Bank fraud investigations assisted by bankers' emails saying 'Please don't talk about this illegal thing in email'

Morgan Stanley's pre-crisis fraudulent mortgage activity cost the firm $2.6B in federal fines, $550m in New York state fines, and $22.5M in Illiois state fines -- and part of the evidence against it is emails from high-ranking bankers telling their subordinates not to talk about the criminal stuff in email, because it could get them all in trouble.

Modern psychology has not, I think, fully come to grips with the death drive in financial e-mails. People know they are not supposed to mention illegal stuff in their e-mails and instant messages and chat rooms and recorded phone calls. You can tell because, when they mention the illegal stuff in those electronically preserved records, they regularly also mention the fact that they're not supposed to mention it. What are they thinking? If you say illegal stuff in an e-mail at a bank, there is a good chance that it will end up quoted in a multibillion-dollar settlement, but if the same e-mail also discusses how you shouldn't put the illegal stuff that you just put in writing, in writing, then your chances increase dramatically. Like this person:

In a May 31, 2006 email, the head of Morgan Stanley’s team tasked with doing due diligence on the value of properties underlying the mortgage loans asked a colleague, “please do not mention the ‘slightly higher risk tolerance’ in these communications. We are running under the radar and do not want to document these types of things.”

Where do you think the radar is? The radar is an e-mail search program that looks for phrases like "we are running under the radar." I have to believe that at some deep unconscious level this person wanted to get caught.

Mortgage Fraud and Growing Worries [Matt Levine/Bloomberg]

( via The Gruqq)

Loading...