A federal judge with a history of slamming the regulatory system issued scathing remarks against the Department of Justice on Tuesday for allowing Wall Street executives to escape criminal prosecutions.
Speaking at an event hosted by the New York City Bar Association on Tuesday, U.S. District Judge Jed Rakoff of Manhattan said the DoJ's "unconvincing" excuses for not prosecuting individuals were "technically and morally suspect."
"[Not] a single high level executive has been successfully prosecuted in connection with the recent financial crisis, and given the fact that most of the relevant criminal provisions are governed by a five-year statute of limitations, it appears very likely that none will be," Rakoff said.
While the DoJ has not said that all the top executives are innocent in the lead-up to the financial crisis, it "has offered one or another excuse for not criminally prosecuting them—excuses that, on inspection, appear unconvincing,” the Financial Times reports Judge Rakoff as saying.
"Just going after the company," which could lead to deferred prosecutions and nominal fines, is "both technically and morally suspect. It is technically suspect because, under the law, you should not indict or threaten to indict a company unless you can prove beyond a reasonable doubt that some managerial agent of the company committed the alleged crime; and if you can prove that, why not indict the manager?"
"And from a moral standpoint, punishing a company and its many innocent employees and shareholders for the crimes committed by some unprosecuted individuals seems contrary to elementary notions of moral responsibility," Rakoff said.
Ultimately, "the failure of the government to bring to justice those responsible for such a massive fraud speaks greatly to weaknesses in our prosecutorial system that need to be addressed," he said.
And "to federal judges who take an oath to apply the law equally to the rich and the poor, this excuse, sometimes labeled the 'too big to jail excuse,' is mindboggling in what it says about the department's disregard of fundamental legal principles," he continued.
Rakoff's statements echo the calls of many banking reform advocates who have charged that real accountability will only come when executives are prosecuted and sent to jail for illegal activity.
Rakoff's comments, however, were not surprising given his history.
In 2011 Rakoff made what was described as a "historic" decision when he rejected a $285 million settlement the SEC sought with Citigroup because it was too lenient and would have blocked an "overriding public interest in knowing the truth." His full ruling, Rolling Stone's Matt Taibbi wrote at the time, "read like a political document, serving not just as a rejection of this one deal but as a broad and unequivocal indictment of the regulatory system as a whole."
In 2009, Rakoff rejected an SEC settlement with Bank of America.
As Mary Bottari then reported at PRWatch:
As reported previously, the court was weighing the appropriateness of a $33 million fine the SEC levied against BofA for failing to notify shareholders about a massive bonus package paid to Merrill Lynch executives when BofA acquired Merrill in September of 2008.
Because it failed to fully disclose the bonuses as required by law, BofA was fined by the SEC. But Rakoff delved into more fundamental questions. Merrill had just lost $27 billion and was on the rocks. BofA was given $40 billion in taxpayer funds to acquire Merrill and help cover the firm's losses. So where did the bonus bucks come from? As Rakoff put it: "To say now that the $33 million does not come directly from U.S. funds is simply to ignore the overall economics of the Bank's situation."
The SEC's $33 million fine was less than 1% of the 3.6 billion provided by taxpayers. Rakoff ruled that the fine "does not comport with the most elementary notions of justice and morality." In addition, he slammed the SEC for not getting to the bottom of the matter by investigating who precisely was responsible for the bonus bonanza.
Rakoff characterized the settlement as "unfair," "inadequate" and "unreasonable." One year after the collapse of investment banking behemoths threw the economy into crisis, the case raises profound questions about why so few Wall Street titans have been indicted and the continuing lethargy shown by the top cops charged with policing the market.
Noting that the banks had "effectively lied to their shareholders," Jim Hightower wrote in 2009:
[Rakoff] wanted to know the names of the liars, suggesting that those "who made the wrongful decisions" should be held personally accountable. Also, Rakoff pointedly asked the kind of questions that folks all across the country would ask if they had the chance, such as, "Do Wall Street people expect to be paid large bonuses in years when their company lost $27 billion?" The judge also went after the SEC, calling its meek fine "strangely askew" and bluntly telling the agency's lawyer that his feeble explanation for the low fine "seems so at war with common sense."