So I think my own thoughts on this are thoroughly predictable, so I'd rather hear what others think. Specifically, for those who think prosecutors should be more aggressive in pursuing criminal prosecutions, how do you reconcile the argument that jailing corporate executives could cost innocent, uninvolved people their jobs? And for those who support this policy, how do you forgive the blatant conflict of interest in relying upon the financial sector to monitor and self-report violations? Is there any sort of middle ground here?
When the energy giant Enron collapsed 10 years ago, top executives of the company faced criminal prosecution, and many served lengthy prison terms. In the savings and loan scandal of the 1980s, hundreds of bankers went to jail.
But the financial meltdown of 2008 hasn't generated a single prosecution of high-level Wall Street players — even though the Securities and Exchange Commission has brought civil cases against some companies and reached financial settlements.
That's a result of new guidelines issued by the Justice Department in 2008, which have allowed prosecutors to take a "softer approach" to corporate crimes. The guidelines — known as deferred prosecution agreements — have permitted financial companies to avoid indictments if they agree to investigate and report their own crimes.
"It's a gentlemen's agreement, and it really allows companies to keep their share prices higher and it helps companies continue to do business with the government, but it's a lot lighter [in terms of penalties,]" says New York Times financial reporter Louise Story. "And this [approach] was celebrated on Wall Street."
Story and fellow reporter Gretchen Morgenson found a memo that the Wall Street law firm Sullivan & Cromwell sent to its clients in 2008 noting the importance of the Justice Department's decision.
"[The memo said] 'It shows that the aggressive days at the Department of Justice were coming to an end or at least decreasing,' " Story tells Fresh Air's Dave Davies. "So this decision was really good news for the banks — and it was interesting that it occurred at the end of the summer of 2008, right when all of these financial crisis cases that might have been made were becoming apparent."
In a recent series of stories, Story and Morgenson have examined the lack of criminal prosecutions against financial executives who profited from the 2008 mortgage crisis.
"There really have been very few criminal prosecutions [of companies], and there has been no criminal prosecution of a senior executive from a major bank or financial company related to the financial crisis," Story says.
Civil Cases, Not Criminal Prosecutions
Some civil cases have been filed by the SEC against some of the mortgage and financial companies that profited throughout the financial crisis, though very few of those cases have actually named individuals who work for the companies.
"For instance, the settlement with Goldman Sachs that the SEC entered into last summer was a pretty large one — $550 million — and some people would say, 'That's a big punishment,' " Story says. "But then other people would say, 'But Goldman Sachs makes that in about three weeks of trading. And these penalties are ultimately paid for by Goldman's shareholders — not by the executives or the salespeople or the traders that actually individually played a role in what happened.' [The leaders of Goldman] are still there, and they're all still getting very large bonuses."
Only one Goldman Sachs employee — a 28-year-old salesman named Fabrice Tourre — has been sued by the SEC for his role in a toxic mortgage-securities fraud case during the 2008 financial crisis. No criminal charges were filed.
"We were told by a lot of current and former Goldman people that there were a large team of people involved, and in fact, since then many Goldman employees and former employees have told us that they were so surprised that only Fabrice was named," Story says. "Fabrice himself thinks it was a little odd that he was the only one named. And we recently obtained the private reply that Fabrice sent to the SEC trying to convince them that he should not be the only one named. And in the reply, he laid out all kinds of people — six or seven other people — who were just as involved in all of the activities as he was."
Other SEC civil cases that have named individuals — as in the case of Countywide ex-CEO Angelo Mozilo, who allegedly profited from toxic mortgages while misleading investors about the risks and agreed to a $67.5 million settlement — have not resulted in criminal prosecutions.
Louise Story joined The New York Times in 2006. She covers Wall Street and finance, and was a finalist for the 2009 Pulitzer Prize in Public Service.
Originally posted by TheBucsFanSo I think my own thoughts on this are thoroughly predictable, so I'd rather hear what others think. Specifically, for those who think prosecutors should be more aggressive in pursuing criminal prosecutions, how do you reconcile the argument that jailing corporate executives could cost innocent, uninvolved people their jobs?
My thought is that this is basically the companies using their employees as human shields to protect themselves. Furthermore, the idea that you don't have to follow the law if it would hurt the economy too much to penalize you is troubling to me. Just a continuation of the "too big to fail" mentality in my opinion.
Originally posted by DrDirtYou want opinions. It doesn't surprise me in the least and it shouldn't surprise anyone. Money talks to both parties.
But was this not true in the 1980s? According to the story, "hundreds" of banking executives went to jail as a result of banking scandals then, and the Justice Department has since changed its tactics. I don't think anyone would mistake Reagan or the first Bush for guys intent on going after the money industry, but that happened under their watch. Why are we doing it differently today?
Just for those interested, Chris Lehane - the guy who brilliantly put John Kerry ahead of Howard Dean when he was Kerry's campaign manager and then was a key figure in defeating the recall vote in California and keeping Gray Davis in office - has joined t...