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Friday, 06 June 2014 07:10

At Least One Federal Judge Got Tough on Wall Street, but His Ruling Got Overturned

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MARK KARLIN, EDITOR OF BUZZFLASH AT TRUTHOUT

ajudgesec(Photo: stockmonkeys.com)On Wednesday, June 4, an appeals court overturned an earlier ruling by Federal District Court Judge Jed S. Rakoff that would have required the Securities and Exchange Commission (SEC) to crack down harder on Wall Street banks that egregiously violate regulations and the law.

In a 2011 decision, Rakoff prohibited an SEC settlement with Citigroup from proceeding. His objections included that the SEC let Citigroup "off with little more than a slap on the wrist," according to The New York Times. Rakoff admonished the regulatory agency, saying that it could not continuously "punish" serious and massive financial wrongdoing with financial fines without requiring the banks to admit wrongdoing.

The Rakoff 2011 ruling was one of few on the federal level that challenged the SEC's and Department of Justice's (DOJ) practice of allowing Wall Street financial institutions to get away with malfeasance by levying fines that become merely the cost of doing business. In short, as BuzzFlash at Truthout has detailed many times, the primary enforcement institutions over the integrity of our financial system enable prodigious wrongdoing.

The DOJ, for instance, earlier this year leaked a story to The New York Times that it was going to get tough on banks by actually charging a couple of them with technical criminal violations. BuzzFlash was one of the few outlets that expressed skepticism that the DOJ was actually holding banks more accountable. Our May 2 commentary was entitled, "Too Big to Jail Continues: DOJ May Charge Two Banks with Criminal Acts, But Not Hold Them Criminally Accountable."

BuzzFlash's prediction turned out to be true as The New York Times reported on May 21:

Hours after the Obama administration announced the criminal conviction of Credit Suisse on Monday evening, the bank’s chief executive, Brady W. Dougan, publicly reassured Wall Street that the punishment would not do much damage to his firm. The conviction, he said on a conference call, would not cause “any material impact on our operational or business capabilities.”

And in many ways, that was exactly the outcome that the American authorities desired.

The Justice Department and bank regulators had worked hard to find a careful balance. When Credit Suisse pleaded guilty to the crime of aiding tax evasion, prosecutors did not want the action to lead to repercussions that could destabilize the bank or the wider financial system.

So far, that arrangement seems to have been achieved. The question, however, is whether it amounts to justice.

The answer to the question posed by The New York Times is an emphatic "no." There are many reasons for this, but primarily nothing was in the settlement that would compel the bank to change its illegal manipulation of the financial system. No senior executives were charged or even forced to leave the bank.

The New York Times also notes:

It did not produce the names of people whose accounts may have been used for tax evasion. Senator Carl Levin, Democrat of Michigan, who led a congressional investigation of Credit Suisse’s tax-related activities, said that he supported the Justice Department’s actions against the bank, but added: “It is a mystery to me why the U.S. government didn’t require as part of the agreement that the bank cough up some of the names of the U.S. clients with secret Swiss bank accounts.”

The bank’s most senior executives, including Mr. Dougan, got to keep their jobs, leading another senator to criticize the government’s settlement. “Nor does the plea deal hold any officers, directors or key executives individually accountable for wrongdoing, raising the question of whether it will sufficiently deter similar misconduct in the future,” Senator John McCain, Republican of Arizona, said in a statement.

Not only did the bank executives avoid any disruption in their extravagant pay and positions, but also, members of the 1% who evaded US taxes by hoarding money in Credit Suisse accounts in Switzerland were left undisclosed in the settlement. Furthermore, no restrictions were placed on the bank's activities in the United States.

In short, Credit Suisse - short of the pro forma large fine - has been left fully intact with the same crew running the felonious financial ship.

If there are no consequences from a criminal conviction, they are just dumbing down a criminal conviction,” Rebel A. Cole, a professor of finance at DePaul University, told The New York Times.

When The New York Times breathlessly took dictation from the DOJ - publishing an article about the pending "criminal" prosecutions (another one is expected along the same benign lines) - BuzzFlash published a commentary that read: "In short, it appears to be more a public relations stunt from the DOJ than actual criminal prosecution (except for the technical labeling of the offense)." 

If only BuzzFlash's prescience would have been proved wrong.

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