The federal judge who oversaw the recent civil fraud trial against Bank of America Corp. criticized the U.S. Department of Justice on Tuesday for failing to prosecute high-level executives over the financial crisis.
U.S. District Judge Jed Rakoff of Manhattan said while companies have been prosecuted for causing the 2007-2009 financial meltdown, Wall Street executives have escaped justice.
“The failure of the government to bring to justice those responsible for such a massive fraud speaks greatly to weaknesses in our prosecutorial system that need to be addressed,” Rakoff said.
Rakoff, who was appointed by President Bill Clinton in 1996, blamed the lack of criminal cases on a shortage of investigatory resources coupled with an over-emphasis on bringing cases against companies rather than individuals.
Rakoff’s critique drew a quick reaction from the Justice Department, where a spokeswoman said top prosecutors are “aggressively working” on several ongoing investigations.
“No individual or institution is above the law and we will continue to follow the evidence where it leads to hold the appropriate people and institutions accountable,” Adora Andy Jenkins, a department spokeswoman, said in an email.
The Justice Department this year brought two civil fraud cases against Bank of America in connection with the sale of mortgage securities.
In another case, a federal jury in Rakoff’s court last month found Bank of America and a mid-level executive liable for fraud over defective loans Countrywide Financial Corp sold to Fannie Mae and Freddie Mac. The Justice Department on Friday asked Rakoff to penalize the company $863.6 million.
The department also has been engaged in talks with JPMorgan Chase & Co. about a potential $13 billion settlement resolving mortgage securities probes.
Nevertheless, federal authorities remain on the defensive for not successfully bringing criminal cases against top executives at the banks that cobbled together the complex mortgage products at the heart of the crisis.
U.S. Attorney Preet Bharara, asked at another conference in New York on Tuesday why prosecutors had not brought charges against executives at Lehman Brothers Holdings Inc after the bank collapsed in 2008, responded: “You bring the cases you can based on the evidence you have.”
Rakoff has previously tended to direct his criticisms at the U.S. Securities and Exchange Commission rather than the Justice Department. In 2011, he rejected a $285 million settlement between the SEC and Citigroup Inc. for being too lenient.
In his speech Tuesday, Rakoff cited remarks in March by Attorney General Eric Holder, who said he was concerned that prosecuting some banks “will have a negative impact on the national economy, perhaps even the world economy.”
“I have to say,” Rakoff said, “to federal judges who take an oath to apply the law equally to the rich and the poor, this excuse, sometimes labeled the ‘too big to jail excuse,’ is mindboggling in what it says about the department’s disregard of fundamental legal principles.”
Rakoff said the question of whether banks are “too big to jail” is “entirely irrelevant” to whether individual executives should be charged.
Rakoff also questioned whether the government’s own role in the events leading up to the financial crisis was a factor. He cited the federal government’s encouragement of lending to people who previously couldn’t qualify for mortgages.
“This could give a prudent prosecutor pause in deciding whether to indict a CEO who might, with some justice, claim he was only doing what he fairly believed the government wanted him to do,” Rakoff said.
Rakoff saved some of his strongest criticism for the policy of pursuing cases not against executives but against the companies themselves, often through deferred prosecution agreements.
“From a moral standpoint, punishing a company and usually or mostly innocent employees and shareholders for the crime of a few unprosecuted individuals seems contrary to the elementary notions of moral responsibility,” Rakoff said.