It’s not just the SEC that is feeling the sting of public criticism for lax enforcement. The U.S. Department of Justice, responsible for prosecuting federal crimes (including financial crimes), filed markedly fewer cases during the years leading up to one of the worst economic meltdowns in U.S. history, according to a recent USA Today article by Brad Heath (“Crisis loomed as fraud cases fell,” Dec. 16, 2009). An examination of Justice Department records by USA Today revealed that the drop in enforcement actions involved everything from stock-trading schemes and corporate wrongdoing to fraud aimed at individual consumers.
Federal prosecutors charged just 91 people in corporate fraud cases in the fiscal year that ended Sept. 30, 2009. In 2003, they charged 313. Between 2003 and 2009, the number of federal corporate fraud cases plummeted 55% and securities fraud charges fell by 17%.
“There’s no doubt that if we got started two years ago, we would have gotten a lot more of these guys. Because we didn’t, there are people who are going to get away with it,” said Sen. Ted Kaufman, D-Del. “We should never have left ourselves naked when it comes to financial fraud.”
Justice Department officials, reportedly under pressure from lawmakers, have promised to reverse that trend, and have initiated thousands of new criminal probes targeting financial crimes, according to the article. Even with that increase, however, the number of new cases filed in federal courts remains a fraction of what it was a few years ago, according to the article.
It is true that prosecutors have brought charges in numerous cases linked to the financial crisis, including financier Bernard Madoff, executives of Stanford Financial Group, and Galleon founder Raj Rajaratnam, in what may be the biggest hedge fund insider trading case ever. But would a more aggressive approach have deterred these crimes?
Congress has approved extra money to target financial crime, and Attorney General Eric Holder last month announced a task force to target financial fraud. “I think we’re headed in the right direction, but I want to see some tangible results,” said Sen. Arlen Specter, D-Pa.
Associate Attorney General Tom Perrelli said federal investigators are moving as quickly as they can to prosecute crimes linked to the financial crisis. “The administration is very much focused on the prevention and deterrence side of this,” he said.