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The "Keating Five" Corruption Story Has Lessons for the Citizens United Era

Tough, smart, effective, and apolitical regulators are key to avoiding rampant fraud and future financial crises.

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Ultimately, we blew the whistle on Wall, Speaker Wright, and the Keating Five. Wall and Wright resigned in disgrace. The Keating Five received minimal ethics sanctions, but they were deeply embarrassed. The Bush (I) administration decided to make the prosecution and sanctioning of the elite frauds that drove the debacle a top priority. It resumed and even expanded many of Gray’s policies (particularly in enforcement and supporting criminal prosecutions). Accounting control fraud is a weapon of mass financial destruction. When it is not blocked by effective regulation and prosecution it becomes a mass destroyer of employment.

Gray and Selby (who Wall forced out of office to curry favor with Speaker Wright) chose to give up their careers – at the peak of their careers – to save the nation from catastrophe. Brooksley Born (CFTC Chair) did much the same in the run up to the current crisis. The overwhelming majority of financial regulatory leaders appointed by the most recent Bush administration were chosen because they were leading opponents of regulation. They created a self-fulfilling prophecy of regulatory failure. We will know that an administration is serious about financial reform when it appoints Mike Patriarca, Chris Seefer, and Bart Dzivi as regulatory and enforcement leaders. The key lesson that Gray and Patriarca understood is that it was essential to hire regulators willing to tell four Senators (Cranston was managing a bill on the floor of the Senate when the exchange happened) that of course some AY audit partners would prostitute themselves for a fraudulent client – “it happens all the time.” Let’s hire people as regulators and prosecutors with a track record of success, integrity, and courage. The problem is that recent administrations have preferred to appoint the people with a track record of failure and poor integrity. The reason for that preference is the old accounting joke – pick the audit partner who responds to the interview question (“what is two plus two”) by saying: “what would you like it to be”? The joke, of course, is an admission that professional prostitution is far too common among audit partners.

I call on President Obama to recognize the hero of the silver anniversary of the Keating Five meeting by appointing Michael Patriarca as head of the Office of the Comptroller of the Currency. We need regulators who will live out the famous credo of the Friends (Quakers): “speak truth to power.”

Bill Black is the author of 'The Best Way to Rob a Bank is to Own One' and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.

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