As Statute of Limitations Nears, Federal Judge Questions Lack of Prosecutions for Financial Crisis Misdeeds

Friday, January 03, 2014
Judge Jed Rakoff (photo: Elisabeth Ericson, The Dartmouth)

A federal judge in New York who has been critical of the Obama administration’s handling of Wall Street law-breakers has made headlines with a published essay asking why no senior banking executives have been prosecuted for helping create the financial crisis last decade.

U.S. District Judge Jed Rakoff wrote in the New York Review of Books that five years have passed since the onslaught of the Great Recession, which came about after risky investment schemes crippled the financial industry. With the statute of limitations approaching for punishing those responsible, Rakoff made it clear that the Department of Justice could be doing more to bring justice to Wall Street.


“Who was to blame? Was it simply a result of negligence, of the kind of inordinate risk-taking commonly called a ‘bubble,’ of an imprudent but innocent failure to maintain adequate reserves for a rainy day? Or was it the result, at least in part, of fraudulent practices, of dubious mortgages portrayed as sound risks and packaged into ever more esoteric financial instruments, the fundamental weaknesses of which were intentionally obscured?” Rakoff wrote.


“Companies do not commit crimes," Rakoff continued, “only their agents do...So why not prosecute the agent who actually committed the crime?”


He added that if “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.”


Rakoff noted that in the wake of the 1980s savings-and-loan crisis, “which again had some eerie parallels to more recent events,” the government successfully prosecuted more than 800 individuals, including Charles Keating, the former head of the Lincoln Savings and Loan Association, who became the face of Wall Street’s misdeeds and punishment.


The Justice Department also went after the heads of Enron and WorldCom for their companies’ accounting frauds, leading to the prosecutions of CEOs like Jeffrey Skilling and Bernie Ebbers.


In both instances, the Justice Department acted more aggressively towards banks and corporations for their wrongdoing during Republican administrations (George H. W. Bush and George W. Bush) than the agency has under Barack Obama.


Rakoff’s criticism of federal prosecutors is not surprising.


A former prosecutor himself who specialized in securities violations, Rakoff rejected the Securities and Exchange Commission’s (SEC) attempt in 2009 to punish Bank of America with a $33 million settlement, labeling it “a contrivance designed to provide the S.E.C. with the facade of enforcement and the management of the Bank with a quick resolution of an embarrassing inquiry.”


The two sides were forced to negotiate a deal with higher fines and stricter terms.


Two years later, Rakoff was at it again, rejecting a $285-million consent decree between Citigroup and the SEC. That case is still being resolved.

-Noel Brinkerhoff


To Learn More:

The Financial Crisis: Why Have No High-Level Executives Been Prosecuted? (by Jed S. Rakoff, New York Review of Books)

U.S. Judge Asks: Why haven't the Financial Executives been Prosecuted? (by Michael Hiltzik, Los Angeles Times)

Federal Judge Asks: Why Haven’t Any Top Executives Been Prosecuted for Financial Crisis? (by Travis Gettys, Raw Story)

After Avoiding Prosecution of Wall Street Firms, Obama Officials are Rewarded with Wall Street Jobs (by Matt Bewig, AllGov)

Despite Senate Report, Justice Dept. Won’t Prosecute Goldman Sachs for Mortgage Meltdown Role (by Matt Bewig, AllGov)

Judge Mocks SEC for Going Soft on Citigroup’s Conning of Investors (by Noel Brinkerhoff, AllGov0

Why No Prison for Banksters Who Caused Financial Crisis…Yet? (by David Wallechinsky and Noel Brinkerhoff, AllGov)


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