Why Wall Street Sharks Swim Free

It’s no secret that the feds have gone soft on busting Wall Street titans and other executives at the center of the credit crisis.

In fact, cases brought by the Securities and Exchange Commission against firms involved in creating the toxic securities that hurtled the economy to near ruin rarely name executives as defendants, the New York Times reported last Friday. Such cases include a recent settlement with JP Morgan Chase for wrongly selling a mortgage security that went bad.

Remember the dark days for corporate America after the tech and Internet bubble burst in 2000? In the following years, senior executives from Enron, WorldCom, Tyco, Adelphia, Rite Aid and ImClone were convicted and imprisoned for their roles in scamming investors.

Those executives did the crimes, then they did the time.

Not so in the aftermath of the credit crisis. It’s been three years since the federal government had to bail out Wall Street after it almost destroyed the global economy, and no prosecution has emerged against a key figure atop any of the banks or mortgage firms.

But now we know why the feds at the Justice Department and the SEC have gone soft. According to the Times, the Justice Department in 2008 adopted a practice known as “deferred prosecution agreements” as an official alternative to seeing a case go the distance to guilty or not guilty.

Such agreements mean that if companies decide to play nice and conduct their own investigations when the feds knock on the door looking for information about bad guys, the feds can delay or cancel prosecutions if companies promise to change.

Lawyers for the big banks love the new guidelines. According to the Times, one major law firm that represents Wall Street said in a 2008 memo that the policy signaled “an important step away from the more aggressive prosecutorial practices seen in some cases under their predecessors.”

There’s one huge risk to playing patty-cake with investment bank sharks. They’ll simply bite and gnaw and maim again.

“If you do not punish crimes, there’s really no reason they won’t happen again,” a law professor and former assistant U.S. attorney told the Times. “I worry and so do a lot of economists that we have created no disincentives for committing fraud or white-collar crime, in particular in the financial space.”

Meanwhile, leaders in Washington seem content to dither and split hairs over the all-important issue of making a stock broker a fiduciary. A fiduciary is obligated to act in the client’s best interest at all times. Currently, stock brokers sell products under a much less strict standard.

Rep. Barney Frank (D-Mass.) recently said that last year’s financial reform legislation did not intend to “encourage” the SEC to impose on broker-dealers the tougher fiduciary standard that investment advisers must adhere to.

In other words, it’s not necessary to create a tougher standard of care for Wall Street to meet when it sells products, despite the ruin of the credit crisis.

Such news from Washington only emboldens Wall Street sharks to bite. Again and again.

About Jacob H. Zamansky 57 Articles

Jacob (”Jake”) H. Zamansky is one of the country’s foremost authorities on securities arbitration law, the legal recourse for investors claiming broker wrongdoing, or for brokers claiming wrongful termination or other misconduct by their employer. Zamansky & Associates, the New York-based law firm he founded, represents both individuals and institutions in complex securities, hedge fund, and employment arbitrations.

Mr. Zamansky was at the forefront of recent efforts to “clean up” Wall Street. In 2001, he successfully sued former Merrill Lynch analyst Henry Blodget on behalf of a New York pediatrician misled by Blodget’s stock research. The case’s successful resolution was the catalyst for New York Attorney General Elliot Spitzer to investigate the conflicts of interest on Wall Street and resulted in the well-reported $1.4 billion Global Settlement, which included many of the biggest names on Wall Street.

More recently, Mr. Zamansky is one of the leading litigators and opinion leaders of the subprime mortgage crisis and the related hedge fund collapses, representing both investors and mortgage borrowers who were defrauded by Wall Street firms and mortgage lenders. Among Mr. Zamansky’s early actions is filing the first arbitration case on behalf of institutional and high net worth investors against Bear Stearns Asset Management with regard to the two hedge funds which collapsed as a result of exposure to subprime mortgage backed securities. He also has filed claims on behalf of individual investors victimized by brokers that steered their portfolios into unsuitable subprime stocks and mortgage borrowers who were fraudulently coerced into inappropriate mortgage and investment transactions.

Earlier in his career, Mr. Zamansky worked for more than 30 years as a litigator, including positions at Skadden Arps, Slate, Meagher and Flom LLP. His tenure also included serving as a federal prosecutor with the Federal Trade Commission.

A native of Philadelphia, Mr. Zamansky has been a frequent expert commentator on CNBC, CNN, and FOX News and has published opinion pieces in The Wall Street Journal, Financial Times and USA Today. He is regularly quoted and his cases have been chronicled in major financial and news publications including The New York Times, USA Today, The Washington Post, BusinessWeek, Fortune and Forbes. He is a frequent lecturer for industry and legal groups around the country. He also writes a blog that can be viewed here.

Visit: Zamansky & Associates

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