Why Is It So Hard to Prosecute Wall Street Executives?

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Judge Rakoff argues, perhaps as much for the record as anything, that one reason why there have been no criminal prosecutions of high-level executives, in relation to the financial crisis, might be that no fraud was committed. At least, not in the upper-executive echelons of major financial institutions. High-level executives are, ostensibly, separated by at least one degree from the mortgage origination and securitization work that was at the front lines of any alleged fraud.

While he technically reserves personal judgement, Judge Rakoff neatly folds up this argument and many of its tangents and takes it off the table. He writes that, “The stated opinion of those government entities asked to examine the financial crisis overall is not that no fraud was committed. Quite the contrary. For example, the Financial Crisis Inquiry Commission, in its final report, uses variants of the word “fraud” no fewer than 157 times in describing what led to the crisis, concluding that there was a ‘systemic breakdown,’ not just in accountability, but also in ethical behavior.”

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Working from here, the conversation turns back to the headline question: why have no high-level executives been prosecuted in relation to the financial crisis? The answer, according to Judge Rakoff, boils down to a sort of institutional complacency among U.S. financial regulators, which was born out of an era of deregulation and matured in a post-9/11 environment, when the nation’s focus was on terrorism, not financial fraud.

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