“When the law becomes a trap for the unwary, it becomes an engine of oppression rather than a statement of the moral and ethical requirements of a society’s citizens.” ~ Harvey Silverglate
By Catherine Austin Fitts
Harvey A. Silverglate is a very intelligent, experienced attorney.
Describing the complexity of federal enforcements and prosecutions in a wide variety of legal areas is no easy challenge. In Three Felonies A Day: How the Fed’s Target the Innocent, Silverglate does a masterful job of describing both the law and the issues involved in its application as he leads the reader through dangerous trends in federal prosecutorial overreach.
Having successfully completed litigation with the federal government related to my company, Hamilton Securities, there were numerous issues that Silverglate raised that were particularly fascinating:
Forcing innocent people to plea bargain: Silverglate describes the application of the “nuclear” tactic. You may be innocent and the law may be vague, but cop a plea or we will make your life hell, and that may include friends, families and colleagues. And by the way, it will cost you a fortune in time and money. It will destroy your career. I remember. From the time I declined to settle, three years into the process, it took another eight years to resolve the situation, then several years after that to finalize the administrative issues of closing out the company. Few can afford the luxury of a long fight with the federal government.
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Obstruction of justice: Silverglate describes the targeting of Martha Stewart and her indictment. Stewart was investigated for insider trading. She was innocent. In the process of the investigation, however, her descriptions of what had happened included falsehoods. So she was prosecuted on procedural issues within an investigation in which it was determined she was innocent.
I appreciate the obstruction of justice frame up well. My company Hamilton Securities was targeted by two lawsuits – one qui tam filed under seal without our knowledge and another filed against the government separately. Then we were investigated by multiple government agencies. The e-mail and records compliance relating to $10 billion of financial transaction was voluminous and highly complex. One difference in compliance on one investigation versus another would have been the basis of an obstruction of justice charge. Indeed, to this day, I believe the goal was to create such a situation simply by overwhelming us with complex discovery work requirements. When no obstruction of justice technicalities emerged, and 18 audits and investigations by numerous government agencies produced no evidence of any wrongdoing, the HUD Inspector General General Counsel (to whom the DOJ had delegated its subpoena powers, thus circumventing the legal requirement to disclose a qui tam lawsuit under seal) falsified evidence by taking our corporate records out of our files and putting them into shredding bins for a photo opportunity and then proceeded to send us a copious letter accusing us of obstruction of justice. The frame did not stick as a very courageous witness provided us with an affidavit (See here) regarding the Counsel’s creative efforts to invent evidence that did not exist.
Material Omissions: The material omissions standards of the securities law is an area I believe is very important. I bring it up a lot. Silverglate brings up more than a few situations where federal prosecutions have abused the vagueness of the material omissions standards in a variety of laws. His descriptions are sobering and, for me, highly educational. I will be more tempered in my enthusiasm in the future.
Court Support: Painful situations occur when federal prosecutorial overreach gets full support from the courts. What results is a squeeze play of lawlessness, which violates the most basic foundations of our laws.
One of the judges in the Hamilton case was the former general counsel of the CIA, Stanley Sporkin. (For full disclosures on Stanley Sporkin’s colorful legal history see here ) A qui tam lawsuit may only be kept under seal for 60 days unless evidence of wrongdoing is produced. Sporkin managed to keep the Hamilton qui tam under seal for five years without any evidence of wrongdoing, even coaching the attorney when they were out of ideas for framing the target. The full extent of what happened under seal will never be known, as some of the transcripts disappeared from the court records (Imagine that!).
My legal education was peppered by “Sporkinisms.” My favorite occurred when Hamilton’s attorney expressed frustration that our motion was being rejected, that our position was supported not only by the law but a recent Supreme Court decision on point. Sporkin retorted, “Well I disagree with the law. If you have a problem with that, take it up with Congress.” Another was his insistence that his office had never received filings when our attorneys had signed receipts proving otherwise.
Media Support: Add more pain when the media joins in a squeeze engineered by prosecutor and courts working in concert. When the dirt generated by the prosecutors is false and below the belt, the pain moves up the max.
When the build up to the Hamilton litigation started, I was involved in a serious romantic relationship with a man I loved. Several things happened immediately prior to receiving our first subpoena that told me that trouble was coming. The IRS started auditing my personal accounts – making it difficult for me to use them to finance the company if need be. The man I loved was offered a political appointee position, which created a potential conflict of interest. He took the job and ended our relationship. I soon learned why separating us was so important.
Shortly thereafter, under subpoena from the HUD Inspector General, investigators proceeded to interview all of Hamilton’s employees. The impact on morale was devastating but reached a point of hilarity when an employee named Robin returned from her interviews with the HUD IG announcing that the goal of the interview was to persuade her that I was homosexual.
Robin, who was openly homosexual, regaled the entire trading floor with her report. “I told them, honey, trust me, I’m gay, so I know she is not gay, but I have told her she would be much happier if she was, but she won’t listen to me.” Robin’s merrymaking broke the ice and one after another, scores of Hamilton’s employees described that they had been actively lobbied to believe that I was homosexual.
At the time, we were serving as lead financial advisor to the Federal Housing Administration with respect to $400 billion in portfolio strategy and $10 billion of loan sales. The Deputy Assistant Secretary at HUD who was responsible for the mortgage loan auctions was openly gay. The story that they were trying to create would have me in a relationship with her. I called a retired HUD IG employee and asked him why this was happening. The HUD IG office clearly knew I was not homosexual, what was the point? He explained that in a situation when you cannot find any evidence of any wrongdoing if you can persuade a DC grand jury that the target is homosexual that you can get an indictment with no evidence of wrongdoing. Trying to do so was not unusual. I later discovered that the allegations had been aggressively promoted to a numerous reporters. I asked one Washington Post reporter why they had never run with this and numerous other false leaks from the HUD Inspector General (such leaks being illegal). She said, “Why can’t an office that leaks like a sieve give us hard evidence of any wrongdoing?” I was lucky. These days, many reporters do not bother to wait for evidence or facts. When I started to date again, the men as well as male houseguests were targeted or warned that associating with me would make them a target. Thanks to the DOJ, I had to learn to enjoy my own company.
Facing Your Accuser: One of the great principles of the Anglo-American legal tradition is that a person has the right to face their accuser and address the allegations on a timely basis – before irrevocable damage is done by what could be false accusations. Silverglate gives examples of the opposite happening. Prosecutors ensure the successful prosecution of the innocent by extending the period of accusation and investigation to an unbearable length. The maximum destruction can be done before the allegations can be addressed and proved baseless or not a violation of law.
In Hamilton’s case, every effort was made to stop us from going to court. It took seven years to go to trial on the qui tam allegations. I was pressured intensely to settle and refused on numerous occasions. I was insistent on forcing someone to present an allegation with evidence in court. The trial was cancelled on the eve of trial on several occasions. Finally, when I refused to settle yet again, we went to trial. I was finally able to prove that no evidence of wrongdoing existed. My attorneys were stunned. They had not believe that the whole charade was a bluff. But there it was. Taking seven years to have our day in our court destroyed the Hamilton Securities and cost me millions.
Indeed, that was the goal. To smear and bankrupt an innocent target in the media, in court filings and with whisper campaigns and ensure they had no opportunity to require their accuser to produce hard evidence and to address that evidence in a lawful process.
While studying civil procedures during the Hamilton litigation, I had the opportunity to study the European and American witch trials. I would love to hear Silverglate openly discuss what is happening with legal historians knowledgeable about witch trials. The similarities are remarkable.
The Salem witch trials went into high gear when Cotton Mather approved the introduction of “spectral evidence.” In short, if I say your ghost was in my bedroom last Saturday night and made me kill my husband, you have to prove that this is NOT true. Tough, huh? They came up with a neat solution to prove innocence. If you drown someone and they die, that proves they are not a witch. In Hamilton’s case, if you can reduce the company and me to poverty, then apparently we must not have been squirreling away vast stores offshore of illegally gained funds.
The story that never gets told – by Silverglate or others covering the Orwellian nature of enforcement in America these days – is the double bind that the federal prosecutors face. Our financial system depends on significant levels of global force and illegal and/or non-transparent cash flows. Managing the “control and concentration” of cash flow in this situation is tricky business. It often puts prosecutors in a position of having to target institutions that were simply doing their job for the national security state in a manner that the general population cannot possibly understand.
I don’t always agree with Silverglate’s interpretation of events. In an number of cases (Enron, Arthur Anderson, AIG) he described there were, in my opinion, deeper black budget issues involved that make the case and real facts much more complicated that the obvious evidence might suggest. The National Security State and the management by government and related private entities of enormous cash flows on a non-transparent basis outside of the law as we commonly believe it to be can make life extremely complex for federal authorities.
In my own case, I now believe it was private investors that falsified evidence that got the Hamilton Securities litigation going and kept it going for 3-4 years.
If you think private investors don’t play these games, read Matt Taibbi’s brilliant description of the investigations on a Canadian insurance company triggered by short sellers in his latest book Divide.
In Hamilton’s case, I believe that the Department of Justice ultimately was a patsy for the private guys. The federal mistake was not folding their cards and calling it a day when it turned out that Hamilton was clean. Instead, they tried to save face with an unfavorable settlement or provide generous contracts and settlements to the qui tam “whistleblower” so he would continue the legal torture. When I decided to persist for the many years it took to address the allegations in a court of law, their refusal to apply the law and do the right thing on a timely basis only made things worse for everyone by the time the entire messy affair closed.
Whether our financial dependency on organized crime, the use of enforcement to serve competing political interests, or the complexity and vagueness of federal statutes, we have reached a state where the law is increasingly lawless. Silverglate’s numerous examples make this abundantly clear.
Three Felonies a Day is a sobering study in the debasement of the US legal system. Let’s hope Loretta Lynch, the new nominee for Attorney General, has read it and takes Silverglate’s message to heart.
Related Reading:
Hamilton Securities Litigation
