In all honesty its a fair question to ponder why so many bank and Wall Street executives haven’t seen the inside of a jail cell. And these days a federal judge is asking, “Why haven’t the financial executives been prosecuted?”
“Companies do not commit crimes,” Rakoff observes; “only their agents do…So why not prosecute the agent who actually committed the crime?” He’s witheringly skeptical of prosecutions of corporations, which usually yield some nominal fines and an agreement that the company set up an internal “compliance” department. “The future deterrent value of successfully prosecuting individuals far outweighs the prophylactic benefits of imposing internal compliance measures that are often little more than window-dressing.”
Rakoff’s at his best when analyzing why the government has stopped pursuing individuals and taken the easy route of settling with corporations. He notes that this is a recent trend: In the 1980s, the government convicted more than 800 individuals, including top executives, in the savings-and-loan scandal, and a decade later successfully prosecuted the top executives of Enron and WorldCom.
He dismisses the Department of Justice rationale that proving “intent” to defraud in the financial crisis cases is difficult: There’s plenty of evidence in the public record that banking executives knew the mortgage securities they were hawking as AAA were junk.
He doesn’t buy the excuse that criminal prosecutions involving major financial firms might have damaged the economy — no one has ever contended that a big firm would collapse just because its high-level executives were prosecuted. And he notes that the government doesn’t dispute that some of these executives may be guilty — it just comes up with excuses for not prosecuting.
Why? Rakoff posits that there are several reasons for the lack of prosecutions. One is that the FBI and SEC are both understaffed because of budget cuts, and in the FBI’s case with the diversion of much of its workforce to anti-terrorism efforts after 9/11. And he speculates that the government may feel abashed at its own complicity in the crisis, arising from the easing of financial and mortgage regulations over the years.
Rakoff’s piece has elicited some predictable push-back from the Department of Justice, where a spokesman scoffed that he “does not identify a single case where a financial executive should have been charged, but wasn’t.”
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