U.S. District Court Judge Jed Rakoff, who presided over the Bank of America fraud case
last year, had some choice things to say recently about the government’s habit of prosecuting corporations for financial wrongdoing but leaving executives untouched.
“Companies do not commit crimes, only their agents do,” Rakoff wrote in an article for the New York Times Review of Books. “...So why not prosecute the agent who actually committed the crime? … The future deterrent value of successfully prosecuting individuals far outweighs the prophylactic benefits of imposing internal compliance measures that are often little more than window-dressing.”
Rakoff has a history of impatience with the frequent settlements – known as “consent decrees” – in which big banks solve their compliance woes by paying the federal government a nominal fine with no admission of wrongdoing and minimal regulatory penalties. In 2009, he refused to accept a proposed $33 million settlement between Bank of America and the Securities and Exchange Commission, calling the proposal “"a contrivance designed to provide the S.E.C. with the facade of enforcement and the management of the Bank with a quick resolution of an embarrassing inquiry,” according to the Los Angeles Times.
In his New York Times article, Rakoff wrote that the practice of threatening to prosecute corporations won’t deter the kind of corporate fraud that led to the mortgage crisis as well as going after individual executives.
“I suggest that this is not the best way to proceed,” he wrote. “...Just going after the company is also both technically and morally suspect. It is technically suspect because, under the law, you should not indict or threaten to indict a company unless you can prove beyond a reasonable doubt that some managerial agent of the company committed the alleged crime; and if you can prove that, why not indict the manager? And from a moral standpoint, punishing a company and its many innocent employees and shareholders for the crimes committed by some unprosecuted individuals seems contrary to elementary notions of moral responsibility.”
Why haven’t any high-level executives been prosecuted for their roles in the financial crisis? That question, long asked by ordinary citizens in the wake of the mortgage meltdown, is now being asked by a federal judge.