Wall Street Law Blog

Most lies are not crimes. But Perjury is- Right?

How many times did disgraced Yankees, Astros, Blue Jays and Red Sox player Roger Clemens deny taking performance enhancing drugs?  At least one time too many.

Roger Clemens -- the uber-pitcher who owns a record six Cy Young awards -- went on Sixty Minutes to, he said, clear his name.  The Rocket stared straight into the CBS cameras and swore he had never knowingly taken a performance enhancing drug.  

In an ESPN SportsCenter interview, Clemens clearly struggled to control his temper.  Again the pitcher denied all rumors.   Moreover, he would do whatever it took to make sure the truth came out.  

While Roger Clemens frothed at the mouth, we could almost hear OJ tell the world that the truth lay somewhere in the world of Fay Resnick.  

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Lying on television is wrong, but not criminal.  Lying under oath to Congress is a crime that - when there is strong evidence - must be prosecuted.

Clemens told Congress the same thing he told CBS and ESPN - that he did not take steroids or other chemical performance enhancers.  On Capitol Hill, however, Rocket Roger was under oath.  

Now, Clemens could have avoided lying to Congress without admitting that he took steroids or other drugs.  For instance, he could have invoked the Fifth Amendment.  Or, the Rocket could have come down with a case of temporary amnesia.  "I don't remember" would have worked as an answer to pretty much every question posed to the former MLB pitcher  - You may, for example, recall the extensive amnesia Oliver North suffered during the Iran-Contra hearings.  North not only got away with withholding the truth from Congress by acting as if he had history's worst memory, the gap-toothed Colonel also emerged from his interrogation as a virtual rock star.

But Roger Clemens was defiant.  He was sanctimonious.  He did not have sexual relations - err - he did not ever take a performance enhancing drug.  

Clemens did not remember the words of caution that Bruce Springsteen sings every December, "You better not lie..."  

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The oath Clemens took - the one in which he swore to tell the truth -- is not a ceremonial or symbolic act.  The oath is a reminder to witnesses that, if they lie, they are subject to prosecution.   In most venues, lying under oath is a crime called perjury.

How serious is perjury?  Pretty serious.  You remember Bill Clinton.  And you may also remember how the executive and legislative branches of our federal government pretty much ground to a halt for a year or more as the House of Representatives impeached President Clinton and the Senate held the impeachment trial.   But - do you remember the actual reason why the House impeached the very popular two-term 42nd President of the United States?  

 

Why was the focus of our government fixed on the second presidential impeachment hearings in American history instead of, perhaps, on killing Osama Bin Laden and dismantling Al Quaeda (yes, it turns out, we knew all about the threat they posed way back then)?

It was because President Clinton allegedly lied to a grand jury as a witness under oath.  And for those of you who believe Congress has more pressing issues to worry about than whether Roger Clemens lied about being on the juice, do not forget that the reason our government pretty much shut down during the Clinton saga was that the President allegedly told a grand jury a little white lie about the kind of relations he had with a certain female intern.

 

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So, what the heck are we talking about?  Simply this -

It is a crime to lie under oath regardless of the importance of the topic.  

 

The guy with the collection of Cy Youngs and World Series rings is being prosecuted for a far more important reason than lying about whether he used steroids.   If the government lets Roger Clemons walk away without penalty for lying to Congress (and apparently there is a ton of hard evidence to prove the Rocket fibbed under oath), then the importance of the oath itself is undermined.   

 

The power of government to compel witnesses to speak truthfully under oath is a pillar of American democracy.  If witnesses believe they can perjure themselves with no real consequences, then  -- human nature being what it is --  individuals with strong incentives to lie under oath will do so. So there must be penalties for perjury.

 

And, if charges of lying under oath are selectively prosecuted based on someone's interpretation of importance of a lie, (i.e., if the justice department decided against charging Clemens with lying to Congress because steroids in baseball is unimportant), then we are all on a very slippery slope.  A handful of people should never have so much power that they decided for the rest of us kinds of perjury are worthy of criminal charges and which lies are no big deal.

Inevitably, there will be close calls about whether a particular act of perjury is important or trivial. Inevitably, discretion to distinguish among suspected perjurers lends itself to actual or suspected instances of favoritism and corruption.  Imagine such power in the hands of Joe McCarthy or Richard Nixon or even a member of a political party with which you may disagree.

True, discretion is part of everyday life, and an important part of our justice system (think plea bargaining and judicial decisions on evidentiary matters and objections, for example).  So discretion certainly has its place.   We would even go so far as to say that witnesses deserve a presumption of honesty absent real evidence that they have intentionally given false testimony.

Oh, and we are not naive either.  We know that people get away with perjury every day.  That is a fact.  But we also believe that the threat of severe consequences plays a vital and overwhelmingly successful role in deterring perjury.   

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Apparently, in the case of Roger Clemens, there are lots of needles slathered with his DNA and remnants of performance enhancing drugs he injected.  Assuming this evidence exists, then it appears more likely than not that Clemens lied to Congress.  

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Roger Clemens is, of course, entitled to a presumption of innocence and he has the right to put on a vigorous defense.  But Clemens is not entitled to a free pass just because he lied (if he lied) about something as inconsequential as whether he took steroids.

 

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CONCLUSION

Perjury prosecutions (or, in this case, charges of lying to Congress) are about reinforcing the sanctity of the oath.  The oath, in turn, is about reinforcing our commitment to the rule of law and, ultimately, to our democracy.  

By Brett Sherman, The Sherman Law Firm

Bear Stearns, Cioffi and Tannin - Criminal Acquittals of Fund Mgrs Does Not Mean No Securities Fraud at former Investment Bank

(UPDATED)

The acquittal of former Bear Stearns fund managers Ralph Cioffi and Matthew Tannin on criminal charges means a lot to the two men and their friends and families (and rightfully so).

However, the verdict in U.S. v Cioffi and Tannin should not have any bearing on fraud at Bear Stearns.  

For years, Bear's CEO - consummate salesman and card-sharp Jimmy Cayne - led a campaign to convince investors, potential investors, customers, counter-parties and everyone else with an interest in Wall Street and business (you know who you are) that Bear Stearns was (among many other things):

    (a) Wall Street's premier risk manager.

    (b) A company focused on building shareholder value through long-term growth to such a degree that Bear Stearns passed up opportunities for big short-term profits from industry "fads" to stick to its "long-range vision." 

AND

    (c) A company positioned to succeed regardless of market conditions.  As late as October 2007, Bear mortgage chief Tom Marano bragged at the firm's investor day that Bear had a "mortgage franchise for all seasons." (Remember that, mostly due to mortgages, Bear Stearns took a write-down of nearly $2 billion about a month later, and in December 2007, the company announced an $850 million loss for thquarter).

Bear Stearns insisted that its "strong risk management culture" started at the top of the company and was deeply ingrained in all Bear Stearns employees. 

Bear's leaders insisted that their company avoided large "directional bets" on asset classes because Bear Stearns considered such gambling far too risky.  To our knowledge, Bear Stearns did not any caveat about an exception by which the firm would lay immense, bet the ranch-style bets on housing, mortgages and mortgage related securities.

Under Jimmy Cayne, Bear Stearns constantly reinforced its commitment to excellence in risk management and taking the slow, steady road to shareholder growth.  

These kinds of representations were lies; nothing less than a propaganda campaign designed to inspire confidence and win trust from clients, investors, the media and the financial services industry.  

In other words, Bear Stearns presented a completely false image to the public. Cayne and his lieutenants deliberately created a "brand" for Bear Stearns with no basis in reality (at least not during this decade).  

The true Bear Stearns, we now know, was a high-risk, reckless operation focused on short-term profits and little else.

Put simply, deliberate misrepresentations and omissions by Bear's senior officers induced shareholders to invest in a company that bore little resemblance to The Bear Stearns Companies Inc. 

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Still unsure whether there was fraud at Bear Stearns?  You want something concrete?  

OK. We could cite about 100 facts to clinch it for you. We'll save most of those for an upcoming post.  

For now, we'll just stick with Bear's lies about top notch risk management.  In our opinion, the following few illustrations say everything you need to know about Bear's alleged culture of strong risk management:

• Bear's mortgage businesses were the firm's cash cows. The SEC Inspector General found that the mortgage risk-management infrastructure at Bear Stearns was a virtually useless anachronism.  

• Amazingly, Bear's mortgage risk models were roughly ten years old.  More amazingly, the models did not even address the risks of mortgage delinquencies or defaults.  

• The SEC Inspector General also found that Bear Stearns risk management personnel were not trained or competent to assess risks associated with mortgages and mortgage-backed securities.  

• At the risk of beating a dead horse, we are saying that - according to the SEC Inspector General - Bear Stearns did not have even one risk employee in risk management who was capable of managing risks related to Bear's mortgage and mortgage securities operations. 

Apparently Jimmy Cayne considered these issues too minor to disclose.  Or maybe he was kidding about that whole "best in class" risk management thing.  

The essence of fraud is deceit.  At Bear Stearns, senior management spent years deceiving investors. The securities laws are meaningless if Bear's officers and directors are not held accountable for massive losses suffered by the former investment bank's many shareholders.

By Brett Sherman, The Sherman Law Firm

Stay tuned - WSLB will lay out innumerable other reasons why Bear Stearns / JP Morgan are liable for BSC shareholder losses in future posts.