Financial Crimes – How Should We Deal With Them?

 

Has the government gone too far in ignoring financial criminal conduct? Is the United States operating under an unspoken policy to refrain from prosecuting large financial institutions even if they believe criminal laws were violated? Are the regulators afraid that doing so might damage the economy? Those questions were raised in a recent Wall Street Journal article by David Weidner entitled “Drones Over Wall Street.”  If so, aren’t those really bad ideas?

What apparently prompted Mr. Weidner’s article was an exchange between Senator Charles Grassley and Attorney General Eric Holder, in which Mr. Holder was quoted as saying: “The size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”

Mr. Weidner, on the other hand, believes that protecting criminal enterprise is a “poisonous” idea, and that there are far more examples of companies that were prosecuted and survived.  He points to Archer Daniels Midland Co., which he says was fined for antitrust violations (and even more notably, several of its top executives went to jail) as an example. Similarly, he points to Rite Aid that survived a major accounting scandal, and its CEO was convicted of fraud.

Others say it is individuals who commit crimes or caused their companies to commit crimes that should be prosecuted. A corporation cannot be sent to jail or punished, but a lot of innocent employees could lose their jobs when a corporation is indicted because of the wrongdoing of one or more senior corporate officials.  For example, major accounting firm Arthur Andersen collapsed after it was indicted following the Enron Corp. implosion in 2001, and many innocent employees lost their jobs.

Mr. Weidner has some basis for saying that Wall Street corporations do not deserve an exemption just because their implosion might take down the economy, but he must also realize that corporations act by and through their officers, directors and employees.  The corporate entity itself is a legal fiction. Thus, the dilemma arises. There is no single correct answer. Each approach has positives and negatives, but failure to swiftly deal with criminal conduct will ultimately lead to a result that we should avoid.

Page Perry is an Atlanta-based law firm with over 150 years of collective experience maintaining integrity in the investment markets and protecting investor rights.