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Challenges remain for Justice Department in prosecuting executives

 
Published Sept. 11, 2015

Banks don't break the law; bankers do.

That populist lament is now a government directive, with the Justice Department this week announcing new policies for prosecuting corporate employees, responding to criticism that it has secured huge fines from banks but few indictments of bankers.

The overhaul, Justice Department officials say, may ease some barriers to prosecuting Wall Street cases and pave the way for executive indictments.

But will the changes guarantee a Wall Street "perp walk," that moment when a top banker is led away in handcuffs? Perhaps not. Recent investigations suggest that the challenges prosecutors face are greater than new rules can solve.

In all likelihood, prosecutors today would still struggle to indict Angelo Mozilo, the founder of Countrywide Financial, who embodied the financial-crisis-era risk-taking in subprime mortgages. The same goes for Lehman Brothers executives, who, like Mozilo, never faced criminal charges. Prosecutors did conduct investigations of those executives along the lines of the new guidelines, but they say they struggled to prove wrongdoing.

"Updated guidelines are not a panacea," said David A. O'Neil, a defense lawyer who until last year was the acting head of the Justice Department's criminal division in Washington. "White-collar cases are hard to prove, because they're very complex and if you don't have direct evidence of fraud, there's room for argument on both sides."

And even if the changes ultimately lead to a new round of indictments, those cases won't necessarily succeed in the courtroom. In several Wall Street cases that involved individual charges — the indictments of two Bear Stearns hedge fund managers, JPMorgan Chase traders and certain hedge fund portfolio managers, for example — juries and judges have spoiled the government's efforts to secure convictions and prison sentences.

Those outcomes underscore the difficulty of proving criminal wrongdoing, with or without new guidelines, in an increasingly complex and global financial system. Compounding the obstacles, the FBI's resources these days are dedicated more to fighting terrorism than to white-collar crime.

The Justice Department acknowledges the limitations of its new guidelines, but it argues that it is nonetheless necessary to put corporations on notice and set the tone for its white-collar investigations. While the Justice Department cannot control whether some companies continue to obfuscate, officials say, the new policies can at least remove some of the internal barriers to prosecuting culpable individuals.

"I'm not trying to tell you that this means that tomorrow, all of a sudden, corporate heads are going to be rolling," Sally Q. Yates, the deputy attorney general and the author of the new guidelines, said in an interview. "It's going to take some time for these changes to take effect. And we don't have any way of knowing what the actual impact will be in terms of cases that are brought."