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May 15, 2012

Fascinating DOJ report on number of prosecuted Wall Street executives

Yesterday's Wall Street Journal had this notable report on an exchange of letters between Senator Charles Grassley and the US Department of Justice concerning how many Wall Street executives have been prosecuted and convicted for financial crisis misdeeds.  The article is headlined "Missing: Stats on Crisis Convictions," and here are excerpts:

It is a question that has been asked time and again since the financial crisis: How many executives have been convicted of criminal wrongdoing related to the tumultuous events of 2008-2009?  The Justice Department doesn't know the answer.

That is because the department doesn't keep count of the numbers of board-level prosecutions. In a response earlier this month to a March request from Sen. Charles Grassley (R.,Iowa), the Justice Department said it doesn't hold information on defendants' business titles.  "Consequently, we are unable to generate the [requested] comprehensive list" of Wall Street convictions stemming from the 2008 meltdown, the letter from the Department of Justice to Mr. Grassley said.

The explanation raises eyebrows among legal experts.  Adding up the numbers of financial chief executives and chief financial officers put behind bars for their role in the crisis shouldn't be too difficult, they say.

"It's not a big number to count, that's for sure," said Chris Swecker, who ran the Federal Bureau of Investigation's criminal division from 2004 to 2006.  William Black, a former bank regulator, said the government used to keep these figures....

The Securities and Exchange Commission highlights on its website its civil crisis-related enforcement actions against senior corporate officers -- a total of 55 so far.  Mr. Black, an associate professor of economics and law at the University of Missouri-Kansas City, said it seems "smart" of the Justice Department to no longer keep score of boardroom prosecutions.  "I can tell you why you wouldn't keep the data," he said. "Because it would be really embarrassing."

A spokeswoman for the Justice Department said the numbers of financial-fraud cases being brought has increased since the crisis. "When we find sufficient evidence of criminal conduct, we will not hesitate to bring charges," she added....

In the three years since the crisis peaked in October 2008, the Justice Department has filed financial-fraud cases against 14,843 defendants, according to the letter to Mr. Grassley.  Over that time, it said, more than 1,100 people have been sentenced to prison for mortgage fraud.

The letter names 17 CEOs and other senior corporate officers convicted of significant financial crimes.  Most of the 17 committed frauds that weren't directly related to the financial crisis.  They include Allen Stanford, convicted in March of running a Ponzi scheme; Raj Rajaratnam, jailed last year for insider trading; and Zevi Wolmark, who pleaded guilty this year to bid-rigging in the municipal-finance market. Courtney Dupree, convicted last year of a $21 million bank fraud, makes the Justice Department's list.

But only one of the cases mentioned by the Justice Department in the letter to Mr. Grassley concerns alleged wrongdoing by a Wall Street firm directly related to the financial crisis: the criminal charges filed this year against three former Credit Suisse Group AG CSGN.VX +0.16% employees for allegedly inflating mortgage-bond values.

Mr. Grassley said the letter "substantiates my suspicion" the government "isn't going after the big banks, big financial institutions or their executives."  The Justice Department is instead "hiding behind a bunch of mortgage fraud prosecutions," Mr. Grassley said in a statement.

But officials said the scarcity of crisis-related prosecutions might reflect a lack of criminal behavior, rather than any failure of law enforcement.... The only criminal trial against Wall Street executives for alleged wrongdoing related to the crisis involved two former Bear Stearns hedge-fund managers. Their acquittal on all charges in 2009 was a significant setback for federal prosecutors.

The WSJ has provided links to Senator Grassley's letter and DOJ's response, both of which are interesting reading, though I think one needs an on-line subscription to get this access.

May 15, 2012 at 09:00 AM | Permalink


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I hate to be a lawyer about it, but my reaction is something of the on-the-one-hand-but-on-the-other-hand variety.

On the one hand, it's exceedingly dangerous to pick out a class of defendants in advance and march forward, convinced a priori of their probable guilt. The ensuing investigation, and possibly prosecution, is too likely to reflect the bias going in.

On the other hand, how much money did you say Eric Holder's boss has raised from all his pals on Wall Street who're not getting prosecuted?

Posted by: Bill Otis | May 15, 2012 3:59:04 PM

As a Real Estate Broker/Developer, I find the undermining of the Rule of Law by this President and his staff to be among the most troubling. Given another four years to fester, most certainly Anarchy would prevail, unless of course Obama became a Dictator. In which case the Rule of Law would be subjective based on whatever the Dictator in Chief determines. The election of Obama was a colossal mistake that has proved to be perhaps the greatest threat to our freedom that the country has experienced since the Civil War. It is imperative that he be defeated. The next big thing is makup of the two party system. It is not working and will require some real courage by good men to address.

Posted by: Joe | Aug 17, 2012 7:10:43 AM

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