Do you want to be roundly attacked, deprived of money, marginalized by your own party, starved of media time, attacked by Alan Greenspan, and told you’re ‘too uppity’ and ‘confrontational’ while Rome burns?
Try being John Edwards for a day.
John Edwards attracted my attention by the key people who attacked him. I wanted to know what scared the financial establishment. I also wanted to know where John Edwards stood on the biggest landmark Supreme Court case of our time, the Enron banks case (under submission now). John Edwards has taken a direct and bold position regarding a Supreme Court case that some refer to as the ‘Roe v. Wade of finance’ and the ‘biggest financial case in a generation’. I realize just how hard it is to be John Edwards, how one simple statement on a key banking issue could literally deprive him of cash overnight. He has literally given up money and the false center of American politics in order to tell real truths to people. I saw this arc of maturity over time with Edwards. This article is about an issue so big and so impactful, that if it's truely understood, it can re-frame how you think. John Edwards understands this. Our job should be to understand this too. He took on the banks and now he suffers as a result. It's no accident that he attracts establishment attacks. This article will hopefully arm you with what you need to know about this landmark Supreme Court case marginalized by the media. I hope people understand this is why we fight. This is who we should fight for.
On October 24, 2002 the SEC announced an inquiry into Enron. Soon, desperation spread. On October 26, 2002, Ken Lay called Alan Greenspan. We don’t know the substance of this conversation, but we know Ken Lay was calling all his friends in banking and Bush administration. He was worried. He soon learned he had no more friends. Ken Lay was expendable. The banks who concocted the sham Enron transactions and fraud were not so worried. They knew Ken Lay was calling them; they weren’t calling Ken Lay.
Ken Lay is the Bank’s Symbol for Enron
Suspend everything you’ve believed about Enron for a minute. The fraud behind Enron has little to do with Ken Kay. The banks would like you to believe it was all Ken Lay and Enron executives, the symbols of corruption. The real symbol of corruption was the Enron banks who concocted the fraud. Ken Lay was sacrificed for the banks when he should have been sacrificed with the banks. Ken Lay was expendable and he was learning that fast. The big banks are not expendable, as you know from the sub-prime crisis. They get the money they need from the Federal Reserve and protection from the Congress and the courts. The banks who concocted the Enron fraud made themselves immune. Many observers think this attitude and fact of immunity led to the Enron-type securities frauds in the first place. The logic is circular, the fraud is real.
Enron was a Conductor for Systematic Upstream Fraud.
Enron was just another company, an intermediary, a one-way conductor of fraud. Fraud-out from banks, financial advisors, and financial service operators, but no liability penatrating the corporate façade of Enron. The banks perpetrated fraud for profit and used Enron as a shield when the people came looking for accountability. You can’t sue the authors of the fraud, you can only sue the bankrupt conductor of fraud. Most people don't know this nice trick.
The rules that govern corporations and their relationships with third parties compose the social and economic fabric of our society. These rules of engagement explain who we are, how we produce and how we think.
First rule: the banks rule companies. Enron was a shell used to disseminate many of the latest fraudulent tricks in the banking and financial services bag. It benefited many people in transactional wealth and wealth upon direct fraud in the marketplace. When a corporation cheats you, you can sue them, hoping they have the money to pay you back. Enron didn’t. If the banks created the 'scheme' to swindle you, you can’t sue them. This is called 'scheme liability'. The banks have lobbyists for this and the Supreme Court has a case, "National Banks". Banks have grown into the exception that swallows the rule. Banks rule companies, banks rule Congress, therefore banks govern citizens and take away natural rights to restitution that you would have against your neighbor. Banks aren't neighbors anymore. They have special privlege. This evidence is clear and the fingerprints lay across 'complex' legislation and court decisions (now in conflict). This evidence does not make its way into the national dialog, as it once did with the Founders. Jefferson, Jackson, and Lincoln could not survive in modern day political parties serving their donors.
The Bank-Senator Bargain: Trading Handcuffs for Real Monetary Justice: Handcuffing Ken Lay and passing Sarbane-Oxley was acceptable to the banks. It didn’t directly address 'scheme liability' for concocting the fraud. Like a scene from a movie: the armed soldier lines people up to a wall, points a gun and asks: "who stole the bread?" He threatens to shoot, unless they talk. No one talks. Finally, he shoots someone at random. As the dead body lay there, he asks again, "who stole the bread?" Someone steps forward and points at the dead guy...."he did it".
The dead guy is Enron.
In Supreme Court briefs, the Enron banks point at the dead body, Enron, and urge you to hold only them responsible. The banking and financial services individuals involved in the scheme fraud have scurried back to their offices, with their money, and as you will learn, they’re safe from you. As the Enron banks see it, even if they concocted the fraudulent scheme for Enron knowing it’s purpose to defraud the public, the banks are still untouchable. Banks will even admit their own participation and creation of the fraud if it’s too obvious to deny (Read Stoneridge transcript below). This is important. They are not arguing they didn’t do the fraud knowingly. They're only arguing that you, the people, can’t sue them. John Edwards addressed this in his press release. I haven't seen any major candiate take such a risk with the banks.
You Can Sue Your Fraud, Right?
If a banker or a priest comes to your house and steals your money, you can sue them. Everyone accepts that basic truth, priest or banker. There is no immunity for individuals who steal your money. But, when you have an advanced degree and a lobbyist, you can muddle this up.
The Analogy of The Golden Egg
This is a simple analogy of fraud. Someone sells Golden Eggs, and you’re the buyer. He tells you it’s solid gold. You buy it. What you don’t know is that the neighborhood bank works with the egg seller in a ‘scheme’. The bank carves the gold out inside the egg, fills it with concrete, seals it to appear as solid gold. The bank is paid for this service, the egg seller is a great customer. The bank knows the entire purpose is to defraud the buyers. It was actually the bank’s original, clever idea. You later learn of this scheme. You can sue both parties for fraud.
The Paper Difference: No Fraud for Hollowing the Egg
We know so far that the egg-seller and the bank both knowingly perpetrated a fraud on you. You can sue them both for the scheme. Now, imagine, instead of selling you an egg, the seller sold you a legal security for "100% ownership of the golden egg". You still own the egg; the security is authentic. But, now there is a legal difference, a difference created by banks, legislators and bank-friendly judicial interpretations. In this case, you discover the bank filled the egg with concrete, therefore, you can still sue the egg-seller and the bank for fraud, right?
Wrong.
This time, you can’t sue the bank. All facts are the same, but they've found a way to diminish your personal property rights. They call it 'securities'. The hope is that your eyes glaze over because it's 'complex'. But, it's not complex at all. It just another way to trade property. However, now they've figured out a way to hollow the egg while protecting themselves from liability. Securities being the difference. Your average American doesn't see the difference, because your average American is productive and fair-minded. It's property, just like the egg. In fact, it is the egg. Don't we have property rights? You once did, in this instance, not anymore. That is the Enron banks case, in sum, and this is the case-logic before the Supreme Court at this moment. The Supreme Court heard the oral arguments just a few weeks ago (no news), it remains under submission. Expect the banks to win (most do) and expect some lengthy dissents. This battle of the Enron victims will affect the victims, directly and indirectly, for decades.
The Banks show new love and respect for SEC:
How do the banks asks for immunity for their fraud? The banks argue that the 'securities' legilation restricts your right to sue, because the egg is now different, covered by a special law. They also argue that the legislation says the SEC can enforce them, so in the banks mind, that's exclusive, that must mean the people can't sue them. This is age-old logic, the Potomac two-step. The Congress can even say 'that's not what we meant', but its too late. The Congress could change or address this law, but they haven't after vigorous dissents by federal judges, scholars, SEC chairmen, and many others. Why not? (Call your Senators). The banks make this 'only-SEC' argument because they are not afraid of the SEC. Studies show that the SEC can only handle a tiny percent of daily market fraud, the fines are low and the victims are not made whole, like they would be with the egg. The banks like the SEC-odds. It can be quantified. The risk of facing the people directly is the risk of losing all your fraud gains (which would deter fraud and price fraud out of the market). The banks only fear the American people, their wrath and restitution. The law can be used as an instrument of oppression. Banks use the law today to oppress your personal property rights. It's that simple.
The Supreme Court will decide the Enron Victim’s fate in 2008:
The Supreme Court is likely (authors opinion) to rule, this winter, against Enron victim’s ability to recover damages against the banks that concocted the Enron fraud. This ruling will satisfy the usual suspects, Greenspan’s Federal reserve, O’Neil’s Treasury, and Bush’s presidency. But, little known to many rank-and-file Democrats, the legislative abettors in this scheme are the ‘New Democrats’ themselves, think Lieberman. (who also argued against Sarbane-Oxley in the New York Times)
How Can the Banks Possibly Defend Obvious Fraud in Open Court?
It’s not comfortable or easy, but it’s done. (See Stoneridge oral argument) In the Federal Courts, the Enron banks and frauds essentially argue:
‘Yes, it might be illegal and fraud, yes it looks really bad...BUT because it's 'scheme fraud' only the SEC can act, not the defrauded American people. That's what the statute says by its potent silence.’ This is a classic statutory contruction to favor powerful interests. The Enron banks go on to say ‘leave it to the SEC, they are experts at fighting fraud’. That would be nice for the banks. The humor is not lost on the SEC. The SEC doesn't agree with the banks.
Conservative Republicans taking away natural rights of individuals to redress grievance and giving that power to small federal agencies exclusively? Exactly, yes. Money and influence create ironic positions from so-called natural-rights and federalists, as they also stripped away state’s power in another round of securities fraud protections (thank Chris Dodd for the Clinton veto override). It’s an unusual argument for a bank to make in court. It's akin to a crook praising the police in court while begging the judge to throw the victim out of the courtroom. They are saying, ‘handcuff the companies, fine’, 'Fine us, okay' but ‘don’t make me pay them back for their loss due to our fraud’.
Imagine waking up to the President saying:
"As of today, in order to get the government out of your life, most police departments will stand down. As of today, the Cincinnati police department will be responsible for protecting and defending entire United States. Simultaneously, all firearms will be banned in your home." –The President of the United States.
You get it.
Bush Kills the SEC’s Bold position against banks:
The Republican-appointed SEC boldly decided to side with the Enron victims in this Supreme Court case. John Edwards issued a press release before the SEC made their decision, Edwards urged the SEC to support the Enron victims, not the banks. (see below) The SEC agreed. They submitted their decision to support the victims to the DOJ to be argued by the Solicitor General in the Supreme Court. But, in a last minute change, the President, in a virtually unprecedented act, told the US Solicitor to change positions and support the Enron banks (U.S. brief below). Bush undercut his own securities police while the banks lauded them. You can cut the irony with a knife. Bush’s rationale is hardly explainable... to ‘reduce frivolous litigation’. Did Bush implicitly state that the Enron victim’s lawsuit was "frivolous"? The big five media companies showed no interest in answering this question.
The SEC knows the people and their free-market and natural rights are neccessary to deter systematic fraud. The free-market being your right to hold your fraud accountible. Your free-market right was tampered with by banking interests and politicians. Without your threat of lawsuit against the frauds, the SEC knows they will be swamped with a wild-west of securities fraud and manufactured unnatural immunities. The banks will only commit fraud if its profitable by the numbers. They appear to have succeeded. They also appear to have known this since the 'National Banks' decision and expected the federal court's to comply. The banks have sealed off your natural power to redress fraud.
The federal courts (except the 9th) felt a load of pressure, but still basically said: banks aren't liable if they created the plan for the robbery, bought the weapons, and drove the getaway car, so long as they never showed their face to the victim or made a public statement. That’s it. As long as you stay quiet and stay in your office, you’ll be protected. The logic is incredible, it’s a roadmap for fraud. How does this Supreme Court politically deal with a hot issue like this?
Case selection: How they made ‘Enron’ disappear:
The Eighth Circuit nearly apologized for the perception of "injustice" and "unfairness" in their Enron ruling. But, the Supreme Court, instead of choosing to hear the 'Enron bank case' directly (which sits in appeals), instead chose to select a case you’ve never heard of dealing with the same issue. Their ruling will affect the Enron victims (quietly). The little known case is Stoneridge Investment v. Scientific-Atlanta . There, Charter Cable created a fraudulent wash transaction with a vendor to inflate revenue (fake) helping them fake and meet Wall Street expectations. Charter and the vendor knew it was total fraud intended to deceive the Charter shareholders (securities). They did the fraud knowingly and together so Charter could 'meet the street'. Everyone agrees it was fraud and a scheme, even the defendants. The fraud is not in dispute. It's not the question. The question is: can you sue all parties to the scheme. The answer so far is: NO. The banks lost in the 9th circuit and are depending on the Surpeme Court to resolve the circuit dispute.
Why the Banks Fear Edwards; why Greenspan Attacks:
John Edwards made the only specific statement with regard to the Stoneridge/Enron Banks case, proving this landmark case is not lost on him. This issue is more important than one man, but it needs at least one candidate. Edwards stated the following before the SEC took their position. He wrote, "I urge the S.E.C. to fulfill its historic mission of protecting investors. Silence, or even worse, siding with fraud participants, would be a betrayal of that mission."
This statement appears even more bold next to the silence of his competitors.
The other candidates are appear to be silent on this landmark case, social-economic, and classic populist issue that harks back to our Founders. I urge all Democratic candidates to renounce, retract, change, or clarify and join John Edwards. The banks owns one party and has split the other party down the middle capturing key Senators on key committees (all they need, see Clinton override). The Chairman of the House Financial Services Committee, Barney Frank, submitted a Supreme Court legal brief with John Conyers in support of Enron victims. They should also be applauded for that action, but more is needed. They need the Democrats act and clarify the law, but Frank and Conyers know the votes aren't there, even in the Democratic party. That should be shocking to most Democrats who don't realize how seriously their mainstream candidates have changed their party. They ride our passion, progressiveness, and populism, but are they really there on the substance? Most are not. Where does your candiate stand? Will they answer this enormous social issue, as issue that defines who we are and who we protect? Why didn’t they join the biggest investor organizations in the world, securities experts, the AARP, and the best securities law professors from our best universities in Supreme Court brief? Because they fear the wrath of their large donor-banks. Perhaps you should look at your candiate's top donors, the list of Enron bank defendants, and the billions of American's dollars at issue (opensecrets). Could your candidiate be John Edwards for a day? It’s time to act and challenge the Democrats rank-and-file, the progressives, and the Democratic candidates directly on the Enron bank fraud. This is landmark. Let's force them to speak. Silence can't be an option on an issue this substantial.
Consequences of the wrong outcome:
This country’s biggest financial institutions are corrupt. That is clear to most Americans, yet average American's have no idea about how to tackle it. They misplaced their trust in their representatives. The nightly news certainly doesn’t explain it, it's not mainstream and perhaps the networks feel conflicted. We now understand that bank corruptions and unregulated greed can affect the global economy (sub-prime crisis, Enron bubble). Therefore, this issue is not just serious, but inaction will likely create a future round of nation-shaking financial abuse. (see scholars brief to Supreme Court below). The same suspects are creating crisis after crisis, stealing and defrauding Americans. First, they get protected from your wrath in court, then they get bailed out on your back by the Fed. Our egg will be hollowed-out completely if we don’t act now. The American People would never consent to being so governed and so swindled if they only knew this truth. The frauds and the un-productive profiteers know where they stand. Do you? They're fighting in the Supreme Court for their immunity and fraudulent gains. I'm convinced that John Edwards is absolutely correct about this: you can't negotiate with these people. As this case proves, you need a fighter. The other side is fighting everyday and they're not giving an inch or a dollar. They have editorials in the WSJ supporting them while most of our candidates are silent. Some candidates say we should gather around a table, reach-out, and play-nice while the other side is eating our lunch on a daily basis and donating huge sums to these same nice candidates (see opensecrets).
We need more fight, less nice.
You can read all the briefs, summaries and oral transcipt here. Many interests have joined this battle of the titans. It begs our serious attention. Pry the position of your candidates and please update me if they take one. Thx.