Newspaper article International New York Times

Justice Dept. Takes a Turn for the Better

Newspaper article International New York Times

Justice Dept. Takes a Turn for the Better

Article excerpt

It may no longer be possible for Wall Street companies to cut deals that allow individual wrongdoing to be swept under the rug.

It took only 16 years, but the Justice Department's horribly misguided "Holder Doctrine" has finally been relegated to the dustbin of history, where it belongs.

The Holder Doctrine was the name given to a June 1999 memorandum written by Eric H. Holder Jr., then the deputy attorney general of the United States, whom President Obama nominated in 2009 to become attorney general, a position he held until his retirement this year.

Mr. Holder's argument essentially was that big financial institutions are "too big to jail" because the potential for "collateral consequences" from prosecutions -- including corporate instability or collapse -- had to be considered when deciding whether to bring a case against them or, apparently, against anyone who worked there and engaged in bad behavior.

Lanny A. Breuer, then the head of the Justice Department's criminal division, reiterated that sentiment as recently as 2012 in a speech at the New York City Bar Association, where he said that it was his duty to consider the health of the company, the industry and the markets in deciding whether to file charges.

The Holder Doctrine, strongly supported within the Justice Department, is most likely the reason there have been no criminal prosecutions of any of the Wall Street companies that brought us the 2008 financial crisis.

It is also why not a single individual at a Wall Street company, or other financial institution, who engaged in fraudulent behavior in the years leading up the financial crisis has been prosecuted successfully.

To be fair, the United States attorney in Brooklyn tried -- and failed -- to get a jury to convict two Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin, who presided over the demise of their two funds, costing investors around $1.5 billion. And it is also true that Kareem Serageldin, a former senior trader at Credit Suisse, is serving a 30-month sentence for inflating the value of mortgage bonds in his trading portfolio, effectively hiding his losses.

Still, instead of prosecuting companies and individuals for their wrongdoing, Mr. Holder's Justice Department was fixated on extracting huge fines from Wall Street companies, and then crowing about it. Since 2009, according to an analysis by Keefe, Bruyette & Woods, 49 financial institutions have paid around $190 billion in fines to federal and state governments and agencies.

In exchange for paying these fines -- with their shareholders' money -- Wall Street companies got the government to agree to keep what they really did wrong under wraps forever.

We may never know the extent of what individuals on Wall Street did to deceive their clients, their investors and their customers. That's not a legacy of which to be proud, nor is it nearly the same as holding individuals accountable for their bad behavior.

That's probably why Mr. Holder's successor, Loretta E. Lynch, decided to change course. This past week, Sally Quillian Yates, Ms. Lynch's deputy, effectively laid the Holder Doctrine to rest.

Her seven-page memo, directed to every United States attorney as well as the senior management of the Justice Department, emphasized that pending and future investigations of corporate wrongdoing would no longer be concluded without holding responsible those individuals who misbehaved. …

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