Avoiding the Catch-22 of Corporate Fines Versus Individual Prosecutions

Posted on September 14, 2012 by Martin Pritikin

If neither financial penalties nor criminal prosecutions are doing the trick to deter corporate fraud, what else can one do? A number of commentators have expressed the view the imposing fines on corporates for fraud has not seemed to deter them. A slew of large institutions have paid multi-million or even billion dollar fines—repeatedly—yet committed the same or similar violations after paying them. As one source, noted, “The SEC could bring contempt of court charges against serial offenders, but it doesn’t. Earlier this year the SEC revealed it has not brought any contempt charges against large financial firms in the … Continue reading →

Senator’s stray remark reveals flaw in penalties legislation

Posted on September 4, 2012 by Ezra Ross

In a previous post, we profiled regulatory CYA by the SEC. On the same day the SEC was publicly criticized for not using the enforcement tools it has, the SEC wrote a letter asking Congress for more enforcement tools. We argued that SEC’s request would not only fail to solve its enforcement problems, it could actually aggravate them. But lawmakers have now proposed a bill granting SEC’s misdirected wish list. A statement by one of the bill’s own sponsors, however, admits the law depends in no small part on a mere “hope” that regulators will somehow do a better job. … Continue reading →

California Legislation Takes Step Forward in Collections—And Step Back

Posted on August 20, 2012 by Martin Pritikin

At the same time that California passed new legislation making it easier for the state’s taxing authority to locate and seize assets of people who owe the state money, it narrowed the tax board’s power to collect on behalf of one of the state’s largest administrative agencies, which is owed tens of millions of dollars from violators. Although the Franchise Tax Board (FTB), California’s taxing body, primarily collects tax debts, it has also been statutorily authorized to collect certain debts on behalf of other agencies or arms of the state. This includes delinquent vehicle registration fees on behalf of the … Continue reading →

Failure to Enforce Laws Protecting American Military Personnel

Posted on August 11, 2012 by Ezra Ross

The Servicemembers Civil Relief Act is supposed to help protect those who protect us. To relieve servicemembers from financial worries while they’re in the line of duty, the Act prohibits soaring interest rates on servicemembers’ home mortgages and hasty home foreclosures. Unfortunately, a recent government study found “limited” regulatory oversight of banks’ SCRA compliance. Regulators’ inaction leaves many servicemembers to try to assert their own SCRA rights. But the same study suggests the government inadequately informs servicemembers about protecting themselves under the statute. These failures mean servicemembers fall into an “enforcement gap”—protected on paper, but not in reality. The first … Continue reading →

If You Want Something Done Right, Don’t Ask a Multi-Agency Task Force

Posted on July 30, 2012 by Martin Pritikin

The history of the Residential Mortgage-Backed Securities (RMBS) Working Group of the Financial Fraud Enforcement Task Force (FFETF) is, by many accounts, a sad and sordid one. And it is only six months old. In January 2012, the RMBS Working Group was announced. It was to be a collaborate effort amongst state and federal governments, spanning civil, criminal, and administrative departments, including the DOJ and SEC. Robert Khuzami, Director of the SEC’s Division of Enforcement and a co-chair of the Working Group, was quoted in a press release on the FBI website as saying: “The working group’s approach to RMBS … Continue reading →

Miscalculating the Economics of Corporate Crime

Posted on July 30, 2012 by Ezra Ross

The recent spate of banking scandals has left the public, politicos and commentators groping for answers. Why do bankers do wrong? Are they uniquely flawed people, innately disposed to aggrandize themselves at the expense of others? Instead, are they “just like us,” grotesque illustrations of what most of us would do if presented with the same opportunities? Or are somehow the rest of us to blame for not stopping bankers’ crimes, á la Gunnery Sgt. Hartman’s theory that if we all locked our footlockers, there wouldn’t be any thievery in this world (warning: some explicit language in this clip). A popular … Continue reading →

Supreme Court Health Care Ruling & Dubious Assumptions about Penalties

Posted on July 23, 2012 by Ezra Ross

Many pundits predicted a ruling killing the Affordable Care Act’s individual mandate and banishing any specter of government-enforced broccoli consumption. Instead we got the opposite result, with nightmarish vegetable scenarios playing little role in the reasoning that upheld the law. Rather, the Supreme Court’s decision turned on the seemingly technical distinction between “taxes” and “penalties”: because the mandate functioned as a tax, according to the Court, Congress’ taxing power justified its enactment. While much has been said about the behind-the-scenes motivations for Chief Justice Roberts’ opinion, little has been said about the fact that the relied-upon tax/penalty distinction implicates a … Continue reading →

The SEC’s Band-Aid Solution and The Politics Behind It

Posted on July 4, 2012 by Ezra Ross

Critics have slammed the SEC for letting off corporate violators with piddling, slap-on-the-wrist penalties. As we discussed in a previous post, for example, Judge Rakoff skewered regulators for accepting “pocket change” settlements with financial behemoths Citigroup and Bank of America. SEC’s response has been to send letters to Congress asking for more power to impose bigger penalties. Although bigger may at first blush sound better, however, SEC’s response misses the mark altogether. Arrogating more power to impose higher initial fines won’t incentivize regulators to demand that wrongdoers actually pay substantial amounts. It may, in fact, do just the opposite. In … Continue reading →

Second Circuit Ruling a Blow to Agency Transparency

Posted on June 29, 2012 by Martin Pritikin

It is rare that federal judges become populist folk heroes. Jed Rakoff may be that rare exception. But in real life, the hero doesn’t always save the day. Rakoff, a United States District Judge for the Southern District of New York in Manhattan, has become rather notorious for his criticism of the Securities and Exchange Commission’s settlement practices. Most recently, in November 2011, he rejected a settlement resolving the SEC’s claims regarding Citigroup’s allegedly fraudulent mortgage investment practices, which cost investors more than $700 million. Judge Rakoff called the $285 million payout, including restitution and a $95 million fine, “pocket … Continue reading →

New Study Finds Dismal Restitution Collection Rates in Florida—and Nationwide

Posted on June 24, 2012 by Martin Pritikin

A series of articles published in the Orlando Sentinel last week by Richard Burnett found that from 2007- 2011, Florida’s federal-court districts had a restitution recovery rate of 4.1 percent, which “badly trailed the national rate of 25 percent.” (Disclosure: I was a source.) And Florida trails even further behind the rates obtained in some of the other 10 largest states, including –remarkably—California (38 percent). These figures are disappointing enough. But the reality is even worse. First, these figures pertain only to restitution, not to all fines and penalties imposed on offenders. Thus, they don’t really measure the lost deterrence … Continue reading →

The Collection Gap

A Blog About Regulatory Enforcement Failure