Fed Judge Rakoff Sees No Prosecution for Top Wall Street Execs (Update 1)
Updated from 1:17 p.m. EST to reflect comments of SEC and CFTC officials.
NEW YORK ( TheStreet) -- Judge Jed S. Rakoff of the Federal District Court in Manhattan can't speak about the propriety of bank loans and securities issued during the housing bubble given pending or future litigation. However, he is ready to make definitive statements about a lack of criminal prosecutions against top-level Wall Street executives five years after the financial crisis.
The Department of Justice and Securities and Exchange Commission's reticence to bring charges against top executives of Wall Street firms is "technically and morally suspect," according to Rakoff. That is, if there was widespread fraud in the mortgage market, as many independent investigations such as the Financial Crisis Inquiry Commission and Senate banking committee investigations allege.
Judge Rakoff's comments, made at the New York Bar's Annual Securities Litigation & Enforcement Institute on Tuesday, aren't surprising. He was the judge that rejected a settlement between Citigroup
What is surprising is that Rakoff is commenting on Wall Street prosecutions at all.
Rakoff cannot comment on matters surrounding mortgages originated during the housing bubble given an onslaught of current litigation levied against firms such as JPMorgan
Don't expect any Wall Street perp walks, according to Rakoff's comments -- a contrast to previous crises where bankers as prominent as Michael Milken of Drexel Burnham & Lambert and Charles Keating of Continental Illinois were criminally convicted and sent to prison.
"[Not] a single high level executive has been successfully prosecuted in connection with the recent financial crisis, and given the fact that most of the relevant criminal provisions are governed by a five-year statute of limitations, it appears very likely that none will be," Rakoff said.
Criminal investigations against firms like JPMorgan and Bank of America, nevertheless, continue to be disclosed in their quarterly filings with the SEC .
For Judge Rakoff, a lack of prosecutions against individuals may reveal alarming and systemic failures of the criminal justice and regulatory system.
Explanations for not prosecuting Wall Street executives, such as difficulty in proving intent to defraud investors, the sophistication of Wall Street counterparts, and instances where prosecutions could undermine the economy, are "hollow" and "lame," in Rakoff's words.
Indeed, according to Rakoff, if there was widespread fraud in the mortgage market, prosecutors should have been able to prove executives acted with criminal willful blindness. Government prosecutors, meanwhile, wouldn't need to prove that sophisticated investors relied on disclosures made by a firm for a fraud to have been committed.