Later On

A blog written for those whose interests more or less match mine.

Maybe the DoJ will get in gear

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The fear of taking big corporations to trial is, of course, what happened to Arthur Anderson: the company destroyed. OTOH, if that started to happen, companies would start exercising greater oversight of their managers to prevent wrongdoing. Elizabeth Warren had a very good point: if companies know that they will not be taken to trial regardless of wrongdoing, we’ll see a lot more wrongdoing (as we have). And the suffering of the workers who lose jobs when a company goes under is not dissimilar to the suffering of family members when the breadwinner goes to prison: there is indeed real suffering on their part, but that doesn’t stop prosecutors from doing their job.

But there are some faint signs of prosecutorial progress: Ben Protess reports in the NY Times:

Criticized for letting Wall Street off the hook after the financial crisis, the Justice Department is building a new model for prosecuting big banks.

In a recent round of actions that shook the financial industry, the government pushed for guilty pleas, rather than just the usual fines and reforms. Prosecutors now aim to apply the approach broadly to financial fraud cases, according to officials involved in the investigations.

Lawyers for several big banks, who spoke on the condition of anonymity, said they were already adjusting their defenses and urging banks to fire employees suspected of wrongdoing in the hope of appeasing authorities.

But critics question whether the new strategy amounts to a symbolic reprimand rather than a sweeping rebuke. So far, the Justice Department has extracted guilty pleas only from remote subsidiaries of big foreign banks, a move that has inflicted reputational damage but little else.

The new strategy first materialized in recent settlements with UBS and the Royal Bank of Scotland, which were accused of manipulating interest rates to bolster profit. As part of a broader deal, the banks’ Japanese subsidiaries pleaded guilty to felony wire fraud.

The settlements present a significant shift. Authorities have long avoided guilty pleas over fears they will destroy the banks and imperil the broader economy. By going after a subsidiary, prosecutors shield the parent company from losing its license, but still send a warning to the financial industry.

The Justice Department plans to continue the campaign as it pursues guilty pleas from other bank subsidiaries suspected of reporting false interest rates, according to the prosecutors and the lawyers who requested anonymity to discuss the cases. Authorities are scrutinizing Citigroup, whose Japanese unit is suspected of rate manipulation, and prosecutors recently accused one former trader there of colluding with other banks in a vast rate-rigging conspiracy.

Prosecutors want the rate-rigging investigation to serve as a template for other financial fraud cases. Two officials, who spoke on condition of anonymity, described a plan to eventually wring an admission of guilt from an entire bank.

“This Department of Justice will continue to hold financial institutions that break the law criminally responsible,” Lanny A. Breuer, the departing head of the agency’s criminal division, said in an interview.

The strategy will face significant roadblocks. . .

Continue reading.

Written by LeisureGuy

19 February 2013 at 10:08 am

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