AG Holder Seeks Tools to Prosecute Executives for White Collar Crimes

By and | September 22, 2014

U.S. Attorney General Eric Holder last Wednesday called for Congress to take steps to help prosecutors build criminal cases against senior Wall Street executives, saying companies often insulated their leaders from responsibility for misconduct.

In a speech before New York University School of Law, Holder made some of his most extensive comments yet on improving the prosecution of white-collar crime. He called on Congress to boost rewards for Wall Street whistleblowers and fund more FBI agents with forensic accounting expertise.

The Justice Department has faced years of criticism for a dearth of marquee prosecutions against Wall Street executives for conduct that contributed to the 2007-2009 financial crisis.

It has reached multibillion-dollar settlements with institutions including JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc., for misrepresenting risks of shoddy mortgage bonds sold before the crisis. But no individuals have faced related charges.

At the speech, students passed around flyers criticizing Holder’s appearance as a “whitewash,” saying he had “provided impunity” to banks for selling toxic assets and had “refused to prosecute” them for other misdeeds.

“When it comes to financial fraud, the department recognizes the inherent value of bringing enforcement actions against individuals, as opposed to simply the companies that employ them,” Holder said.

But he said prosecutors could not always establish that high-ranking executives far removed from day-to-day operations knew about a particular scheme. He said blurred lines of authority often make it hard to name the person responsible for individual business decisions.

Holder suggested lawmakers consider a rule in the Sarbanes-Oxley Act of 2002 that requires a single executive to sign accounting forms and bear liability for misrepresentations, and examine whether it could be applied to other areas of corporate wrongdoing.

“We need not tolerate a system that permits top executives to enjoy all of the rewards of excessively risky activity while bearing none of the responsibility,” he said, before an audience that included Manhattan U.S. Attorney Preet Bharara and U.S. District Judge Jed Rakoff.

Rakoff in the past has criticized U.S. authorities for not pursuing more individuals. The judge has asked why prosecutors did not use “willful blindness” theories to go after senior executives who may not have been involved in day-to-day operations but had reason to suspect wrongdoing.


Also on Wednesday, another top Justice Department official said prosecutors have put individuals at the center of probes into corporate misconduct.

“If you want full cooperation credit, make your extensive efforts to secure evidence of individual culpability the first thing you talk about when you walk in the door to make your presentation,” Marshall Miller, the No. 2 official in the Criminal Division told an audience of lawyers who conduct corporate investigations.

Reuters reported last week that prosecutors in cases of foreign bribery and other white-collar crimes have used more investigative tools such as body wires and search warrants and also improved relationships with counterparts overseas to build stronger cases against individuals.

Since the financial crisis, prosecutors have stepped up efforts to pursue bankers, traders and others in finance for other types of fraud including insider trading and manipulation of interest rate benchmarks and foreign exchange rates.

Holder confirmed that the department had obtained undercover cooperators as part of its probe into the manipulation of foreign exchange rates, and expected to bring charges against individuals in financial fraud cases in the “coming months.”

But the law caps rewards for potential whistleblowers in cases that do not involve fraud against government programs and hurts the ability of prosecutors to get Wall Street executives to cooperate, Holder said in his speech.

“We should seek to better equip investigators to obtain this often elusive evidence,” Holder said.

In one recent case in which a federal judge ordered Bank of America to pay $1.27 billion for fraud at its Countrywide unit, a whistleblower who served as the government’s star witness is entitled to $1.6 million. Holder described that amount as a “paltry sum” for an industry in which the collective bonus pool stood above $26 billion last year and median executive pay was $15 million.

In addition to cooperators, Holder said prosecuting white-collar crime also requires FBI agents sophisticated enough to know what questions to ask and what to look for when those witnesses do come forward. He called on Congress to consider more resources for the FBI to sustain efforts to investigate financial crime.

(Reporting by Aruna Viswanatha in Washington and Nate Raymond in New York; Editing by Karey Van Hall, Chizu Nomiyama, Steve Orlofsky and David Gregorio)

Topics USA Fraud

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