The banking and housing crisis happened almost a decade ago. The U.S. Department of Justice has prosecuted many white collar criminals over the last eight years, however the bankers responsible for the mess walked away scot-free. The government prosecutes inside traders, Ponzi schemers and Medicare fraudsters. But bankers? Only if they helped hide offshore accounts.
Earlier this month, Loretta Lynch, America’s new Attorney General, announced that her department would start criminally prosecuting bankers. Long overdue, the effort won’t give any closure or satisfaction to the millions of Americans who lost their homes or jobs or both.
Generally, the government must prosecute white collar criminals within 6 years of their crimes. With much of the shenanigans occurring in 2006 and before, it is too late for many of the worst offenders. Angelo Mozilo, former CEO of Countrywide? Too late.
We are certainly happy to see the Justice Department prosecute bankers. The measure is long overdue. How the policy will be carried out, however, remains to be seen.
In our whistleblower practice we have been approached by several bankers interested in coming forward to report wrongdoing but afraid that they could somehow be thrown under the bus. (Senior Justice Department officials say that won’t happen.)
Even if we never see a banker dressed in orange doing the perp walk on the 5:00 pm news, the efforts of the Justice Department efforts aimed at bank fraud have been effective in recent years.
Manhattan’s U.S. Attorney, Preet Bharara, hasn’t hesitated in seeking indictments against bankers involved in insider trading. Notoriously difficult to prosecute, Bharara didn’t flinch even when some of his convictions were reversed on appeal.
And main Justice, Bharara and then Brooklyn’s former U.S. Attorney – Loretta Lynch – used the FIRREA (Financial Institutions Reform Recovery and Enforcement Act) and the False Claims Act to recover over $100 billion in civil penalties and homeowner relief monies from big banks.
We now have a new Attorney General and with her comes a new playbook. (Many lawyers and critics remember then AG Eric Holder’s famous Congressional testimony when he said that some banks are “too big to jail.”) Unlike Holder, Lynch is ready to add criminal prosecutions to her tool box.
Before we are too quick to criticize Holder, we must remember that when he came into office, our economy was quite fragile. Hindsight and armchair quarterbacking aside, we wonder if the country could have survived a major banking failure.
Holder is gone and Lynch brings with her a new regime and playbook. Under Lynch’s new rules, a bank or corporation can only seek favorable consideration at sentencing if they identify all those executives responsible for the misconduct.
Things are going to get mighty interesting.
Banks are owned by investors and have a duty to them. But they are also run by executives and how many executives want to throw themselves under the bus.
Of course this new dynamic may make some executives decide to come forward first instead of being made a scapegoat.
We like to use the analogy of the “musical chairs.” When the music stops, someone is going to jail. Friendships and loyalties are likely to fly out the window when executives realize that someone might have to spend a few years in prison for the bank’s particular bad behavior.
The time and effort required to mount a major banking prosecution is enormous. We don’t expect to see many criminal prosecutions but there will be some and likely many more whistleblowers in the next few years.
Another dynamic is the now real threat of prison. Paying multi-billion dollar fines is a cost of doing business for some banks but the idea of prison is terrifying for many folks in the suits and ties world.
It is this dynamic that offers the most hope. Perhaps finally we will see a major change in behavior by banks. All of a sudden the prospect of orange jumpsuits and the loss of one’s freedom becomes real.
We represent whistleblowers in our practice and help them stop corruption and greed. We also help insure our clients get paid the maximum awards allowed by law and protect them for retaliation. (Our banking whistleblower clients have received over $100 million in awards.)
Now is the perfect time to get ahead of the firestorm and be the first to report fraud.
MahanyLaw – America’s Whistleblower Lawyers