In Apocalypse Now, while winding his way up river to kill Marlon Brando for war crimes, Martin Sheen’s character muses that “charging a man with murder in this place was like handing out speeding tickets in the Indy 500.” Well, the racing world should be very thankful that Indianapolis isn’t in Manhattan DA Cyrus Vance’s jurisdiction.

Vance’s office is prosecuting a bank for its alleged role in the housing market meltdown. Note “a” bank, as in singular. While the entire financial world crashed, Vance is going after a small, family-run bank that serves New York’s Chinese immigrant community.

Yeah, that’s totally who I’d blame for the crisis too.

But this case does, perhaps unwittingly, expose the fantasy guiding prosecutors in the aftermath of the crisis. And suggests that the Manhattan DA’s office needs to look up the word “epitomizes”….

The bank in question is Abacus, a bank so small that at its peak it boasted a mere $282 million in assets. Abacus served the close-knit community of Chinese immigrants in New York looking for a bank that can work with Mandarin speaking clients.

According to the DA’s story, the Abacus business model worked on the systematic fraud of several employees, which sounds lame. While the bank’s senior leadership has escaped prosecution (thus far), the DA’s office alleges that the fraud was routine and authorized by the bank itself.

In Vance’s description, Abacus’s fraud epitomizes the reckless behavior that swelled—and then burst—the U.S. housing bubble. But Vance was understating the uniqueness of the case… If the point was to send a message to Wall Street, the bank was a curious choice. Few people outside the Chinese-American community have ever heard of Abacus. Compared with the whales of global finance, it’s plankton, with roughly one ten-thousandth the assets of JPMorgan Chase.

Guess what? The word “epitomizes” suggests that the same allegedly fraudulent behavior went far beyond the offices of Abacus. It kind of suggests that everybody was doing the same thing.

Not the bank’s actual accounting system.

Look, if the allegations are true, Abacus deserves its prosecution. Just like Colonel Kurtz got what he deserved for killing all those people in the jungle. But if this case is not sending a message to other banks, there’s no good reason to bring criminal charges against Abacus as opposed to the rest of the financial world. It’s not like it’s hard to find evidence against the big banks — they are getting nailed with civil suits after all.

Some may see this as the legal corollary of “too big to fail.” JP Morgan executives are far too important to face jail time for knowingly or recklessly promoting fraud, but tiny Abacus is a different story.

And there’s something to that. But if this was only about the “get out of jail free card” that prosecutors have handed financial institutions, Abacus could be joining its bigger colleagues in hammering out monetary settlements and moving on.

The deeper significance in the Abacus matter is that, in seeking criminal charges, Vance is unintentionally broadcasting that the behavior of banks leading up to the housing crash was criminal and deserves criminal prosecution. This is a bold sentiment. Most prosecutors are happy to suggest that any wrongdoing by banks fell well short of criminal behavior and dismiss those calling for more criminal charges as angry nutjobs that don’t understand how the law really works with all its pesky “intent” requirements. Bringing criminal charges against a bank for actions that, again, “epitomize” the crisis is a tacit admission that at least some prosecutors understand that laws were broken. And it should force everyone else to have the same reaction that Captain Willard had in the film and recognize that the decision to charge this specific crime reflects the farce caused when prosecutors ignore the whole landscape.

The question is whether or not anyone with subpoena power starts seriously comparing Abacus to the rest of the industry. I don’t think anyone should start holding their breath.

Mortgage Fraud Prosecutors Pounce on a Small Bank [Businessweek]


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