The Absolute Best Article Ever On "Why No CEO's Are Being Prosecuted For Causing The Financial Crisis Goes To DailyKos
Below are parts of an article that is based on a Federal Judge, Judge Jed S. Rakoff who is a sitting Judge on the United States District Court for the Southern District of New York--the nerve center of the financial world. I was so taken by the facts and courage of this Judge I had to share the story here in m y blog. I long thought that the main reason that no CEO's were being prosecuted for causing the financial crisis because as I remember the SEC actually had desks inside some of the financial institutions supposedly to be auditing them in real time, yet all the fraud went on right beneath their noses. The bottom line being that government officials responsible for protecting the public were either the most incompetent, inept, and stupid, people ever to hold the positions they did, or, were guilty of being part of the fraud that almost brought down the world economy through greed. The financial crisis deemed "The Great Recession" stole from American people their homes, their net worth, their retirement savings, their 401k's, almost everything. We know that the people who have the money have the power by way of influence, because they give politicians money through campaigns and many other ways. We may even suspect that officials actions are bought from time-to-time, but we will probably never see what this Judge believes would be best thing for us, a deterrent. A deterrent created by sending a few of these Chief Executive Officers (CEO's,) Chief Financial Officers (CFO's,) Chief Operating Officers (COO's,) or at least some Principles in the firms, to prison, for enough time that other CEO's and the like would never want to do anything like they did leading up to 2008-2009. Prison meaning an actual prison, not a country club is an important part of creating that deterrent. See the excerpts below, and there is a link to the DailyKos article at end of which I think you may chose to use. Also I highly recommend you utilize the "essay" link I've put in the second paragraph. I offer my best compliments to Dartagnan of the DailyKos for a great article.
Reprinted excerpts from DailyKos - Why No CEO's Were Prosecuted For Causing The Financial Crisis - December 25, 2013:
"If you prosecute a CEO or other senior executive and send him or her to jail for committing a crime, the deterrent effect in my view vastly outweighs even the best compliance program you can put in place."
It's unusual for a Federal Judge to weigh in on specific matters that could conceivably come before his Bench. It's even more unusual when those matters involve politically sensitive issues of national policy. A hard-hitting
essay published recently in The New York Review Of Books by a 70-year old active United States District Judge has raised eyebrows for doing just that.
Judge Jed S. Rakoff sits for the United States District Court for the Southern District of New York--the nerve center of the financial world. A Clinton appointee and former Federal prosecutor, he stunned the SEC in 2011 by rejecting a proposed 285 million dollar settlement between the U.S. and Citigroup in a case where Citigroup had been accused of misleading investors through the sale and packaging of collateralized debt obligations. Rakoff's rationale for rejecting that settlement--which he characterized as "pocket change"--was that Citigroup was not required to admit culpability. The SEC changed its position on this practice after this ruling.
His essay, linked above, suggests several reasons and leads to at least one unsettling conclusion: that
the
Justice Department believes governmental officials' actions tacitly if
not directly abetted and enabled the crisis to the point where
prosecuting corporate CEO's would simply end up implicating the U.S.
government.
But if, by contrast, the Great Recession was in material part the product of intentional fraud,
the
failure to prosecute those responsible must be judged one of the more
egregious failures of the criminal justice system in many years.
Indeed, it would stand in striking contrast to the increased success
that federal prosecutors have had over the past fifty years or so in
bringing to justice even the highest-level figures who orchestrated
mammoth frauds.
READ MORE
[T]he stated opinion of those government entities asked to examine the financial crisis overall is
not
that no fraud was committed. Quite the contrary. For example, the
Financial Crisis Inquiry Commission, in its final report, uses variants
of the word “fraud” no fewer than 157 times in describing what led to
the crisis, concluding that there was a “systemic breakdown,” not just
in accountability, but also in ethical behavior.
As the commission found, the signs of fraud were everywhere to be seen...
Rakoff then systematically dissects the Justice Department's three predominant
excuses
for their failure to prosecute individuals who undoubtedly fostered the
conditions that led to the financial meltdown of 2008. The first--the
difficulty of proving intent (an essential element to prove fraud), he
finds weak. Judge Rakoff believes that given the scale of the abuse the
Justice Department would be capable of eliciting enough evidence to
prove conscious disregard, or "willful blindness" on the part of
corporate CEO's and officers whose companies engaged in these
transactions. In a Federal criminal trial for fraud, conscious
disregard can and does qualify as "intent."
The second excuse, that proof of "reliance" would be difficult since
the parties to these transactions were sophisticated investors--he
dismisses fairly out of hand. The criminal standard for fraud requires
no such proof, and he explains why.
Finally, the Justice Department--specifically Attorney General Eric
Holder--has raised the possibility that such prosecutions might result
in economic harm to the country. Rakoff believes that for a Federal
official charged with enforcing the law this position--the "too big to
jail" position-- is disturbing, to say the least. He notes that Holder
recalibrated his remarks and said they had been misconstrued, but in any
event this leads Rakoff to his central point--that this concern
evaporates if individuals are targeted, rather than institutions.
Rakoff believes that the high-profile prosecution of individual CEO's
would have a far greater deterrent effect than do the prosecutions of
the companies they work for. So if Justice's excuses are hollow, what is
the real reason these prosecutions haven't occurred? Rakoff tacks off
the familiar justifications: First, because agents who could have worked
the cases were transferred to anti-terrorism duty after 9/11; second,
that the SEC operates under a very limited budget, limited even more by
Congressional Republicans; and finally that the potential cases were
parceled out to assistant US Attorneys with a greater personal interest
in prosecuting "run-of-the-mill" financial fraud such as
insider trading because of their immediate payoff.
None of these explanations is particularly satisfactory to him given
the scope of the harm done. This brings him to to his second, more
alarming point--that the government's own role in fostering the events
that led to the crisis has had a chilling effect on prosecutors:
...Even before the start of the housing boom, it was the government, in the form of Congress, that repealed the Glass-Steagall Act,
thus allowing certain banks that had previously viewed mortgages as a
source of interest income to become instead deeply involved in
securitizing pools of mortgages in order to obtain the much greater
profits available from trading. It was the government, in the form of both the executive and the legislature, that encouraged deregulation,
thus weakening the power and oversight not only of the SEC but also of
such diverse banking overseers as the Office of Thrift Supervision and
the Office of the Comptroller of the Currency, both in the Treasury
Department. It was the government, in the form of the Federal Reserve, that kept interest rates low, in part to encourage mortgages...[.].
If you read that paragraph carefully you'll notice that--fair or not--no
one escapes blame. From the start to the finish, the U.S. government
has had its hands in the financial mess, and it was again the U.S.
government--recall, for example, the near unanimity between the outgoing
Bush and incoming Obama Administrations on TARP-- who readily forgave
and immediately bailed out most of the very entities directly
responsible for the disaster in the first place.
[W]hat 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 that he was only doing what he fairly believed the government
wanted him to do.
And that, my friends, is as good a reason as any why you have seen no
prosecutions of high level private financial firm CEOs in connection
with their actions leading up to the meltdown. While Rakoff won't come
out and say it, the implication is clear--if the elements are there to
establish fraud, then the prosecutor's job is to prosecute. But who to
prosecute when the CEO starts attributing his actions to the government?
And implicating "the government" always means naming names--from Rubin
to Gramm to Clinton to Reagan, and everyone in between.
Finally, Rakoff criticizes the trend by the Justice Department
towards punishing companies as opposed to the folks who run them, a
trend he describes as unfortunate, leading to a familiar dance that
looks like this:
Early in the investigation, you invite in counsel to the
company and explain to him or her why you suspect fraud. He or she
responds by assuring you that the company wants to cooperate and do the
right thing, and to that end the company has hired a former assistant US
attorney, now a partner at a respected law firm, to do an internal
investigation...[.]
Six months later the company’s counsel returns, with a detailed
report showing that mistakes were made but that the company is now
intent on correcting them. You and the company then agree that the
company will enter into a deferred prosecution agreement [requiring
fines and future compliance requirements]... You are happy because you
believe that you have helped prevent future crimes; the company is happy
because it has avoided a devastating indictment; and perhaps
the happiest of all are the executives, or former executives, who
actually committed the underlying misconduct, for they are left
untouched.
The fact that this is coming from a Judge who has a history of creating
heartburn for the Justice Department simply bolsters its credibility.
