Federal judge calls out SEC's disparate, murky enforcement policy

Five years have passed since 2008's devastating financial meltdown, and the anniversary has prompted many pundits to ask why so few of the main players on Wall Street and among the big banks have faced federal criminal charges. Few if any top executives have been charged with securities fraud, even when the Securities and Exchange Commission apparently had substantial evidence of wrongdoing. Instead, the SEC has typically dealt with these organizations and their leaders through civil enforcement actions.

Are fat cats getting sweetheart deals while lower-level dealers get prosecuted as scapegoats? Perhaps -- but perhaps not.

The ABA Journal just profiled federal judge Jed Rakoff of the U.S. District Court for the Southern District of New York, which handles the bulk of Wall Street cases. Judge Rakoff has been vocal in his criticism of the SEC for being far too lenient in some cases.

Notably, Rakoff refused to sign off on a proposed SEC settlement with Citigroup, which had allegedly marketed toxic mortgage-backed securities to its clients while and then bet against them behind their backs. "How can a securities fraud of this nature and magnitude be the result simply of negligence?" Rakoff demanded.

From another viewpoint, the choice between civil enforcement actions and federal criminal charges is a matter of delicate strategy. This is according to New York Times blogger and law professor Peter J. Henning, a former federal prosecutor and SEC enforcement division attorney.

The higher you climb on the corporate latter, Henning says, the harder it is to prove criminal intent. He likens prosecuting the systemic nature of the alleged misconduct to the Three Musketeers' motto "all for one and one for all" -- if everyone's at fault, it's hard to argue that any particular person is culpable.

It may look like low-level actors are being scapegoated because they're the only ones being criminally prosecuted. The reality is that it's much simpler to prove that those who acted directly were intentionally committing crimes.

Interestingly, the SEC has changed its policy now that new chairman Mary Jo White has been sworn in. The agency has announced it will now require defendants in civil actions to admit wrongdoing in cases involving large number of investors, potentially serious harm to the markets, obstruction, or "egregious, intentional misconduct." What that may mean in practice is still open to question.

Sources:

No Comments

Leave a comment
Comment Information
  • Badge 1
  • Badge 2
  • Badge 3
  • Badge 4
  • Badge 5
  • Badge 6
  • Badge 7
  • Badge 8

Contact O'Brien Hatfield, PA for a free case evaluation today

In Tampa, call (813) 345-4909. In Orlando, call (888) 496-5916 . For fast answers, email us using the form below.

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

This site uses Google's Invisible reCAPTCHA, which is subject to Google's Privacy Policy and Terms of Use.

Footer Brand

Tampa Bay Office
511 West Bay Street Suite 330
Tampa, FL 33606

Toll Free: 888-496-5916
Phone: 813-345-4909
Tampa Law Office Map

Central Florida Office
121 South Orange Avenue Suite 1500
Orlando, FL 32801

Toll Free: 888-496-5916
Phone: 407-686-1696
Orlando Law Office Map

South Florida Office
Northbridge Tower
515 North Flagler Drive
Suite P-300
West Palm Beach, FL 33401

Toll Free: 888-496-5916
Phone: 407-686-1696
South Florida Office Map

South Florida Office
Brickell Bay Office Tower
1001 Brickell Bay Drive
Suite 2700 M-1
Miami, FL 33131

Toll Free: 888-496-5916
Phone: 305-859-0046
Miami Law Office Map