- - Wednesday, July 25, 2012

As the march to the November elections heats up, voters can expect to find fewer and fewer issues that unite Democrats and Republicans.

Yet one emerging issue appears to be gathering enough steam to produce a rare point of bipartisan agreement: the Justice Department’s unwillingness or inability to charge, prosecute and seek conviction of a single Wall Street executive in the wake of the largest financial collapse in U.S. history.

One of the most glaring examples of the cronyism that has ground the process to a halt can be seen in the lack of any real action against former MF Global chief Jon Corzine.

Sixty-five members of Congress have signed a letter to Attorney General Eric H. Holder Jr. requesting that he appoint a special prosecutor to investigate MF Global’s collapse and the loss of $1.6 billion in customer money. As the New York Times has noted, “Mr. Holder has the ultimate authority to decide whether a special counsel is necessary.”

Some contend that the fact that Mr. Holder, Mr. Corzine and Associate Attorney General Tony West all previously served as fundraising “bundlers” for President Obama’s presidential campaign is enough to warrant Mr. Holder’s recusal and the appointment of a special prosecutor. Indeed, a letter signed by 65 members of Congress cites Mr. Corzine’s $500,000 in fundraising for Mr. Obama as one of the reasons a special counsel is needed. A subsequent report by Bloomberg revealed that MF Global had written clauses into bond offerings indicating that Mr. Corzine, a former Democratic U.S. senator and governor of New Jersey, might join a future Obama administration as a Cabinet officer, a revelation that surprised even experienced Wall Street executives.

However, political connections aside, there are at least three compelling economic and financial reasons why a special prosecutor is essential to avoid the appearance of any potential conflicts of interest.

First, the Government Accountability Institute has discovered that prior to going bankrupt, MF Global was a client of Mr. Holder’s former law firm, Covington & Burling. It is unclear how long Covington & Burling represented MF Global. However, records reveal that MF Global owed Covington & Burling $114,275.55 “for services rendered prior to Oct. 31, 2011,” the date MF Global filed for bankruptcy protection. Furthermore, this connection is complicated by the fact that the head of Justice’s criminal division, Assistant Attorney General Lanny Breuer, also hailed from Covington & Burling.

What’s more, Associate Attorney General Tony West, who helped raise an estimated $65 million in his role as the co-chairman of Mr. Obama’s campaign, came to the Department of Justice from Morrison & Foerster. The problem: MF Global’s trustee for the Chapter 11 bankruptcy has retained Morrison & Foerster as its general bankruptcy counsel.

Second, the trustee overseeing MF Global’s bankruptcy is former FBI Director Louis Freeh. During Mr. Holder’s 2009 Senate confirmation hearing, Mr. Freeh appeared as a witness testifying on Mr. Holder’s behalf. While Mr. Freeh stated that the two men shared no “social relationship,” the former FBI director praised the legal work Mr. Holder did for him when Mr. Freeh, then the general counsel for MBNA Bank in Wilmington, Del., retained Mr. Holder to represent MBNA Bank. “As general counsel, I could have engaged any lawyer in America to represent our bank,” Mr. Freeh said. “I chose Eric.”

It would seem the better part of wisdom for Mr. Holder to recuse himself from the investigation of MF Global given that the trustee and Mr. Holder have a clear previous legal relationship.

While some federal prosecutors may have jumped to the conclusion that Mr. Corzine’s and MF Global’s actions may have been foolish but not criminal, the New York Times reported in late February that “it is early in the investigation, and regulators and others have yet to finish plowing through the mountain of documentation they received from the company.” Put simply, time is of the essence.

The tangle of relationships between Mr. Holder, Mr. Freeh, Mr. West, Mr. Corzine, MF Global, Covington & Burling, and Morrison & Foerster create, at minimum, the appearance of potential conflicts of interest. As the late Lloyd Cutler, a former White House counsel, stated, “Integrity is not enough.” Conflicts often arise “when a private lawyer enters government service and a matter comes before him affecting his former law firm or its clients.” Therefore, said Cutler, lawyers at firms like Covington & Burling or Morrison & Foerster must “operate at somewhat more distance, their friendships and loyalties — not to mention their financial interests — tie them closely to the corporate officers. The appearance of conflict is as dangerous to public confidence in the administration of justice as true conflict itself. Justice must not only be done; justice must also be seen to be done.”

That can mean but one solution: Mr. Holder must appoint a special counsel to investigate the role of Mr. Corzine and MF Global in the disappearance of $1.6 billion of customers’ money.

Until that happens, citizens on both ends of the ideological spectrum will be left to wonder whether cronyism — not objectivity — has blinded lady justice.

Peter Schweizer is the William J. Casey Fellow at the Hoover Institution at Stanford University, president of the Government Accountability Institute and author of “Throw Them All Out” (Houghton Mifflin, 2011).

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