PRESS RELEASE
Senate Hearing:
`If You Do What Goldman Sachs Did,
You Go to Jail'
May 4, 2010 (EIRNS)—In what was clearly intended as a follow-up to Senator Carl Levin's hearings on Goldman Sachs last week—and as advancing the Pecora process—a Senate Judiciary subcommittee held a hearing today, to ask whether there should be jail time for Wall Street fraudsters.
The hearing, entitled "Wall Street Fraud and Fiduciary Duties: Can Jail Time Serve as an Adequate Deterrent for Willful Violations?" was held by the Senate Judiciary Subcommittee on Crime and Drugs. From the outset, Subcommittee Chairman Arlen Specter (D-PA), who for a long time had chaired the full Judiciary Committee, set the context as being the SEC filing of actions against Goldman Sachs, for short selling against its own customers.
Specter said he's long believed that fines are insufficient when dealing with corporate fraud; fines are just treated as a cost of doing business. Specter said that his experience as a prosecutor led him to believe that criminal convictions work better as an appropriate punishment, and also as a deterrent to others. Specter has apparently drafted legislation which imposes criminal penalties for such frauds as committed by Goldman Sachs; his bill would state that a broker-dealer or investment advisor has an obligation to act in the best interests of his client, and imposes criminal penalties for willfully violating this fiduciary duty.
Ted Kaufman (D-Del.) cited the "meltdown in 1929-33," and said that Congress had passed good laws then, such as Glass-Steagall, which served us well for generations. Kaufman said every American can tell wrong when they see it; they know what Goldman-Sachs did was wrong, and people say to him: "You should go to jail when you do something like what Goldman Sachs did."
The two morning panels were "balanced" between those who argued that civil penalties are not enough, that these are just considered a cost of doing business, and that there must be criminal penalties and jail time for violating one's fiduciary duty to a client (fraud); and those arguing against criminal penalties and jail time. The latter were two white-collar defense lawyers from big law firms and some academics, one from GMU who is a deluded Federalist Society type, who contended that this should be approached from a cost-benefit standpoint. Another used the same argument that was used to justify the taxpayer bailout of the financial companies in the first place, argued that to impose criminal penalties and jail time is a misguided idea that could make the markets freeze up; a second said that this could punish innovation and socially-beneficial behavior(!).
Prof. John Coffee of Columbia University (one of the country's experts in corporate and white-collar crime) said there is a gaping hole in the current financial reform legislation being considered by Congress (i.e., the Dodd bill), which the bill under consideration by this subcommittee fills, by specifying criminal penalities for willfull violation by brokers and investment banks of their fiduciary responsibility to their clients.
Prof. Henry Fontell of the University of California at Irvine also strongly supported what he called "the infliction of criminal penalties on white collar and corporate criminals, adding, "The current spate of financial sanctions is no more than an additional and mildly bothersome cost of doing business." Fontell noted that the country is getting restive over the lack of criminal prosecutions of corporate criminals. "The war on drugs snared a horde of financially marginal people," Fontell declared. "There's been no similar war on financial thugs."
