Why haven't top business executives faced fraud charges for
wrongdoing related to the national fiscal crisis? A senior federal judge
questions whether weaknesses in the U.S. prosecutorial system could be
While not concluding that frauds definitely sparked the crisis, New York District Court Judge Jed Rakoff questioned in an essay for the New York Review of Books'
Jan. 9 issue whether federal prosecutors gave other cases higher
priority because they would take less time and resources to investigate
and lead to high-profile trials or guilty pleas.
well-known for questioning the Department of Justice in judicial
rulings, also called Department of Justice "too big to jail" concerns
irrelevant because the worries referred to companies, not executives.
And he theorized prosecutors might have shied away from charging top
bankers and other executives with fraud because federal government
policies before the crisis encouraged easier mortgage lending and home
While not suggesting that government officials knowingly
encouraged or participated in mortgage-related wrongdoing, Rakoff
suggested "the government was deeply involved, from beginning to end, in
helping create the conditions that could lead to such fraud."
would give a prudent prosecutor pause in deciding whether to indict a
CEO who might, with some justice, claim that he was only doing what he
fairly believed the government wanted him to do," wrote the judge.
also questioned what he described as a decades-long trend toward
prosecutions of business firms and other institutions rather than the
executives who run them. The shift has been "rationalized as part of an
attempt to transform 'corporate cultures,'" and often takes the form of
deferred prosecution agreements, the judge wrote.
But in many
cases, attorneys for a targeted firm assure prosecutors the company
wants to cooperate and has launched an internal investigation.
Prosecutors in some instances agree to delay seeking charges based on
the company's guarantee to share all results from its inquiry.
typical end result is a a deferred prosecution agreement that includes
monetary fines against the firm and plans for stronger internal
corporate oversight. Such an outcome pleases resources-strapped
prosecutors and the company, wrote Rakoff. "Perhaps the happiest of all
are the executives, or former executives, who actually committed the
underlying misconduct, for they are left untouched," he wrote.
suggest that this is not the best way to proceed," added Rakoff, who
argued that successfully prosecuting individuals is a stronger
deterrence to future crimes.
The former federal prosecutor and private defense attorney told CNBC
Tuesday he had offered his view as a citizen, not a judge. He joined
the federal bench in 1996 after being nominated by President Bill
Clinton. One of the most cited cases in which Rakoff, 70, challenged the
government was his 2011 rejection of the Securities and Exchange
Commission's proposed settlement of mortgage-related charges against
Citigroup. The deal would have allowed the bank to settle "without
either admitting or denying the allegations."
A federal appeals
court is weighing the ruling, in which Rakoff concluded "there is an
overriding public interest in knowing the truth."