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May 4, 2010

"Senators Ask, Should Financial Fraud Mean More Prison Time?"

The title of this post is the headline from this new report at The BLT on a Senate hearing that took place today.  Here are the basics:

Amid the flurry of securities-fraud investigations, a Senate Judiciary subcommittee today is considering whether the laws governing conduct on Wall Street need an overhaul.  The subcommittee on crime and drugs, chaired by Sen. Arlen Specter (D-Pa.), is hearing testimony from academics, advocates, and at least one voice from Big Law.  One major point of dispute: a proposed requirement for some financial-services employees to meet a fiduciary duty to their customers, or else face criminal charges and potential prison time.

“I have long believed that it is insufficient to have fines for fraud,” Specter said in an opening statement, adding that fines from the Securities and Exchange Commission are “calculated as part of doing business.”  The Justice Department has brought criminal fraud charges stemming from the financial crisis, but one of its biggest cases, against two former Bear Stearns hedge-fund managers, ended in acquittal in November.

Among those testifying at the hearing is Andrew Weissmann, former director of the Justice Department’s Enron Task Force.  Now the co-chair of the white-collar defense practice at Jenner & Block, he said a new criminal statute relating to fiduciary duty would raise questions of fairness and proper notice to those who might be covered.  “Would every breach of a duty of care now become a crime?” Weissmann asked this morning.

As detailed in on this Senate webpage, the official title of this hearing was "Wall Street Fraud and Fiduciary Duties: Can Jail Time Serve as an Adequate Deterrent for Willful Violations?”  On that page one can find the written testimony from the various witnesses, including this testimony from Assistant Attorney General Lanny Breuer which discusses federal white-collar sentencing at some length.

This hearing, and especially the idea of making financial-services employees subject to criminal sanctions for breach of a fiduciary duty, is especially notable given the real possibility that the Supreme Court may soon strike down the statute making "honest-services fraud" a federal crime.  I suspect Senator Specter may be calling more hearing this summer on these topics if (when?) the Justices knock out part of that federal criminal law in the Black and Weyhrauch and Skilling cases.

May 4, 2010 at 03:28 PM | Permalink


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me thinks the senator better watch out. considering the massive baloney and outright lies coming out of washington theses days this one might BITE THEM ON THE ASS.

Posted by: rodsmith | May 5, 2010 1:29:08 AM

Not apologizing for Wall Street, but criminal sanctions are not an appropriate or effective substitute for regulation of financial markets. Besides, if Madoff can get 150 years under existing laws, they can't really get any tougher on fraud, can they?

Posted by: Gritsforbreakfast | May 5, 2010 9:14:46 AM

"Besides, if Madoff can get 150 years under existing laws, they can't really get any tougher on fraud, can they?"

Well, you can always be thinner, look better and get tougher. There's always summary executions to consider.

Posted by: John K | May 5, 2010 11:35:13 AM

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