Top 10 Ethics Scandals of 2009

EDITOR'S NOTE: Not a year goes by that isn't marred by scandal, but in the world of ethics, 2009 just might take the cake. This list of the year's top 10 ethics scandals was compiled by the staff of Citizens for Responsibility and Ethics in Washington -- better known as CREW.

Let Them Eat Cake!

As the federal government authorized the $700 billion Troubled Asset Relief Program (TARP) to bail out the nation's failing financial institutions, the Wall Street executives responsible for the financial meltdown awarded themselves $18.4 billion in bonuses. AIG, which is now 80 percent owned by American taxpayers, doled out $165 million in executive bonuses. Merrill Lynch authorized $3.6 billion in bonuses after receiving $10 billion from the government and on the brink of bankruptcy, $209 million of which went to 10 bankers alone. President Obama voiced the public's anger over the bonuses, stating, "It is shameful. And part of what we're going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility."

In June 2009, the White House appointed Kenneth Feinberg as "special master for compensation," more commonly known as the "pay czar," to oversee the compensation for senior executives and the top 100 earners at AIG, Bank of America, Citigroup, General Motors, GMAC, Chrysler and Chrysler Financial, all companies that received money through TARP.

Although the pay czar is taking steps to limit bonuses, Wall Street expects to dole out bonuses 40 percent higher than 2008 levels, totaling an estimated $26 billion, by the end of 2009. The federal pay czar is currently trying to force AIG to cut back on $198 million in bonuses. Meanwhile, the government still awaits TARP repayments from some of these firms.

CREW's holiday wish: For the federal government's pay czar to exert his authority over bailed out firms to stop excessive bonuses, demonstrating that the government really does value the interests of Main Street at least as much as Wall Street.

The SEC: Failing to Catch Madoff Since '92

A series of reports from the Securities and Exchange Commission's (SEC) Inspector General revealed the complete failure of the SEC to detect and prevent Bernard Madoff's $65 billion Ponzi scheme over a period of at least 16 years. The reports detail deep systemic problems within the SEC's Enforcement Division, the repeated incompetence of SEC staff, and the commission's seeming indifference when confronted time and again with unmistakable evidence of Madoff's massive fraud.

The first substantive complaint about the Madoff Ponzi scheme was filed in 1992 and resulted in an insufficient and inconclusive SEC inquiry. That complaint was followed by five additional complaints and multiple SEC inquiries that were again poorly executed and indeterminate. One of those complaints was filed by whistleblower Harry Markopolos, who first informed the SEC of Madoff's illegal operations in 2000. Markopolos followed up with the SEC numerous times, providing them with additional analysis and evidence. (One of his reports was titled, "The World's Largest Hedge Fund Is a Fraud.") After the scandal broke Markopolos was hailed as a hero. He testified before Congress, calling the SEC, "captive to the industry it regulates," and adding that it "roars like a lion and bites like a flea."

CREW's holiday wish: A new and completely reconstituted SEC with an enforcement division that understands how to enforce the vital laws that protect the public from schemers like Bernard Madoff.

Public Corruption Prosecutions Were So 2009

In 2009, the Supreme Court accepted three cases challenging honest services law, a provision in the federal mail-fraud statute making it illegal for public or private employees to "deprive another of the intangible right of honest services." A critical prosecutorial tool for fighting public corruption, this statute has been used to convict former Rep. William Jefferson, D-LA, and a large number of those involved in the Jack Abramoff scandal. During oral arguments, the Supreme Court justices focused on all the ways the statute can be misapplied, strongly suggesting they plan to limit the statute's breadth, if not hold it unconstitutional. Already, the prosecutors handling the case of former Illinois Governor Rod Blagojevich have indicated they will re-indict the governor to delete the honest services fraud counts. In addition, Rep. Jefferson plans to ask the court to give him a new trial, though he was convicted of other charges in addition to honest services fraud.