Subscribe: RSS Feed | Twitter | Facebook | Email
Home | Contact Us

Judge Rakoff: Why Have No High Level Executives Been Prosecuted In Connection With The Financial Crisis?

Posted by Larry Doyle on November 14, 2013 11:15 AM |

It is not often that I have had the pleasure of reading and reviewing two Sense on Cents instant classics in the course of just a few days but today I am excited to bring you another absolute MUST READ.

None other than Judge Jed Rakoff, who has heard many of the major financial suits brought over the course of the last few years, spoke the other day to the New York City Bar Association regarding the question so many in our nation still ask, “Why have no high level executives been prosecuted in connection with the financial crisis?

In what might have been a fabulous foreword to my upcoming book, Rakoff skillfully delivers what I believe is an incredibly excoriating indictment of those within the Department of Justice,the SEC, and elsewhere.

. . . if, by contrast, the Great Recession was in material part the product of intentional fraud, the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years.

Indeed, it would stand in striking contrast to the increased success that federal prosecutors have had over the past 50 years or so in bringing to justice even the highest level figures who orchestrated mammoth frauds.

That’s right. Rakoff is just warming up. He proceeds by inquiring that perhaps no actual fraud was committed; however, he disarms that premise in stating,

. . . the stated opinion of those government entities asked to examine the financial crisis overall is not that no fraud was committed. Quite the contrary.

For example, the Financial Crisis Inquiry Commission, in its final report, uses variants of the word “fraud” no fewer than 157 times in describing what led to the crisis, concluding that there was a “systemic breakdown,” not just in accountability, but also in ethical behavior.

As the Commission found, the signs of fraud were everywhere to be seen, with the number of reports of suspected mortgage fraud rising 20-fold between 1998 and 2005 and then doubling again in the next four years.

As to why the Department of Justice has not upheld the rule of law by prosecuting individuals involved in perpetrating the widely known frauds, Rakoff allows us all to peer through his scope, he then . . .

Feeds . . .

Who, for example, were generating the so-called “suspicious activity” reports of mortgage fraud that, as mentioned, increased so hugely in the years leading up to the crisis? Why, the banks themselves . . . This, of course, is what is known in the law as “willful blindness” or “conscious disregard.” . . . while some federal courts have occasionally expressed qualifications about the use of the willful blindness approach to prove intent, the Supreme Court has consistently approved it.

Locks . . .

. . .  the Department of Justice has sometimes argued that, because the institutions to whom whom mortgage-backed securities were sold were themselves sophisticated investors, it might be difficult to prove reliance . . .  In actuality, in a criminal fraud case the Government is never required to prove reliance, ever. The reason, of course, is that would give a crooked seller a license to lie whenever he was dealing with a sophisticated counterparty.

Loads . . .

The third reason the Department has sometimes given for not bringing these prosecutions is that to do so would itself harm the economy.  .  .  To a federal judge, who takes an oath to apply the law equally to rich and to poor, this excuse — sometimes labeled the “too big to jail” excuse – is disturbing, frankly, in what it says about the Department’s apparent disregard for equality under the law.

Rakoff minimizes the impact of the revolving door on the lack of prosecutions but he “. . . asks again, why haven’t we seen such prosecutions growing out of the financial crisis?” He then sizes up those who should have been protecting our interests:

READY. . .

First, the prosecutors had other priorities . . .

AIM . . .

. . . the S.E.C. was trying to deflect criticism from its failure to detect the Madoff fraud, and this led it to concentrate on other Ponzi-like schemes .  .  .  the U.S. Attorney’s Office with the greatest expertise in these kinds of cases, the Southern District of New York, was just embarking on its prosecution of insider trading cases . . .

FIRE . . .

. . . the government, writ large, had a hand in creating the conditions that encouraged the approval of dubious mortgages . . . the government was also deeply enmeshed in the aftermath of the financial crisis . . . Please do not misunderstand me. I am not alleging that the Government knowingly participated in any of the fraudulent practices alleged by the Financial Inquiry Crisis Commission and others.

But what I am suggesting is that the Government was deeply involved, from beginning to end, in helping create the conditions that could lead to such fraud, and that this would give a prudent prosecutor pause in deciding whether to indict a C.E.O. who might, with some justice, claim that he was only doing what he fairly believed the Government wanted him to do.

In Bed with Wall Street but so much for the rule of law.

In conclusion, Rakoff unleashes one more round at the tactic of deferred prosecution agreements of the companies in question with no prosecution of the executives as “both technically and morally suspect.”

For those who care to read and review Rakoff’s 19-page Instant Classic, I welcome providing the pdf courtesy of the Financial Times.

Why Have No High Level Execs Been Prosecuted?


I hope you will share this post with your friends and colleagues and then . . . navigate accordingly!

Larry Doyle

Please pre-order a copy of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy, that will be published by Palgrave Macmillan on January 7, 2014.

For those reading this via a syndicated outlet or receiving it via e-mail or another delivery, please visit the blog to comment on this piece of ‘sense on cents.’

Please subscribe to all my work via e-mail

I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Phil

    The answer is obvious. The system is entirely corrupt. And this being the case, where’s Tony Soprano when you need him?

  • Virginia

    Excellent post. As I read Bull By the Horns and connect the dots, the likes of Geithner, Summers, Bernanke (primarily Geithner) pop out like a pop-up book character embroiled in a massive cover-up, protecting his friends (in particularly Citibank); and not to mention how many women left the Obama administration early citing issues with superiors (always came back around to Geithner and Summers).

    Bair makes no excuses for Geithner and her candor makes him sound like either an idiot or conspirator with no common sense.

    I’m sure there were underlying issues that we may never be privileged enough to know – the fear of mob ties, the fear of a complete and total collapse and takeover by countries that own the debt, or maybe it was just a snot nose kid that thought his way was the right way and used his influence to redirect the fears…

  • Mr. Jonz

    What’s the point of destroying the republic and replacing it with a fascist, authoritarian police state if the rich aren’t above the law?

  • Cliff Forbes

    A guy who owned a bank with about $400 million in assets in the community where I live allegedly looted it for his own benefit but died before any charges could be brought. Occurs if he had set up an investment arm for the bank, he could have created phantom profits from bogus investments, such as subprime mortgage backed securities, paid himself huge bonuses and walked away clean with the same amount of money.

  • Disenchanted

    Dear Larry

    This man baffles me.

    He states that the SEC and regulators did not do their jobs, but when a suit was brought against a regulator, he stopped it. Maybe the truth he is now talking about would have come out then.

    Maybe the suit would have disclosed why and who were not doing their jobs, and where the “in bed with wall street” was being perpetrated from.

    I am glad to see he finally has both eyes open. I guess we all learn from our mistakes.

    Keep writing

    • LD

      Your point is a a good one and one which I should have probably touched upon in my commentary.

      Rakoff is certainly no paragon of virtue.Perhaps Rakoff’s speech is his own form of a mea culpa given his own failings in dealingf with selected cases regarding Madoff and FINRA.

      Just a thought.

  • Russ

    After re-reading the crux of Rakoff’s statements, I find it both disingenuous and hypocritical of him to say

    “The third reason the Department has sometimes given for not bringing these prosecutions is that to do so would itself harm the economy. . . To a federal judge, who takes an oath to apply the law equally to rich and to poor, this excuse — sometimes labeled the “too big to jail” excuse – is disturbing, frankly, in what it says about the Department’s apparent disregard for equality under the law.”

    Why didn’t he (Judge Rakoff) offer the same attention and services to the less wealthy and those of lesser profile as he did for Fred Wilpon?

    Once the cameras were turned off, and the sports pages and writers had their stories (he loved to talk sports in the courtroom before the proceedings each time), he couldn’t have left the room any faster.

    The remaining 1000 “poor folk” victimized by Madoff, were left to deal with the Kangaroo court that is bankruptcy court.

    Rakoff knew this (which is why he removed the Wilpon case), yet he let the less well off stew in the juices he so disdainfully describes in his piece.

    Obviously, his “oath to apply the law equally to rich and poor” was in disrepair that day. For me, he’s full of shit.

  • KC


    I just don’t know why you and others think people should go to jail for implementing policies that were encouraged by the government.

    The government was prosecuting banks ever since the Clinton era for not lending to enough minorities. They had an active policy of promoting sub-prime lending and there was a huge appetite for sub-prime loans at Fannie and Freddie. With artificially low interest rates feeding a bubble in home prices everyone was encouraged to borrow and “invest” in real estate.

    Fraud is an easy word to throw around but who is holding responsible all of the applicants for “liar loans”. They are the ones who initiated the loans, not the banks. If real estate prices had continued to go up there would have been no victims.

    Actually the root of the problem goes back to the creation of Fannie and Freddie which disconnected the writing of real estate loans from the collection of those loans.

    As for your assertion that the prosecutors are going easy on Wall St I just don’t see that either. Every week they are extracting billions in extortion from the banks while painting a false narrative that banks caused the collapse in 2008.

    • Matt

      Taking loans which you know to be defective (as the Investment Banks did during this period of time) packaging them into CMO’s and having the ratings agencies slap AAA ratings on them (at the risk of losing the IB’s future business if the didn’t play ball) and selling them to the public and other investors (pension funds etc.) while knowing that the loans were garbage (cf. the e-mail trails in many of these cases) is knowingly committing fraud. This is a crime under current law. And prosecution should ensue for the HUMAN BEINGS who perpetrated these crimes.

  • Walter

    Great piece on Judge Rakoff. I would like to add my two cents on “why no high level executives been prosecuted in connection to the financial crisis?”

    Here’s my three reasons:
    1. Cioffi and Tannen, the two perps who ran Bear Stearns’ hedge funds and filled them with fraudulent CDOs and who made a fortune, were, indeed, criminally indicted but were found not guilty. I believe this put a chill on all prosecutors regarding criminally pursing firms and executives. I think they believe these cases are too complicated for jurors to understand and find them guilty beyond a reasonable doubt given the fact they have the best attorneys in the world defending them and clouding the real issues.

    2. Arthur Anderson and many of their top officials were criminally indicted for their involvement with Enron. Arthur Anderson went out of business and 28,000 people lost their jobs.

    3. Mike Milken was criminally indicted and took a plea and was jailed. Drexel Burnham also took a plea but couldn’t survive and went out of business. Their funding dried up.

    (These last two reasons are why Holder said that indicting the “too big to fail” financial firms, who are now over 30% bigger than they were in 2008, could cause another financial crisis)

    A criminal indictment against a financial firm is the kiss of death. A criminal indictment against a high ranking officer (CEO, CFO, etc.) of an existing fiem could also kill the firm. But an indictment against ex-officials such as Mozilo, Fuld, Cayne, Killinger, etc. should have been pursued. Unfortunately the 5 year statute of limitations is about to run out. Civil fines which the firms pay only penalizes the shareholders of the firms not the perpetrators. What a disgrace. Jail is the only real deterrent or it will happen again, which it will. Already we’ve had the London Whale and the LIBOR scandals. The derivatives time bomb is still ticking.

    What was needed was a courageous, smart and ambitious prosecutor such as a Pecora, a Spitzer or even a Guiliani. As we know everyone who was in power to pursue the perpetrators were content to go to work for them or their law firms (revolving door) rather than prosecute them.

    Good luck with the book, can’t wait to read it.

    • LD


      Always great hearing from you.

      In regard to Mozilo, Fuld, Killinger, Cayne, et al, do you think a rigorous rendering and enforcement of Sarbanes Oxley would have been sufficient to send these dopes to the can for a number of years?

      I do.

      • Walter

        I agree that the criminal provisions of Sarbannes Oxley should have been used on these guys who are now private citizens. Apparently Eric Holder’s edict of not prosecuting any top people, past or present, on Wall Street has put a chill on U. S. Attorneys.

        I also believe the RICO laws should have been used. Like the mob, the boss doesn’t directly get his hands dirty, he gives the orders with a wink, a nod, a gesture, etc. and others actually commit the crime. RICO goes after the bosses for conducting a criminal enterprise which is what most of Wall Street really is.

Recent Posts