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Will the Justice Department Get Serious About Prosecuting Executives for Financial Fraud?

Prosecuting Executives

As Attorney General Holder prepares to leave the Department of Justice, questions about his commitment to prosecuting executives of banks continues. An insightful recent report shows the stark contrast between the way the DOJ handled the savings and loan crisis of the late 1980s and how it handled the banks’ role in the financial crisis that nearly brought down the U.S. economy in 2008-2009.

The report also highlights how the recent multi-billion dollar settlements with banks smaller than they appear and largely subsidized by the shareholders, bondholders, and the taxpayers. The responsible executives frequently escaped prosecution and facE no jail time and indeed not even facing civil penalties or exclusion from working in the industry.

Attorney General Holder seems to lay the blame for the lack of criminal prosecuting of executives on problems of proof and lack of whistleblowers, among other things. While we applaud his call for greater incentives/rewards for whistleblowers and recognize that it is not easy to make a criminal case stick, there are a myriad of criminal statutes that could apply (mail fraud and wire fraud coming first to mind) and virtually every bank settlement involved whistleblowers who came forward with information under the whistleblower provisions of FIRREA passed during the S&L crisis or the False Claims Act or both.

Perhaps some of the problem stems from the admission earlier this fall that the Criminal Division of the DOJ has apparently not been systematically reviewing whistleblower complaints; in a recent speech, the Assistant Attorney General for the Criminal Division announced that “We in the Criminal Division have recently implemented a procedure so that all new qui tam complaints are shared by the Civil Division with the Criminal Division as soon as the cases are filed.

Experienced prosecutors in the Fraud Section are immediately reviewing the qui tam cases when we receive them to determine whether to open a parallel criminal investigation. “ (emphasis added). This is welcome but puzzling news: since at least 1990 (including while now-AG Holder was AG Janet Reno’s Deputy with oversight of the Criminal Division), official DOJ policy has been the opposite and parallel criminal and civil proceedings the expected approach to an investigation of a whistleblower complaint. Perhaps equally revealing is how little of the speech by the Criminal Division Assistant Attorney General touts financial fraud successes (as opposed to, say, health care fraud).

With the changing of the guard at the top of the DOJ, it will be worth watching to see if anything about the DOJ’s approach to financial fraud really changes or if the criminal side of the Department simply lacks the will, the leadership, or the vision to prosecute individual executives who cross the line. Sophisticated financial fraudsters are undoubtedly operating right now. We must stop them and to punish the perpetrators. To do that, we need courageous whistleblowers –and a committed DOJ.

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