Yesterday, Senators Sherrod Brown (D-OH) and Chuck Grassley (R-IA) sent a letter to US Attorney General Eric Holder stating that, among other things, that “settlements between large financial institutions and the federal government involve penalties that are disproportionately low” which has “fostered concerns that ‘too big to fail’ Wall Street banks enjoy a favored status.”  The Senators’ letter (the text of which is available here) raised questions about the DOJ’s “prosecutorial philosophy” when it comes to imposing criminal charges and penalties on large banks, whose failure could jeopardize the stability of the financial markets.  We posted recently about the deferred prosecution agreement the DOJ entered into with HSBC.  In Senator Brown’s press release, he stated that:

As Ranking Member of the Judiciary Committee, Grassley has been critical of the Justice Department’s decisions against holding people criminally accountable in financial cases.  He called the Justice Department’s decision to forego any criminal prosecution of HSBC officials involved in that money laundering scandal inexcusable.  And he has questioned the Justice Department about the number of mortgage fraud cases brought forward, revealing a failure to bring significant criminal cases against any of the major banks or financial institutions that have faced civil actions for various frauds. Grassley is the author of the Fraud Enforcement Recovery Act, signed into law in 2009, that was designed to ramp up the government’s response to the crisis and ensure that prosecutors and investigators had the tools needed to combat fraud.

Senators Brown and Grassley asked Attorney General Holder to answer the following questions:

  1. Has the Justice Department designated certain institutions whose failure could jeopardize the stability of the financial markets and are thus, “too big to jail”?  If so, please name them.
  2. Has the Justice Department ever failed to bring a prosecution against an institution due to concern that their failure could jeopardize financial markets?
  3. Are there any entities the Justice Department has entered into settlements with, in which the amount of the settlement reflected a concern that markets could be impacted by such a settlement?  If so, for which entities?
  4. Please provide the names of all outside experts consulted by the Justice Department in making prosecutorial decisions regarding financial institutions with over $1 billion in assets.
  5. Please provide any compensation contracts for these individuals.
  6. How did DOJ ensure that these experts provided unconflicted and unbiased advice to DOJ?

The Washington Post reports that the letter “is part of a broader public outcry against the government’s treatment of Wall Street firms.” Balanced against this outcry is the prosecutors’ contention that “they must be prudent in doling out justice so as not to cripple institutions whose failure could jeopardize the stability of the financial markets.” The Post cited the recent $1.5 billion settlement with UBS over Libor and Attorney General Holder’s statement, that in the UBS case, “the department took into consideration the impact of prosecution on the stability of the bank.”

“We reach out to experts outside of the Justice Department to talk about what are the consequences of actions that we might take, what would be the impact of those actions if we want to make particular prosecutive decisions or determinations with regard to a particular institution,” [Holder] said at a December news conference announcing the [UBS] agreement.

The letter also comes on the heels of President Obama’s recent appointment of former prosecutor Mary Jo White as Chairman of the SEC.  As The Hill reports, “[c]urrently a high-profile, white-collar defense attorney (whose clients included some major financial institutions and executives), White previously pursued charges against mob bosses and terrorists, and would be the first prosecutor to helm the SEC if confirmed.”