We recently defended a securities broker who had been banned for life for some impropriety relating to his expense account. Amount at issue: $1,100. Harm to customers $0. Time spent prosecuting the case by the SEC: substantial. In researching that case we saw numerous examples of the SEC, time and again, using what they often remind us are very limited resources to ensure that the lowest of the low hanging fruit – small brokers at small firms, not only pay fines, but are routinely banned for life from the industry. That ain’t right; particularly when Wall Street’s biggest players, represented by white shoe firms like Ms. White’s alma mater Debevoise & Plimpton, earn enormous fees to ensure the biggest bankers walk away from mega scandals without a hair on their head out of place.
Don’t take my word for it. The saintly John Coffee, a long time and well respected law professor at Columbia, has pointed out that the SEC has not gone after a single senior executive from Lehman Brothers, Bear Stearns, AIG, and many other major players in the 2008 financial collapse. And when they do act, Professor Coffee points out these well healed corporate defendants settle without admitting wrongdoing and often paying far below the value of their ill-gotten gains. As Coffee put it, “parking tickets for securities fraud.”
Well those halcyon days are beginning to see a challenge from the judiciary. With much of the fanfare that he loves to generate, Judge Jed Rakoff rejected a settlement between the SEC and Citigroup because the settlement required no admission of wrongdoing. Though overturned by the Second Circuit, his skepticism was justified. More recently, Judge John Kane of the U.S. District Court for the District of Colorado rejected a settlement between the SEC and a Ponzi schemer who was not required to admit guilt, despite having stolen millions of dollars over 16 years.
Despite significant statutory authority, the SEC seems reluctant to roll out the heavy artillery. As enforcement chief, Robert Khuzami told the New York Post
“The cold reality is that in light of this exposure, companies and individuals are highly reluctant to settle if by doing so, they open themselves up to all of this liability.”
So what of Mary Jo White? Tough federal prosecutor, to be sure. But she will be sitting across the table from old friends at Debevoise or more than likely alums from the Southern District of New York’s US Attorneys Office. There will be lots of talk of children and vacations together and then… the inevitable deal. And those lifetime bans … oh they will still be imposed, but on the small players who can’t afford the $1,000/hour lawyer it takes to wriggle out of fraudulent conduct with at most a fine – paid by the shareholders of course.