SEC blows a lay-up

Yves Smith and David Dayen have good takes on the SEC’s failed criminal prosecution of Brian Stoker, a former Citibank executive who was caught dead to rights for misleading investors on a CDO offering. David fears the outcome will be even less (hardly possible!) criminal prosecutions from the SEC:

Sadly, if the SEC can’t secure a conviction in a relatively open and shut case like this, it’s almost certain that they will fold up their tent and stop even a semblance of aggressive prosecutions against the banks. It doesn’t appear they have the personnel available to do the job. After 20 years of near-consistent defunding, I’m not that surprised.

Yves similarly thinks less prosecution will be likely as well, though she provides a vision for what law enforcement should look like when it comes to financial crimes.

Having been exposed as inept, the SEC is guaranteed to avoid another public embarrassment. So they will continue to draft claims that get good PR and settle cases. And it is a no brainer that the Obama Administration will refer to this decision as further proof that it is just too hard to pin anything on those bank executives. One has to wonder, given SEC enforcement chief Robert Khuzami’s deep involvement in the CDO business (he was general counsel of the Americans at Deutsche Bank from 2004 to 2009) and the Administration’s insistence that it’s pointless to even try to prosecute bank executives, whether this case was thrown, as opposed to merely lost. But absent evidence, never attribute to malice that which can be explained by incompetence.

Charles Ferguson and Eliot Spitzer are right. If anyone was really serious about going after bank misdeeds, the path of action would be to go after how bankers pay for drugs and prostitutes on the company dime. This would not be hard to prove and the threat of jail time would get them to sing. But it’s long been apparent that the problem is not the lack of viable courses of action, but lack of will to undermine the rule of our financial overlords.

The lack of will stems from a disbelief that Wall Street should be held accountable the way regular people are held accountable for their crimes.

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