Who’s Been Sued? Epic Failure, Says Bill Black

Bill Black parses the SEC’s claims of hardass prosecution in this article, excerpt below:


How many C-suite officers of Wall Street firms were individually sued by the SEC?  The SEC says it took action against the following elite financial institutions:

Bank of America:  No officers sued

Bear Stearns:  No senior officers sued

Citigroup:  No officers sued

Countrywide:  CEO sued, settled for “record $22.5 million penalty and permanent officer and director bar. (10/15/10)” [WKB: most, perhaps all, of the penalty was paid by Countrywide’s acquirer and insurer.  According to the SEC’s complaint, the penalty represents a small percentage of the CEO’s fraudulent gains.  The CEO was already retired by the time the SEC sued.]

“Credit Suisse bankers – SEC charged four former veteran investment bankers and traders for their roles in fraudulently overstating subprime bond prices in a complex scheme driven in part by their desire for lavish year-end bonuses. (2/1/12)” [WKB: None of the officers sued was close to being C-suite level.]

Fannie Mae and Freddie Mac:  “SEC charged six former top executives of Fannie Mae and Freddie Mac with securities fraud for misleading investors about the extent of each company’s holdings of higher-risk mortgage loans, including subprime loans” [WKB:  all six executives are C-suite or very senior.]

Goldman Sachs:  No senior officers sued

IndyMac:  “SEC charged three executives with misleading investors about the mortgage lender’s deteriorating financial condition. (2/11/11) – IndyMac’s former CEO and chairman of the board Michael Perry agreed to pay an $80,000 penalty.” [WKB: The penalty figure is not a misprint.  IndyMac made hundreds of thousands of fraudulent “liar’s” loans and sold them to the secondary market through fraudulent “reps and warranties.”  It was the largest “vector” spreading mortgage fraud through the system.  The three executives sued were C-suite level.]

J.P. Morgan Securities:  No officers sued

UBS Securities:  No officers sued

Wachovia Capital Markets:  No officers sued

Wells Fargo:  No senior officers sued

The SEC has brought suits against only a dozen of the elite firms whose frauds drove the crisis.  In five of the cases it sued no individuals.  In four of the cases it sued no C-suite officers.  In nine of the twelve cases (I follow the SEC’s practice of counting Fannie and Freddie as one case) involving elite financial institutions it sued no senior officers.  The Stanford study of all closed SEC actions filed since 2000 that the reporters cite indicates that only 7% of overall SEC cases failed to sue an individual, but for the elite banks that the SEC says contributed to the crisis that percentage is 42 percent – six times the normal rate.  The Stanford study also reported that “the SEC has targeted solely lower level executives in only 7% of its cases.”  In the case of the elite banks that proportion rose to 33 percent – well over four times the normal rate.  In sum, the SEC data prove the opposite of what the SEC propagandists and their allied reporters sought to convey.  The pattern of SEC action with regard to elite banks and elite fraudulent bankers demonstrates that they are treated far differently than smaller, non-financial corporations.  (Note that this ignores the most important differences – the elite banksters’ frauds are far less likely to be investigated or sued by the SEC and enjoy de facto immunity from prosecution.)  The Stanford study does not include cases that the SEC failed to investigate or bring.)

The controlling officers of firms, not the corporation, make decisions.  They are happy to trade off penalties that will be paid by the firm.  Those penalties sound large but they merely represent the modest cost of doing fraudulent business to ensure that the controlling officers escape individual accountability.  The SEC can only achieve deterrence and take the profit out of elite fraud by making the criminal referrals and conducting the investigations that convict senior officers of felonies for their frauds and by recovering all of the officers’ fraudulent proceeds.


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