidentiary case against S&P and a constructed 20 state coalition and, finally, to serve as lead negotiators (inaudible).
At this time I would like to recognize the incredible efforts of several people, notably my predecessor Dick Blumenthal, U.S. Senator Richard Blumenthal for bringing this case originally to George O'Connell. Where's George? When I talk about the novel legal theory that made this all possible, he's the principal architect of it. Assistance Attorney General Matthew Budzik who led the case -- right over there -- for Connecticut, created and nurtured the 20 state coalition, work with Justice to provide evidence and help negotiate the final deal.
(Inaudible) partners in Justice who have been fantastic. Stuart Delery, George Cardona, you really have been wonderful to work with. And the other members of our 20 state coalition, without whom this not would have been possible. And, finally, recognition to Lucy Fedo and her colleagues such Adam Jerowski who represented standard (inaudible) they were tough but constructive and fair, so thank you very much.
10:38:54 JIM HOOD: Good morning. My name is Jim Hood. I'm Attorney General in Mississippi.
I understand there were some media statements that I was involved in some of these negotiations while hunting. Let me say I didn't skip the negations on a hunting trip. I actually, my flight in Memphis was cancelled so I was unable to be there but I sat with an ear bud in my ear for six hours.
A little the -- the -- the -- history of this litigation began in about 2010. Mississippi filed suits against several banks including the credit ratings agencies. Many of them were dismissed. They claimed they had a first amendment right.
Richard Blumenthal, who is Attorney General at the time, called me and encouraged me to look at the Consumer Protection angle of our litigation, that is was an unfair deceptive trade practice under our Consumer Protection acts.
We filed that litigation second -- following -- Connecticut having filed earlier and Mississippi filed, then Illinois.
A couple years passed, we were in desperate straits in litigation and thank goodness the ? the Department of Justice and 16 other Attorneys General joined us in this litigation.
It was a bipartisan effort in -- in -- in the litigation in handling this case but, you know, the federal government came in and handled the discovery of the documents, you know, and did a wonderful job of -- Stuart, my hats off to you for the patience that you showed with states in these negotiations and (inaudible). I've been an Attorney General for about 12 years, as Attorney General in Mississippi, and this is one of the best negotiations that I have seen between -- with the federal government working with the states.
There was a great effort and with all of our resources brought to bear against one of the greatest violators and causes of our great recession, you know, the credit rating agencies portrayed themselves as if they pure as June Smith.
You expected the banks to do some things slippery but, you know, the credit ratings agencies were supposed to be ones that we look to and so they -- they were reaping huge profits from approving these credit -- these CDOs and mortgage-back securities and, you know, we relied on that and so now it's good to see them held accountable.
I know that the people in my state simply wanted us to extract enough penalty from them so that they would deterred, and other credit rating agencies in the future, from doing this kind of conduct and causing this type of recession in the future.
I think we have done that at 1.375 billion, the states will share in half of that. And so, anyway, it's been a good negotiation and I think that we reached a fair result. I think the SCC now has regulations that will prevent this from occurring in the future. Thank you.
UNKNOWN: We'll be (inaudible) to take any of your questions.
QUESTION: I was wondering if you talk a bit about why it was so important that you secure this retraction of the allegation (inaudible) retaliation and it seems like (inaudible) negotiations. Why do that?
10:42:12 DELERY: Well, I think, what the statement of facts reflects is accountability by S&P for the conduct that led to the case.
This case was originally bought -- brought after a long and detailed investigation.
The department followed the facts and the law where it led and, in our view, it was important that the statement of facts -- which it does -- reflects the conduct for which we are holding S&P accountable and made clear that the allegations of a retaliation motive were simply unfounded based on all the information. And I think that the -- not only the statement of facts but the agreement by the company to make court filing withdrawing that defense is significant and reflects the fact that it had no merit in the first place.
10:43:08 HOLDER: Let me be clear about this, alright? This was important to me and this was important to this justice department and to all of the Attorneys General who worked on this case.
The notion that somehow or other this was a suit brought in retaliation for a credit downgrade, is utter nonsense. 290 million documents have been examined. We can look at 290 million more and you'll find absolutely no indication that that was the reason why this investigation was begun, why this settlement was reached. Utter nonsense, and that was important to me.
QUESTION: Mr. Holder, may I just follow up on that? One of the things that S&P said at the time was that the only action the government pursued was against it and not the other rating agencies. So the logical follow up question here is are you looking at the other rating agencies?
10:44:01 DELERY: We're not gonna comment now on what other investigations we may or may not have underway. I think what we can say is that financial fraud is a subject that has been and will continue to be a critical priority for the Department of Justice.
We will continue to pursue those that we find are responsible for the conduct that gave rise to the financial crisis which has taken years for the country to recover from and our work on that project is ongoing and remains a priority. We'll continue to work on it.
QUESTION: How much more time do you feel like you have now that we are 7 years out from (inaudible)?
DELERY: I think what this case reflects is that the cases taken time to build and they take time to litigate and we're prepared, you know, through whatever comes to put in the time and the resources necessary to hold people accountable for the conduct that we find, that gave rise to the financial crisis, we'll continue to do that. We are not tiring in that commitment.
10:45:03 JEPSEN: It's a matter of public record that Connecticut and Mississippi filed suits against (inaudible) filing a suit against Standard and Poor's that case has been state (sic) pending the outcome resolution the current case is (inaudible) in court.
QUESTION: (inaudible) does the money being provided to the states come with any strings attached or are there certain requirements as to how the 19 states plus the district is supposed to be using it?
JEPSEN: It's resolved on a state by state basis. Each state decides how the money will be used. In Connecticut all the money's going to our general fund.
QUESTION: As a follow up, how did you allocate the distribution among the states? What determined that?
10:45:46 JEPSEN: Well, these multi states which are growing in their frequency and complexity how money is gonna be divided up and where it's gonna go is always a question.
In this case, California had the unusual situation of having a separate claim and so California is receiving a large amount of money, $210 million, if I recall of the 675 or whatever each states are getting because a very large portion of that will go to Calpers and resolution -- customer solution of Calper's separate law suit.
The tradition -- the logging tradition of these multi states is that those on the executive committee will get a bumped up share and that's negotiated in and among the states. And so the five members of the executive committee -- negotiating committee -- which is Connecticut, Illinois, Mississippi, Delaware, and Tennessee, are getting slightly, somewhat more, than the states -- reflecting the non-involvement that we had in court. So the remaining 14 states will each get a -- the same number. I think it's around 22 million (inaudible) Connecticut bumped up.
QUESTION: Attorney General Holder, will you announce the conclusion, the civil rights investigation into Gary Wilson, Antone Zimmerman before you leave office?
10:47:24 HOLDER: Yes, I've indicated in the past that's certainly my hope. Contrary to reports, I think that I've seen in the press over the last couple of weeks, there's nothing on my desk yet with regard to either component that we are investigating with regard to the shooting itself or the larger investigation into the police department. My hope is that I'll get -- we'll get this done and I'll be able to make an announcement before I leave. That's my intention.
QUESTION: Attorney General, question (inaudible) relates to terrorism. You talked about -- (inaudible) of terrorist suspects you talked about re-entering programs here in the U.S. How is the Justice Department gonna deal with re-entry of terrorist suspects inside the U.S. and should the public be concerned about these suspects once they're released?
10:48:07 HOLDER: Well, you know, we try to make sure that the people who we are releasing are done so after careful examination by inter-agency process.
QUESTION: I'm sorry, sir. I'm not asking about -- (inaudible) suspects who (inaudible) inside U.S. served their time and then are released. How do you deal re-entry of them back into American society and should the people in the public here be concerned about that?
10:48:29 HOLDER: Well, I mean, we'll go through a variety of things so that we try to minimize the possibility if they're going to go back to the fight such as it was. You know, these people get fairly long sentences. So they'll have a pretty substantial amount of time to consider what it is they did that got them into prison. I don't know if you call it the typical sentence but a sentence that you see a pretty fair number of times for people who engage in material support, is about 15 years. That's a long time to sit around and think about whether or not what you did is consistent with who you now are and where you want to -- how you want to conduct your life once you leave. Because the reality is, if you get out of prison after 15 years and go back to doing the same thing that put you in jail for 15 years will put you back in jail for, you know, another substantial sentence.
QUESTION: General Holder, how much of the 1.4 billion settlement will be tax deductible to McGraw Hill at the federal level and state level?
10:49:31 DELERY: From the federal perspective, the entire amount coming to the federal government, which is $687.5 million, is a FIRREA penalty. All of it is a penalty. The IRS handles the tax treatment of that but it's all a penalty.
QUESTION: (Inaudible) Holder, what is the exam (sic) of the Department of Justice probe into the IRS -- IRS targeting group seeking tax exempt status? (Inaudible) has reportedly talked with the DOJ but not to congress. Should we expect some kind of final report from DOJ soon?
10:50:05 HOLDER: Well, I said -- as I've said up here, on any number occasions about any number of investigations, that's something that I think we're gonna get to at the end of -- relatively -- relatively soon. These are matters that have been under investigation for some time. I'm satisfied with the progress that the Criminal division has done, the Civil Rights Division as well, and I expect that we'll have some final recommendations coming up relatively soon.
QUESTION: Mr. Attorney General, in terms of -- reports came out that there were gonna be no charges against NewsCorp in the Hacking scandal inside the U.S. Just wondering how the Justice department came to that conclusion and if you're in support of it why you think it's the right decision?
10:50:47 HOLDER: That was something that was handled by our U.S. Attorney's office in New York and I can tell you that it was something taken extremely seriously. We looked at all of the evidence that was there and made a determination based on a very, very, thorough investigation that there was not an appropriate basis to bring charges. But I really want to make sure that everybody understands that that was something that was really investigated. I mean, really examined in a thorough way with the thought that if there was a basis, we would've -- we would've brought charges.
QUESTION: Can I just ask you another question about Boston -- the jury selection process is taking a long time. There have been, I guess, now three requests for a change of venue. Why does the Justice Department believe it's important to have that trial in Boston?
10:51:34 HOLDER: Well, I think it's important to simply hold the trial in a place where a fair jury can be impelled and we are of the view that that can be done in Boston. The process is ongoing. A number of jurors have already been qualified, I understand and that process will continue until the judge reaches a number that he has set. So that periphery challenges can be exercised in an impartial, fair, jury can be impelled. But it's something that we're confident can be done -- can be done in Boston.
QUESTION: (Inaudible) can you speak a little bit to last week's confirmation (inaudible)?
10:52:26 HOLDER: I know it's interesting that when Senator Leahy asked the nine people who were there for the second day of hearing, who here -- raise your hand if you don't think Loretta Lynch should be confirmed as Attorney General, no hands went up. And then the question is -- except for those people who were there to support Loretta's nomination -- what were the other people doing there and as we heard from testimony that they gave was to talk about things that, I guess, we've done, I've done, as Attorney General, things that President Obama has done, not particularly relevant, it seemed to me, to a determination as to whether or not Loretta would a good Attorney General.
And I'll tell you, she's gonna be a great Attorney General. She will have the ability to be independent from the President but I will say this, you know, this notion that seems to, you know, permeate that hearing -- both the first day and the second day -- this notion is somehow -- this justice department has been politicized -- is totally inconsistent with the facts. You want to look at a politicized justice department you look at the one that I inherited, all right? You look at the way in which hiring was done here for political reasons. You look at all the other things that we had to deal with to rebuild this department that I grew up in and that I love. I will leave this department in a way that I found it when I came here back in 1976 with high moral, with people who are dedicated doing things only on the basis of the facts and the law and, you know, I think a little irresponsible of people on the hill to say that policy differences that we have with them of decision that we have made that are not consistent with how they view the world can be characterized as political. There's -- there have been no -- there's no politicization of this justice department.
I'm proud of the work that we've done over the past six years, the historic things that we have done, and I would hope that some of the American people would not fall prey to interesting sound bites that simply have to be -- simply are inconsistent with the facts.
(UNKNOWN): All right, thank you.
(UNKNOWN): Thank you.