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Excerpted From: Chloe Chung, Asian American-owned Banks Do Count: No Wrongful Jailing of Abacus Bank, 25 Asian Pacific American Law Journal 79 (2021) (452 Footnotes) (Full Document)

ChloeChungIn the fall of 2008, interest rates, easy and available credit, scant regulation, and toxic mortgages culminated in the collapse of the housing bubble and ultimately, full-blown financial crisis. When the housing bubble burst, hundreds of billions of dollars in losses in mortgages and mortgage-related securities shook markets as well as financial institutions around the world. The financial crisis resulted in 489 bank failures from 2008 through 2013. Abacus Federal Savings Bank (Abacus Bank or Abacus), a family-run community bank based in NYC's Chinatown catering primarily to Chinese immigrants, was not amongst these failed institutions. Abacus Bank also was not an institution that required financial assistance from the government in the wake of the burst of the housing bubble. Abacus avoided the fallout of the crash because it never invested in mortgage-backed securities, nor did it ever originate any subprime mortgages.

Nevertheless, on May 31, 2012, the New York County District Attorney's Office (DA) announced criminal charges against Abacus Bank in a 184-count indictment. The media was treated to a spectacle as the indicted Chinese-American Abacus employees were handcuffed, chained together, and marched by law enforcement down the narrow hallway of the New York City courthouse in front of cameras. Prosecutors alleged that Abacus and nineteen of its employees had systematically defrauded the Federal National Mortgage Association (Fannie Mae) by allowing borrowers to lie about their income and assets on the government-sponsored mortgage company's proof-of-employment forms. Ultimately, after a five year investigation by the DA and four-month long jury trial, Abacus Bank was found not guilty on all charges. To date, Abacus Bank remains the only financial institution criminally prosecuted in connection with the 2008 financial crisis. Manhattan District Attorney Cyrus R. Vance has been met with harsh criticism that he pushed the boundaries in his aggressive pursuit of a “lowest hanging fruit” family-run bank that fills a necessary void by catering to the Chinese American minority community. It is important that the consequences of the litigation brought against Abacus Bank are remembered and studied, so as to hold prosecutors such as Vance accountable for the ways in which they exercise prosecutorial discretion, and to encourage prosecutors to remain aware of cultural context and implicit biases when targeting businesses that cater to underserved minority communities.

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While Abacus may not have been able to establish selective enforcement or malicious prosecution in a courtroom because of the way the doctrines are stacked, the Abacus Bank trial still serves as a potential lesson for future prosecutors to understand and use as guidance in their decision making.

When the financial institutions came under fire after the market crash in 2007, too-big-to-fail institutions like Morgan Stanley, Goldman Sachs, JPMorgan, Chase, and Citicorp had issued $4.8 trillion in fraudulent mortgages and had received a $700 billion government bailout, paid a total of $110 billion in fines, and were given deferred prosecution and non-prosecution agreements. DA Vance admits in the film that he considers much of what the big banks did leading up the financial crisis as “less than ethical,” but he did not seek any indictments against them. Essentially, he says that it would have been too hard to prove charges against the big banks. The former U.S. Attorney for the Southern District of New York, Preet Bharara, has said the same thing on numerous occasions. The FCIC's chairman Phil Angelides cited the lack of action as sending a message to Wall Street that consequences for individuals would be minimal. Amidst this environment, DA Vance wanted to send the message that in fact, there would be consequences for some corporations and individuals.

Vance chose the “right case,” but the “wrong bank,” according to Puvalowski. Unlike the banks that foreclosed or required bailout in connection with the crisis, Abacus never invested in mortgage-backed securities, nor did it ever originate any subprime mortgages. Rather, Abacus continued about its business. While many larger institutions had pulled back from residential lending after the financial crisis, Abacus Bank was keeping its loan spigot open. Abacus Bank held one of the nation's lowest default rates and in late 2009 Abacus's default rate was just one-twentieth of the national average rate of 6.26 percent.

Nevertheless, at the press conference announcing the indictment, DA Vance directly linked Abacus Bank's alleged conduct to the financial crisis, stating: “The lessons of the financial crisis are still being learned. The public must have confidence that when a bank issues a loan that it later re-sells to Fannie Mae, and by extension the nation's investors, it will engage in honest and ethical practices and follow the rules set by regulators.” The DA charged Abacus Bank by arguing that the loans that triggered the DA's case against the bank were just like the subprime loans that triggered the 2008 financial crisis, although they had not yet defaulted in the first few years, they were likely to go bad later on.

Repeatedly, DA Vance pushed the prosecution against Abacus too far. The indictment itself acknowledges that Abacus Bank never dealt in securities, yet the DA chose to pursue Martin Act claims, which clearly require actions involving securities. Even more alarmingly, DA Vance filed this case even though his investigation found that Fannie Mae had incurred few or no losses on the loans. Indeed, Prosecution conceded the lack of loss during trial. Fannie Mae, the alleged “victim,” had profited by more than $100 million from loans originated by Abacus Bank. One must seriously question why a DA would prosecute an institution for larceny, when there was never any financial loss suffered.

The charges against Abacus Bank were announced in a flashy press conference with DA Vance assuring the public that “Loan schemes based on fraud inevitably will unravel, as this one did. Today's indictment reaffirms our commitment to transparency and straight dealing in the financial markets. We cannot settle for less.” The DA portrayed Abacus Bank as having caused the 2008 financial crisis when in fact the DA was aware that this was not true. By the time Abacus Bank was charged by the DA in connection with the 2008 financial crisis, the Financial Crisis Inquiry Report had already been released a year earlier establishing the causes of the financial crisis, and the financial institutions deemed “too big to fail” had already been effectively bailed out by the government.

While some have accused the DA's office of racial bias, others have argued that the evidence does not really stand up, as it appears that the Sung family was singled out not for their ethnic origins, but because they were an easy target. DA Vance himself has stated that he thinks “the characterizations that this was somehow a cultural bias on the office's part-- entirely misplaced and entirely wrong .... I felt that our handling of the bank was consistent with how we would have handled the bank if we were investigating a bank that serviced the South American community or the Indian community.” At the end of the day, DA Vance may simply have believed, albeit incorrectly, that this case would be an easy win because of the bank's small, minority status. According to the director of Abacus: Small Enough to Jail, Vance's judgment was “seriously clouded” by his ambition “to be a DA who prosecuted a bank in the wake of the crisis of 2008 because none the big banks were prosecuted,” so that he brought “a case that had no business being brought.”

DA Vance's determination to garner a guilty plea from a bank following the crisis is demonstrated by his refusal to make a deferred prosecution offer to Abacus. Unlike other financial institutions involved in the 2008 financial crisis, Abacus Bank was not given the opportunity to walk away with only a fine. No deferred prosecution or non-prosecution agreements were on the table. Instead, Thomas Sung was given the option of accepting a guilty plea to criminal felonies and paying the associated $6 million in fines, or fighting the litigation at his own monetary expense. The DA made clear that he would not bargain with Abacus and would insist on a guilty plea. Pleading guilty was not an option for Abacus as that would have meant the bank would lose the operation to operate with the OCC. The Abacus Defense team maintains that given the timing in combination with the DA's press release and public statements, it was clear that the Abacus case was motivated, at least in part, by the DA's desire to appear as if they were involved in prosecuting the financial crisis.

DA Vance's seemingly selective prosecution of Abacus did not go unnoticed by the public. After the ruling came down, DA Vance faced negative criticism in the media. This was not the first time Vance was accused of unequal prosecution tactics. One article observed that throughout both of this terms Vance had “shied away from prosecuting powerful people ... even when the cases are solid, and ... chosen repeatedly to go after less- influential people when the cases are suspect or the crimes committed didn't hurt anyone.” One former prosecutor for the Manhattan DA's office complained to the New Yorker about Vance's willingness to try to make an example out of this small, obscure bank: “This case just involved a terrible example of poor judgment by the prosecutor.” The rigorous way the DA's office pursued this criminal case was criticized by journalist Matt Taibbi in his 2014 book The Divide: American Injustice in the Age of the Wealth Gap, and later in Steve James's documentary Abacus: Small Enough to Jail. The film, which follows the Sung family through the People v. Abacus trial, premiered at the Toronto International Film Festival in 2016, was broadcast on PBS Frontline in 2017, won an Emmy, and was nominated for an Oscar in 2018. As stated by James, the film's director, it “became clear to everyone ... the Sung family and us as filmmakers, that this case was so important to [Vance] because he wanted to be the prosecutor who took down a bank in the wake of this crisis, whether this bank had anything to do with that crisis or whether they were innocent or guilty.”

Both the range of prosecutors' discretionary decisions and the breadth of their discretion in making those decisions are vast. Moreover, so long as prosecutors act lawfully, their highly discretionary decisions are often unreviewable, meaning that their decisions are beyond the courts' power to overrule them. Arguably, no government official in these United States has as much unreviewable power and discretion as the prosecutor. Prosecutors' discretionary decisions have enormous impact on individuals and communities, and unfortunately, prosecutors often exercise their vast power and discretion in questionable ways. DA Vance's prosecution of Abacus Bank in connection with the 2008 financial crisis is arguably one of these occasions.

Specific cases of misguided decision making by Das such as Vance shed increased light on prosecutorial discretion and its at times troubling uses, helping to bring the subject more attention. In recent years, there has been growing literature on unconscious biases and their effect on legal decisions of prosecutors. Today, there is fairly extensive academic literature concerning the desirability of controlling or limiting prosecutorial discretion. There is no consensus on what changes should be implemented to try to reduce the influence of prosecutors' unconscious impermissible conditions. Many have proposed schemes for regulating and reforming prosecutorial discretion, or for authorizing judicial review of prosecutorial decisions. For example, it has been argued that prosecutors, like other administrative or executive agencies entrusted with substantial delegated power, should be required to adopt formal regulations governing their decisions, or that they should be required to state their reasons for particular actions. Victims' rights advocates have proposed that victims should be given at least a consultative role and perhaps even a veto power over prosecutors' charging and plea-bargaining decisions.

While no generally accepted view has emerged as to changes that should be implemented to protect prosecutorial decision making from the effects of biases, the public should still continue to scrutinize prosecutors' decision-making and endeavor to hold prosecutors accountable when they do make decisions badly or abusively. seen by victims of prosecutorial discretion such as Abacus Bank, the public cannot rely on courts to hold prosecutors accountable for exercising their discretion unwisely. To ensure prosecutors use their power conscientiously, attention must be given to the instances in which prosecutors overstep their discretionary boundaries, particularly when formal sanctions are not applicable, as was the case with Abacus and DA Vance. Public and professional discussion of prosecutorial discretion is essential to holding prosecutors responsible for how they use their vast power. Informed public inquiry and discourse will both encourage prosecutors to use their power wisely and promote accountability when prosecutors use their power abusively. Therefore, the Abacus case should be discussed and studied broadly in order to serve as a cautionary tale to future prosecutors who may otherwise consider bringing charges for mere publicity or glory.

Chloe Gunther Chung obtained a JD from UCLA School of Law in 2021 and a BA in Psychology from the College of Arts & Sciences of Cornell University in 2016.

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