One of the very rare articles in the media that actually mentions the get-out-of-jail card of banksters.

Regards - VHF

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One law for the rich

Unlike the rest of us, if Wall St. bank execs commit fraud, no one goes to jail

Toronto Sun - Lorrie Goldstein

October 30, 2011

The more you study the 2008 global economic meltdown, the more you realize there really is one law for the rich and one law for the rest of us.

If you or I are caught committing fraud, there’s a good chance we’ll end up going to prison, or at least be ordered to pay restitution and placed under house arrest.

But if the executives of a Wall St. bank do it, not only does no one go to jail, their companies pay the fine, none of them are held personally responsible and they don’t have to admit wrongdoing.

This is the standard operating procedure of the Securities and Exchange Commission (SEC) in the U.S., which oversees its financial markets.

Under it, so-called “no contest” decisions are being negotiated with Wall St. banks accused of massive fraud in the subprime mortgage securities scandal of 2008, which led to a global credit freeze and crashed the world economy.

While the impact hasn’t been as devastating in Canada, because our banks are better regulated, we shouldn’t be too smug.

Unlike the U.S., we don’t even have a national securities regulator and the provincial one that acts as the national regulator by default, the Ontario Securities Commission, which oversees the Toronto Stock Exchange, is proposing a similar system of “no contest” settlements here.

The SEC likes them because it gives them a high “clearance” rate on the charges it lays, since they don’t have to prove their allegations.

The banks like them because not having to admit guilt makes it easier to defend civil suits launched against them by ripped-off investors.

The fines and reparations levied by the SEC, which sound impressive because they often go into the hundreds of millions of dollars, are actually insignificant compared to the huge profits of these banks.

Supporters of no contest decisions say they resolve cases that would otherwise take years in the civil and criminal courts. But the proof they don’t work very well lies in the fact many U.S. banks have been happily paying the fines for years, before going on to do the same thing all over again.

Right now, a federal judge in the U.S. is questioning the credibility of one of the deals reached between the SEC and Citigroup, a Wall St. bank which is no stranger to making these settlements.

Judge Jed S. Rakoff of the Southern District of New York is demanding the SEC defend its decision to level a $285 million fine against Citigroup — which made $3.8 billion in the third quarter of 2011 —over SEC allegations the firm failed to disclose it was betting against its own investors in a $1 billion subprime mortgage securities deal in 2007. The SEC says Citigroup made at least $160 million in profits while investors lost several hundred million dollars.

The Washington Post reports Judge Rakoff wants the SEC to answer four questions Citigroup investors and American taxpayers, who spent billions of dollars bailing Citigroup out, would probably like answered as well.

One: “How can a securities fraud of this magnitude be the result simply of negligence?”

Two: “What reason is there to believe this proposed penalty will have a meaningful deterrent effect?”

Three: “What was the total loss to the victims as a result of Citigroup’s actions?”

Four: Why was the SEC generally unable to identify those responsible for the fraud?

And it’s not just Citigroup.

Similar SEC deals have been made in the subprime securities scandal with Goldman Sachs (fined $550 million), J.P. Morgan ($153.6 million) and Bank of America ($150 million, which Judge Rakoff described as “inadequate” and “half-baked justice” even after getting it increased from $33 million.)

In 2006, government sponsored mortgage giant Fannie Mae reached a $400 million no-contest settlement with the SEC and the Office of Federal Housing Enterprise Oversight regarding allegations of massive accounting manipulation in order to boost pay for its executives, which required a $10 billion correction of its books. In 2003, Fannie Mae’s counterpart, Freddie Mac, paid a $125 million fine over allegations it misstated revenues by $5 billion.

In 2003, Citigroup paid $120 million, J.P. Morgan Chase $135 million and Merrill Lynch $80 million in no-contest deals where the SEC alleged they helped Enron conceal fraud.

And those are just a handful of the settlements.

Given this record, the fact not a single senior Wall St. executive has been charged, let alone jailed, in connection with the 2008 subprime mortgage scandal, is hardly a surprise.