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Federal Judge: Why No Wall Street Execs have been Prosecuted for Fraud during the Financial Crisis
As the financial crisis
recedes, one nagging question remains: Why have no high-level
executives been prosecuted for fraud in the way Charles Keating was
brought to justice after the savings-and-loan debacle in the late 1980s?
After first swatting away
the excuses put forward by prosecutors to date, Judge Jed Rakoff of the
Federal District Court in Manhattan, has put forward his own answer to
this quandry that might not be easy to swallow.
Rakoff argues in an essay
in the latest issue of The New York Review of Books that government
prosecutors have been leery of bringing Wall Street bosses to trial
because high-level government officials might be dragged into the mix.
Rakoff, who has previously
made a name for himself as being a thorn in the side of both Wall Street
and Washington, said he was not suggesting that the government
participated in any fraud.
“But what I am suggesting
is that the government was deeply involved, from beginning to end, in
helping create the conditions that could lead to such fraud, and that
this would give a prudent prosecutor pause in deciding whether to indict
a CEO who might, with some justice, claim he was only doing what he
fairly believed the government wanted him to do,” Rakoff said.
It was the government that
repealed Glass-Steagall, encouraged deregulation and weakened oversight
of the watchdog agencies, Rakoff noted.
The Office of Thrift
Supervision ran a successful campaign to preempt state regulation for
thrift underwriting and then terminated its own mortgage underwriting
regulations entirely, he said.
And if mistakes were made
and liabilities not disclosed during the “shotgun marriages” of Bank of
America with Merrill Lynch and J.P. Morgan with Bear Stearns, was it not
partly the government’s fault? he asked.
Another factor which Rakoff
calls maybe the most important, is that there has been a shift over the
past 30 years from focusing on prosecuting individuals to prosecuting
companies.
He said that this practice “has led to some lax and dubious behavior on the part of prosecutors, with deleterious results.”
Companies are happy to
enter into deferred prosecution agreements under which they agree to pay
fines and accept prophylactic measures.
“But perhaps happiest of
all with this trend are the executives or former of the companies who
committed the underlying misconduct for they are left untouched,” he
said.
Follow Greg on Twitter @grobb2000, Follow Capitol Report @capitolreport
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