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Though Lawsky didn't end up taking Standard's license, the fact that he threatened to was something new and terrifying for the banks.
"This industry is so cosseted, no one's even suggested that before," Naylor says. "We are so captured by the banking industry, we don't even know it."
If the Standard affair was equivalent to DFS lobbing a grenade into a tea party, the department's founding was a bit like setting off a stink bomb in the middle of a landfill. No one really noticed.
DFS's backstory is deadly dull, full of phrases like "fiduciary power" that tend to make eyes glaze over. Briefly, it goes like this: Once upon a time, before there was a Department of Financial Services, New York had a Banking Department and an Insurance Department, both of them hundreds of years old. In 2011, Gov. Andrew Cuomo passed a law jamming the two together. That May, Ben Lawsky, who had briefly served as Cuomo's chief of staff (as well as several other positions in his cabinet), was appointed superintendent of DFS.
Although DFS oversees banking and insurance, performs investigations, and metes out fines, it can't put people in jail. That was a change for Lawsky, who got his start as an aide to Senator Chuck Schumer on the Judiciary Committee, and as a trial attorney in the Department of Justice. His formative job, though, was that prosecutor's spot in the Southern District, where he developed skills that made him uniquely equipped to take on banks.
"One of the things you learn is to question everything," Barofsky says. "Things have to be proven to you, and [you can't] be fearful of authority or others." (Barofsky learned the same skill set. After resigning from the bailout program, he became one of the financial system's greatest critics, calling it a "gaping chest wound.")
DFS started small, with a series of mundane moves throughout 2011: warning New Yorkers to watch out for home-repair scams in the wake of Hurricane Irene, announcing it would crack down on workers' compensation fraud, and investigating sketchy doctors for fraud.
Lawsky played nice with the banks at first, opting for persuasion over force. When Ocwen Financial Corporation wanted to buy a mortgage company owned by Goldman Sachs, Lawsky said the deal could go through only if Ocwen forgave some of the money owed by homeowners facing foreclosure, people who were 60 days delinquent on their loan payments. Goldman and Ocwen agreed.
But last year, with the sudden announcement of the Standard investigation, the tone shifted perceptibly, and the targets became more numerous: not just banks, but also predatory payday lenders and abusive debt collectors.
This year, Lawsky hammered three insurance companies—Narragansett Bay, Tower, and Kingstone—after they failed to process homeowners' claims in the wake of Hurricane Sandy. So began an astonishing show of force for a tiny state agency with only 40 full-time investigators.
"He's done an outstanding job," says Michael Greenberger, a former regulator with the federal Commodity Futures Trading Commission. Greenberger is now a professor at the University of Maryland's law school—when he's not testifying before Congressional committees on "dysfunctions" in the country's financial markets. "He's has taken this financial-division department and really made some wondrous thing out of it, including making the federal government look like they don't know what they're doing."
A year after settling with Standard, Lawsky wasn't quite done with the bank. This June, DFS went after Deloitte, one of the nation's largest corporate auditors. Deloitte was supposed to be monitoring Standard for shenanigans. Instead, DFS charged, it was in cahoots with the bank, watering down reports and removing recommendations on how to prevent money laundering.
"At times, the consulting industry has been infected by an 'I'll scratch your back if you scratch mine' culture and a stunning lack of independence," Lawsky said in a press release announcing his assault. "Today, we are taking an important step in helping ensure that consultants are independent voices—rather than beholden to the large institutions that pay their fees."
Deloitte agreed to a $10 million fine, relatively small potatoes. But there was a bigger hit in store: It agreed to a one-year ban on consulting for New York banks, a devastating timeout that forced the auditor to forgo some huge contracts.
Two days later, DFS lit up the Bank of Tokyo–Mitsubishi UFJ for laundering money for Iran and Burma. The department accused the bank of conducting about $100 billion worth of illegal transactions, fining it $250 million. A year earlier, the Treasury Department had negotiated a mere $8.5 million settlement in its own case.
"Terrorism needs money to survive," Lawsky told the New York Post. "We will continue to do everything we can to ensure banks don't facilitate the flow of funds that could be used by terrorists and enemy nations."
It was a good summer at DFS. But as the heads have piled up, Lawsky has gotten skittish about talking to the press. Almost every press release issued by DFS credits Governor Cuomo first. Lawsky isn't usually mentioned until the third or fourth paragraph.
Where he once gave expansive interviews in his office on State Street, posing for photographs behind his giant, shiny desk, securing an interview with Lawsky these days involves weeks of chasing and a little party-crashing. The Voice only managed to reach him by dropping in on a midsummer talk he gave at the Yale Club.