U.S. Prosecutor Masterminded $37 Billion Bank Penalty Win

U.S. Prosecutor Channeled Mamet to Win $37 Billion From Banks
Geoffrey Graber was tapped in March 2013 to salvage a flailing task force that President Barack Obama had ordered up a year earlier to punish Wall Street for fueling the financial crisis with bonds linked to souring mortgages. Photographer: Andrew Harrer/Bloomberg

Geoffrey Graber, the 41-year-old Justice Department attorney tasked with holding Wall Street accountable for the financial crisis, has a message for his prosecutors: Always be closing.

In the past year, Graber has won almost $37 billion in penalties from some of the world’s largest banks, a record haul for prosecutors. To colleagues, he compares his job to that of Blake, the notorious motivational speaker played by Alec Baldwin in David Mamet’s 1992 film Glengarry Glen Ross, who chastises real estate salesmen for failing to lock in deals.

“My role was to identify the most promising cases and accelerate those,” Graber said in an interview. “We’ve done our best to put a short fuse on this.”

Outgoing Attorney General Eric Holder and his former No. 3 Tony West have dominated the limelight following multibillion dollar settlements against JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. It was Graber, though, who quietly muscled the deals through behind the scenes.

Graber was tapped in March 2013 to salvage a flailing task force that President Barack Obama had ordered up a year earlier to punish Wall Street for fueling the financial crisis with bonds linked to souring mortgages. Until then, the Justice Department had been pilloried for years for not having brought significant cases against banks and their executives.

“We had passed the Fraud Enforcement and Recovery Act, which gave them money. They had set up a mortgage-fraud task force, but nothing was happening,” said former Senator Ted Kaufman, a Delaware Democrat who had sponsored legislation that gave law enforcement agencies $30 million to investigate the financial crisis. “There just didn’t seem to be the will.”

‘Political Fever’

The surge of settlements engineered by Graber in the past year has helped neutralize some of that criticism and rehabilitate a key piece of Holder’s legacy. Still, the settlements have been controversial. Critics such as Roy Smith, a professor at New York University’s Stern School of Business, say prosecutors were driven by “political fever” to extract massive penalties from Wall Street.

“They have to deliver something, so they come up with this,” said Smith, a former Goldman Sachs Group Inc. partner. “The fact that it’s unfair never really gets considered. The banks have no choice but to hunker down and accept it.”

For Graber, a California native, it was personal.

“When I was living in San Francisco and coming home to L.A. I would see the devastating effects of the housing crisis,” Graber said in an interview. “I knew people who were losing their homes. They lived in the same neighborhood as my family. I had friends who lost homes.”

Busting Mobsters

As a law student at the University of Southern California in the late 1990s, Graber followed mafia trials in New York and envisioned a career busting mobsters as a federal prosecutor. Instead, he wound up working securities law and civil rights cases as a young associate at Morrison & Foerster LLP in Los Angeles.

It was there that his path to the Justice Department took a political turn. He met West, then a San Francisco-based partner at the firm who would become a major fundraiser for Obama. After the 2008 election, Obama nominated West to head the Justice Department’s civil division. Graber was among several Californians West brought with him to Washington. Unlike other lawyers at the department, Graber lacked prosecution experience or a network built through career government connections.

West and Graber began strategizing about how to go after large-scale financial fraud using civil laws. Graber set his sights on the ratings agencies whose blessing of mortgage-backed securities allowed banks to sell them as top-grade investments.

‘Grand Facilitators’

Graber set up shop in a federal building in Manhattan near Wall Street where he and his team tracked down and interviewed more than two dozen current and former employees of McGraw-Hill Cos. and its Standard & Poor’s unit. They assembled testimony and evidence that would serve as the basis for a $5 billion lawsuit alleging S&P set aside its objectivity so it could cash in on the mortgage boom.

“They were the grand facilitators,” Graber said. “They were the ones who just made it all possible.”

The case was filed in February 2013 and is still in litigation. S&P is fighting the claims, arguing the case amounts to retaliation by the Obama administration for downgrading the U.S. debt in 2011.

Meanwhile, the task force that Obama had summoned was struggling to put together bigger cases against the banks. It was a sprawling, uncoordinated group of federal agents, U.S. attorneys and mostly-Democratic state attorneys general pursuing a range of cases with various legal theories.

Impersonating Baldwin

A month after the S&P lawsuit was filed, West asked Graber to coordinate the effort and push the cases over the finish line.

Graber privately joked that his assignment was reminiscent of Blake’s role in Glengarry Glen Ross. He regularly broke into impersonations of Baldwin’s character berating the sales staff to close deals or be fired.

“He understands the urgency of the moment in these cases - - that we’re really operating in a fishbowl and have to perform at a high, high level -- and he always measured up to that task,” said West, who stepped down last month.

Graber spent almost two months reviewing the work and picking through evidence that would fit a single legal theory. The top banks on Graber’s list were JPMorgan, Citigroup and Bank of America, which was under scrutiny for bonds it acquired through its purchase of subprime lender Countrywide Financial Corp. and Merrill Lynch & Co.

‘Gut Check’

By November, Graber had landed his first deal: a record $13 billion-settlement with JPMorgan. The deal came together after JPMorgan Chief Executive Officer Jamie Dimon called West on his mobile phone just hours before the department was planning to file its lawsuit.

“It was gut check time,” Graber said. “Previously the bank had said it was not a big deal, that there was no case at all. When it came right down to it, they didn’t want to have to face this lawsuit.”

The day JPMorgan settled, Graber told Citigroup to drop its argument that it should pay less money because it had sold fewer deals tied to bad mortgages. Eight months later -- shortly after prosecutors said they would file a lawsuit -- Citigroup agreed to pay $7 billion to settle. Bank of America followed the next month, agreeing to pay a record $16.7 billion deal. At least seven more banks are still in the pipeline, including Goldman Sachs and Morgan Stanley.

Mozilo Probe

Graber’s group is now turning its attention to executives. The Justice Department, people familiar with the matter have said, is preparing a potential lawsuit against Countrywide co-founder Angelo Mozilo and several other executives who originated subprime loans in Graber’s native California.

Graber, who declined to discuss specific cases, still recalls the wave of foreclosures -- more than 600,000 at the peak of the crisis in 2009 -- that swept his home state.

“I looked at that and thought ‘somebody’s got to be responsible for this,’” he said.

Download: AUDIO: Bloomberg’s Schoenberg on Justice Department’s Graber

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