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Judge Blasts Feds for Failure to Go After Wall Street Fraudsters
Posted on Dec 17, 2013
Too big to jail, indeed.
U.S. District Court Judge Jed S. Rakoff has written a scathing indictment of the federal government’s approach to prosecuting Wall Street finance and banking executives, concluding that timidity, lack of resources, and a desire by individual prosecutors to pluck the low hanging fruit of fraud cases has left the country’s top financial wheeler-dealers unscathed by the likely crimes that seized up the world economy.
Particularly galling, Rakoff writes in The New York Review of Books, is the sense among Justice Department officials that some financial institutions are too big to be disciplined. “This excuse—sometimes labeled the ‘too big to jail’ excuse—is disturbing, frankly, in what it says about the department’s apparent disregard for equality under the law,” wrote Rakoff, who previously rankled Justice officials and corporate executives by refusing to approve civil settlements over corporate wrongdoing that did not include an admission of guilt.
And there likely were many crimes committed in the financial collapse. While pointedly saying he has no opinion on whether crimes occurred, Rakoff cites the findings of the Financial Crisis Inquiry Commission that fraud lurked behind the transactions that collapsed the economy. Yet U.S. Justice Department officials “have been more circumspect,” and point to three factors in their decisions not to prosecute: Proving fraud is hard; the sophisticated buyers of ill-fated mortgage-backed securities should have known better; and that going after the crooks could destabilize the economy. From the article:
So why no prosecutions? Rakoff blames it on shifted priorities after the Sept. 11 attacks, when the FBI’s financial-frauds staff dropped from around 1,000 people to about 120; a decentralization of prosecutions to regional offices with insufficient expertise in the complex world of banking and finance and different priorities; the federal government’s role in shoring up post-collapse banks and financial institutions blurred the lines; and a policy shift from prosecuting individuals in favor of corporations in the belief that it would be easier to change corporate culture.
That last factor seems the most significant. An accused corporation can negotiate a settlement, pay a fine, promise not to sin again, then pass along the costs to consumers and shareholders and maybe fire a subordinate executive or two for public relations value. Meanwhile, the individuals responsible—or who most benefited from willful ignorance—pay no penalty for their crimes.
It’s a significant argument Rakoff makes. The New York Times “Sidebar” columnist Adam Liptak said Rakoff accused the government of failing “in its rudimentary responsibilities, offering excuses instead of action.” He asked Rakoff what prompted the essay, an unusual step for a sitting judge.
One hopes his fellow citizens—especially those in charge of regulating the financial world and prosecuting its criminals—pays attention.
—Posted by Scott Martelle.
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