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Here’s Why No Bankers Go To Jail (#GotBitcoin?)

In my previous post, I summarized Judge Jed Rakoff’s objections to all the reasons federal prosecutors have given for failing to charge top financial executives with criminal wrongdoing.  Here’s Why No Bankers Go To Jail (#GotBitcoin?)

So, what explains the hesitance to bring to justice those who contributed to the worst economic crisis since the Great Depression? In his speech before New York securities lawyers last week, Rakoff, the outspoken federal judge, laid out a few theories.

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Notably, he doesn’t suspect the infamous “revolving door” — the idea that bureaucrats are simply positioning themselves to move to cushy private-sector jobs. Prosecutors, he said, want to make a name for themselves. The easiest way to do that is by bringing cases against high-level people, and the prospect of eventually going to work for a Wall Street firm isn’t a deterrent.

Here, Rather, Is Where Rakoff Believes The Real Culprits Lie:

Theory 1: U.S. attorneys and the Federal Bureau of Investigation have other priorities, whether it’s antiterror cases after the Sept. 11 attacks, accounting frauds after Enron’s bankruptcy, or Ponzi rip-offs after Bernard Madoff’s huge scam. Financial frauds are particularly tough to crack, and many of the prosecutors with the requisite knowledge have been moved to other areas.

Theory 2: Law enforcement agencies have had to compete for a shrinking pot of money from Congress, and the best way to do that is by beefing up their statistics with smaller, easier cases and avoiding the years-long financial fraud probes that may turn up nothing. The Manhattan U.S. attorney, moreover, has been preoccupied with the sprawling insider-trading case against hedge-fund owner Raj Rajaratnam. Tapes of his conversations have been a gold mine — resulting in slam-dunk cases that have led to numerous convictions — for Manhattan prosecutors who previously would have focused on bank fraud.

Theory 3: The federal government’s involvement in the mid-2000s bubble — encouraging more people to buy homes, deregulating the financial industry, keeping interest rates low and giving Fannie Mae and Freddie Mac way too much leeway — may also have given prosecutors pause.

Theory 4: The U.S. has shifted over the last 30 years from prosecuting high-level individuals to using delayed-prosecution agreements to settle cases against entire companies. That shift “has led to some lax and dubious behavior on the part of prosecutors,” Rakoff said, including allowing managers to sweep crimes under the rug.

Most U.S. jurisdictions, Rakoff explained, require evidence of at least one crime by a manager to prosecute a company. If that can be proved, why not prosecute that person instead? Corporate executives, he said, love deferred prosecution agreements. Even if they require companies to pay hefty fines and adopt expensive reforms, they spare executives from investigation — and jail sentences. Going after companies is “technically and morally suspect,” Rakoff said.

Calls by lawmakers, filmmakers and commentators to send bank executives to jail for causing the financial crisis are often slapped down by legal experts as populist diatribes from people who just don’t understand criminal law. The mortgage crisis, these experts say, was a society-wide breakdown involving home buyers, mortgage lenders, Wall Street securitizers, ratings companies and yield-seeking investors. But it wasn’t, at root, fraud.

Judge Rakoff apparently disagrees. But even the outspoken jurist admits he is too late.

Updated: April 28, 2016

35 Bankers Were Sent To Prison For Financial Crisis Crimes

The idea that no bankers went to prison for crimes related to the financial crisis is a myth, according to the watchdog overseeing the federal government’s bailout fund.

There have been 35 bankers sentenced to prison, said Christy Goldsmith Romero, the special inspector general for the Troubled Assets Relief Program (SIGTARP), in a report to Congress released Thursday.

More than $400 billion in TARP funds were distributed to banks that were in danger of failing during the financial crisis. The TARP inspector general has been prosecuting cases of fraud in the use of those funds.

Many of the crimes involved relatively small amounts of money at smaller banks, rather than massive fraud at Wall Street banks.

But there are top executives who are sitting in jail for substantial sentences today. Edward Woodard, former CEO of the Bank of the Commonwealth in Norfolk, Virginia, was sentenced to 23 years after he was convicted of hiding $800 million in past due loans and making loans to straw borrowers to hide financial problems at his bank.

There have been 59 bankers convicted of crimes, including two executives at NOVA Bank in Philadelphia who were convicted on Wednesday of fraud conspiracy related to TARP funds. An additional 19 bankers have been charged with crimes, with many awaiting trials.

Goldsmith Romero said it’s wrong to say that bankers now in prison only came from small banks. She said that that some banks had assets of as much as $10 billion and were very big players in the states where they were based. Top executives at the so-called “too big to fail” banks have avoided any criminal charges, even as their banks paid tens of billions of dollars in fines to settle charges of wrong doing leading up to the financial crisis.

“I certainly understand the frustration of the people who want to see accountability for those who brought on the financial crisis,” she told CNNMoney. “Some of these institutions where we are finding criminal conduct, the level of accountability stops at a lower level and doesn’t rise up.”

“I would just add the word yet,” she said when asked about the lack of criminal charges at the big banks. She said her office is continuing to investigate hundreds of cases at institution of all sizes.

“I don’t think anyone who committed a crime should think they’re in the free and clear,” she said.

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