Recently, the US Securities and Exchange Commission (SEC) won a case against a banker for fraudulent behaviour leading to the financial meltdown of 2008-09. This was no CEO of a bank but just a mid-level banker. It was a civil case; he will face other penalties but will not be going to jail. The US government's record remains intact: it has sent no one from Wall Street to jail for playing a role in the financial crisis.
The main reason Fabrice Tourre was indicted by the SEC, wrote Senator Tred Kaufman in a recent column published in Statesmanjournal.com, was that he was dumb enough to write a string of very impolitic emails about a billion-dollar deal called Abacus that he and employer Goldman Sachs packaged and sold to investors in 2007. They convinced a major customer to invest in Abacus, a package of mortgage bonds of varying quality. One of the selling points was a well-known hedge fund would also be buying Abacus.
In fact, the hedge fund was doing just the opposite - buying derivatives that bet against the bonds in Abacus. What's more, Goldman Sachs had allowed the hedge fund to "help" pick the bonds to be included in the Abacus package. It might sound unbelievable but Goldman Sachs was charged by the SEC at the same time as Tourre and, rather than go to trial, it agreed to pay a $550-million fine.
But no senior executives were charged or imprisoned for the 2009 financial crisis.
As the crisis was unravelling in 2009, the FBI actually scaled back a plan to assign more field agents to investigate mortgage fraud, and the US Justice Department rejected calls to create a task force. As a result, these cases were poorly-staffed and funded and only much later was a financial crimes task force was created. Officials said regulators failed in their duty to compile the information that has traditionally helped build criminal cases.
In effect, the same dynamic that helped enable the crisis-weak regulation also made it harder to pursue fraud in its aftermath.
