The Wall Street Journal and the New York Times both lead today with news article about investigations of the financial industry based on anonymous sources. The Journal's article is based on a single identified source, described with impressive vagueness as "a person familiar with the matter." The story says that Goldman Sachs, Morgan Stanley, Citigroup, UBS, Deutsche Bank, and JPMorgan Chase are all under "preliminary criminal scrutiny" by federal prosecutors working with securities regulators.
The Journal also quotes J.P. Morgan and Morgan Stanley spokespeople as saying the firms are unaware of the probe.
The Times article, meanwhile, quotes "two people with knowledge of the investigation" as saying that the New York attorney general, Andrew Cuomo, is investigating "Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch, which is now owned by Bank of America" for supposedly having misled ratings agencies.
It's worth thinking about where this news is coming from and why the Journal and the Times are willing to hide the identities of those who are putting the news out. It seems unlikely that the news is coming from the financial firms -- its release is likely to cause their stock prices to go down, and it is unlikely that one firm is aware of the identities of every other firm under investigation. It's possible that the news came from a member of Congress or from another law enforcement or regulatory agency that has been briefed on the investigation yet is not directly involved. It's possible it came from a member of the defense bar who leaked it in violation of attorney-client privilege. The fourth possibility is the most troubling -- that the leaks are coming on a semi-authorized basis from the prosecutors themselves in an effort to turn up the heat on the banks without having to actually gather the evidence necessary to file charges or win an indictment.
Why is that troubling?
Here is some guidance on the matter from the Justice Department's manual for U.S. attorneys:
Disclosure of Information Concerning Ongoing Investigations
A. Except as provided in subparagraph B. of this section, components and personnel of the Department of Justice shall not respond to questions about the existence of an ongoing investigation or comment on its nature or progress, including such things as the issuance or serving of a subpoena, prior to the public filing of the document.
B. In matters that have already received substantial publicity, or about which the community needs to be reassured that the appropriate law enforcement agency is investigating the incident, or where release of information is necessary to protect the public interest, safety, or welfare, comments about or confirmation of an ongoing investigation may need to be made. In these unusual circumstances, the involved investigative agency will consult and obtain approval from the United States Attorney or Department Division handling the matter prior to disseminating any information to the media.
Here is some more guidance from the same manual:
There are exceptional circumstances when it may be appropriate to have press conferences or other media outreach about ongoing matters before indictment or other formal charge. These include cases where: 1) the heinous or extraordinary nature of the crime requires public reassurance that the matter is being promptly and properly handled by the appropriate authority; 2) the community needs to be told of an imminent threat to public safety; or 3) a request for public assistance or information is vital.
It doesn't seem to me that any of these three conditions are met in this case -- the very fact that either six or eight banks are reportedly under investigation suggests that their actions are not "extraordinary" but in fact may well have been ordinary, or at least, common. Whether they were "heinous" is another question; if you are someone who lost a lot of money by investing in what you thought were AAA-rated mortgage-backed securities, you might think what the banks did was heinous. But if that is the judgment the prosecutors are making, they should be willing to make it publicly, by sending the U.S. attorney or the attorney general of America or of New York State out to say, "You know what, under the rule of law, we usually don't announce criminal investigations before an indictment unless there's a manhunt for a suspect or a victim, or unless a crime is so heinous that we need to reassure the public to prevent a panic. We've judged that all six (or eight) banks may have done something so heinous that if we don't announce to the public that it is under investigation there might be a panic."
If, instead, the law enforcement authorities are out tarring firms by accusing them of criminal behavior from behind a veil of anonymity provided by the press, you'd think it'd be the sort of abuse of power that the press would want to be investigating rather than facilitating. This is such a fundamental concept in American law and liberty that it is enshrined in not one but two amendments to the Constitution; the Fifth, which provides "No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury," and the Sixth, which says, "In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him."
How can a bank employee be "confronted with the witnesses against him" when the accusations are flying from, in the case of the Journal, "a person familiar with the matter" or, in the case of the Times, "people with knowledge of the investigation, who were not authorized to discuss it publicly"?
I know that bankers aren't exactly sympathetic characters these days, but that's one reason why the Bill of Rights exists -- to protect unpopular minorities.