Why No Major Indictment in Connection with the Financial Crisis?


The government’s failure to convict two minor Bear Stearns executives, whose hedge fund collapsed in 2007, may have caused it to shy away from prosecuting high-profile executives whose actions contributed to the financial crisis, according to Joe Nocera’s recent New York Times article, “Biggest Fish Face Little Risk of Being Caught.” In addition, proving criminal wrongdoing in financial matters is hard, and, as Mr. Nocera put it: “Delusion is an iron-clad defense” to fraud.

Angelo Mozilo may have promoted a culture at Countrywide that rewarded mortgage originators who engaged in “predatory lending practices,” but Mozilo did not himself make any fraudulent loans. The subprime madness at Countrywide was no secret. While Mozilo wrote emails calling one of Countrywide’s subprime products “the most dangerous product in existence, and there can be nothing more toxic,” according to the article, he also said publicly that the housing market was due for a hard fall, and apparently believed that Countrywide was too strong to fail. In any event, Mozilo’s actions “did not amount to criminal wrongdoing,” according to prosecutors.

While there is no question that Wall Steeet and subprime lenders took “unconscionable risks” that ultimately led to the financial crisis, there has not been a single indictment against any top executive.

Joe Cassano was allowed to walk away. He was the former head of the financial products unit at American International Group, which sold far more credit default insurance than it had the ability to cover, and had to be bailed out by the government.

Richard Fuld was also passed over by prosecutors. He was the chief executive during the collapse of Lehman Brothers.

The government lacks the prosecutorial resources it once had and the evidence against the big fish is not clear cut, according to the article.

In the case brought against the little fish, Cioffi and Tannin, Bear Stearns executives, while there were numerous e-mails expressing their fears and anxieties as the fund began to sink, which prosecutors viewed as smoking guns, other emails written at the same time expressed a belief that things would turn out fine. The jury acquitted them.

As one white collar criminal lawyer put it: “These kinds of cases are extraordinarily difficult to make. They require lots of time and resources. You have some of the best, highest-paid and most sophisticated lawyers on the other side fighting you at every turn. You are climbing a really high mountain when you try to do one of these cases.”