Guest post: “The Pay Off: Why Wall Street Always Wins”

By Jeff McCord  is a former US Senate staffer, Securities Investor Protection Corp (SIPC) executive and has been a free-lance journalist for Dow Jones publications. His academic background in economics includes post-graduate work at the London School of Economics and George Washington University. He can be read at Investors Advocate.   


Book Review of “The Pay Off: Why Wall Street Always Wins” by Jeff Connaughton Published by Prospecta Press, August 2012-08-21

Brief Bio of Jeff Connaughton:
Mr. Connaughton served as Chief of Staff to U.S. Senator Ted Kaufman during the 111th Congress. He previously served as Special Assistant to the Counsel to the President (Abner Mikva) in the Clinton White House (1994-95) and as Special Assistant to then-Chairman Joseph R. Biden, Jr. of the Senate Judiciary Committee (1988-91). Following work as a lobbyist for Arnold & Porter (1998-2000), he was co-founder and a principal of Quinn Gillespie & Associates (2000 to 2009), corporate lobbying firm.
August, 22, 2012

The review:

This is the autobiographical coming of age story of Jeff Connaughton, a former aide to Democratic Senators Biden (D-DE) and Kaufman (D-DE) and a Clinton White House adviser. Before becoming Senator Kaufman’s chief of staff, he had struck it rich as a corporate lobbyist, partnering with Republican Ed Gillespie and others to co-found Quinn Gillespie & Associates in 2000. Mr. Gillespie, a former senior aide to House Majority Leader Dick Armey (R-TX) is credited as a principal author of the GOP’s 1994 “Contract with America.” And, during Mr. Connaughton’s years as his partner, Mr. Gillespie advised Senator George Allen (R-VA) on his re-election campaign. Allen famously lost that election after he twice publicly used the racial epithet “macaca” to describe a dark complexioned Democratic activist of Asiatic Indian descent.

Mr. Connaughton’s unabashed description of his own “revolving door” career goes a long way toward explaining why “Wall Street always wins.” He candidly says he has seen the enemy and it is “us.”
With an MBA from the University of Chicago and law degree from Stanford, Mr. Connaughton was well qualified for his government service and as a top corporate lobbyist. Here’s his description of his million dollar lobbying career prior to serving briefly on Joe Biden’s Vice Presidential transition team and then heading-up Senator Kaufman’s staff:

“For twelve years, I developed and implemented legislative and regulatory campaign strategies for corporate clients, including broker-dealers, banks, accountants, insurance firms, and Silicon Valley. During my years as a lobbyist, I made a big pile of money, enough to have a house in Georgetown, a speedboat on the Chesapeake [and plan a house in Costa Rica].”

Considering that experience, it is difficult to accept Mr. Connaughton’s protestation of innocent bewilderment upon learning of the impending 2008 financial meltdown and its causes:

“I’d been trained in business and law school to believe that corporate governance worked. Even though I knew Wall Street held Washington in a perpetual half nelson,
I still believed our laws would prevent hidden catastrophes and blatant fraud. Our system is based on full disclosure of independently audited financial statements
combined with oversight and enforcement from the Securities and Exchange Commission.”

As one who no doubt ably helped Wall Street hold Washington in a “half nelson” in partnership with the ideologically pure GOP de-regulator Ed Gillespie, Mr. Connaughton was either naïve or had fallen victim to that DC disease: ‘believing one’s own press releases.’

Because he seems to tell his personal story frankly, readers can forgive Jeff Connaughton for a few self-serving remarks. Who among us wouldn’t do the same? But, anyone who lobbied for Wall Street and accounting firms during first eight years of the 21st Century and had witnessed Enron, WorldCom and so many other blatant frauds up-close, knew that corporate governance had become a quaint anachronism and financial statements barely worth the paper or digitized distribution.

Nevertheless, Mr. Connaughton’s insider description of the struggle among a few in Congress to gain meaningful post-meltdown financial regulation is worth the read.

He begins by describing the intellectual abduction of the young President Obama by the Goldman Sachs/Citigroup vetted and cleared team of William Geithner and Larry Summers. Readers who want more detail on their stranglehold on Administration economic policy and undermined the President’s goals should look no further than “Confidence Men,” by Ron Susskind.

Against great odds, Mr. Connaughton details the good faith efforts he and Senator Kaufman made in 2009 and beyond to push the seemingly conflicted Securities and Exchange Commission and Justice Department to launch civil and criminal prosecutions of those culpable for the financial meltdown. Although he concludes DOJ lacked the will to prosecute, Mr. Connaughton also describes testimony by SEC Enforcement Director Robert Khuzami who at a 2009 hearing explained why such prosecutions are exceedingly difficult in today’s world. Here’s how Mr. Connaughton tells it:

Khuzami put it this way during the hearing:
‘White-collar area cases, I think, are distinguishable from terrorism or drug crimes, for the primary reason that, often, people are plotting their defense at the same time they’re committing their crime. They are smart people who understand that they are crossing the line, and so they are papering the record or having veiled or coded conversations that make it difficult to establish a wrongdoing.’
In other words, Wall Street criminals not only possess enormous resources, they’re also sophisticated enough to cover their tracks as they go along, often with the help, perhaps unwitting, of their lawyers and accountants.

Messrs. Khuzami and Connaughton hit the nail on the head. Time after time, civil cases and a few criminal ones demonstrate that corporate and financial law and accounting firms actually knowingly help design, cover-up and otherwise aid and abet fraud. And, they do so with the knowledge that a combination of Congressional and Supreme Court actions have virtually relieved these professional advisers of liability for client advisory services.

In short, it is hard to prosecute securities fraud perps in a world in which Congress has decriminalized much of enabling behavior and actions required to plan and successfully execute fraud.

Mr. Connaughton ably describes the first major assault in the accounting and financial services’ industries’ war upon securities fraud laws and financial regulation. As a White House lawyer he saw:

President Bill Clinton steamrolled by Wall Street (and by its biggest booster, the most Machiavellian of United States Senators, Chris Dodd) circa 1995. Dodd had led Congress to overturn President Clinton’s veto of the Private Securities Litigation Reform Act, which he and the Republicans had drafted to gut the class action securities-fraud laws. It was the only Clinton veto given the back-of-the-hand by two-thirds of Congress. And it was my first taste of how Wall Street had come to own Washington.

The Private Securities Litigation Reform Act was merely the first of a decade-long effort by Congress and the Supreme Court to shield corporate securities fraud perpetrators and their professional aiders and abettors from shareholder and consumer accountability. During the same period, the dismantling of the Glass-Steagall Act’s separation of commercial and investment banking (this time supported by the Clinton Administration), enabled banks to use customer money to engage in the high-risk securities and derivatives practices — aided and abetted by their lawyers and accountants who covered-up the magnitude of risks taken — that led to the catastrophic 2008 meltdown.

Mr. Connaughton, whose Wall Street epiphany may have come too late to help correct Congress’ mistakes, describes how he and Senator Kaufman, a Member of the Senate Judiciary Committee, worked with other sincere reformers such as Senators Pat Leahy (D-VT) and Chuck Grassley (R-IA), among others, to build-up white collar crime fighting resources and push the SEC and DOJ to go after financial wrongdoers.
Sadly for all of us, Mr. Connaughton concludes:

Despite our nearly fanatical dedication, we and other reformers failed. To date, there have been no high-profile Wall Street prosecutions for financial wrongdoing. The stock market has become even more volatile and dominated by computer-driven trading. Too-big-to fail banks continue to act lawlessly, teeter on the brink, and destabilize the global economy. The post-crisis regulatory reforms (particularly, the Dodd-Frank Act) were and are being written by over-matched regulators with the help of Wall street lawyers instead of by the elected representatives of Americans, a substantial majority of whom support rules to rein in Wall Street excesses.

He knows personally of what he speaks.