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Not with a Bang but a Whimper -- the SEC Enforcement Team's Propaganda Campaign

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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.

The SEC data demonstrate its epic failure in preventing the current crisis (the SEC was useless) and deterring future crises (the SEC leaves the fraudulent wealthy officers immensely wealthy).  The SEC has tried to bring enforcement actions against the senior officers of only three of the elite financial institutions (banks).  It has sued twelve senior officers of those three banks (or four if we depart from the SEC's practice and call Fannie and Freddie different cases).  It's biggest "success" left the former CEO of Countrywide with virtually all of the vast wealth that the SEC claims to be the product of fraud.  It obtained $80,000 (also almost certainly paid by an insurer) from the CEO of IndyMac, the largest fraudulent seller of fraudulent mortgage loans.  That is it for the senior officers of the elite banks whose frauds the SEC says drove the financial crisis.

The SEC, as always, focuses its enforcement on non-elite corporations where it is far easier for its enforcers to rack up higher numbers of "successes."  The "66 senior" individual defendants were overwhelmingly employed by non-elite banks.  The SEC's own data demonstrate that it is a paper tiger when it comes to the elite banksters who grew wealthy by leading the frauds that caused the mortgage fraud crisis.

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http://neweconomicperspectives.org/
William K Black , J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House (more...)
 

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