Delivering prosecutions

July 17, 2013

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At today’s CNBC Institutional Investor Delivering Alpha conference, Manhattan US District Attorney Preet Bharara warned the financial world that one day, his office might actually act against them. Bharara told CNBC’s Jim Cramer that “people should be afraid that bad acts they have committed in the past are going to catch up with them”.

It’s hard not to read Bharara’s broad comments in light of the US attorney’s office’s most high-profile case: the SAC insider-trading investigation.The NYT reported that the five-year window on insider trading charges is up in mid-July in the case against SAC’s Stevie Cohen. Still, Bharara noted that the Dodd-Frank bill increased securities fraud limitations from five to six years. Ongoing misconduct or conspiracy, he added, “elongates the statute of limitations” — a fact that he says has not been fully appreciated.

As if on cue, Reuters’ Emily Flitter reported that federal prosecutors are looking to stretch the time they have to bring a case against bankers for packaging and selling bad mortgages during the housing bubble, by using a 1984 bank fraud law. “The advantage is that perpetrators of bank fraud can be charged up to 10 years after their crimes, compared with the five-year statute of limitations on securities fraud,” she writes. The law has until now been used to prosecute individuals trying to scam commercial banks, and “the government would have to show that those packaging and selling the securities deliberately lied about their quality, and that they targeted commercial banks in sales pitches.”

While both US attorney general Eric Holder and SEC chairman Mary Jo White said earlier this year that the clout of the major financial institutions might make them hard to prosecute, Bharara was adamant that he is willing to go after institutions as well as individuals. “People need to understand that there are appropriate circumstances in which institutions are blameworthy also”, he said.

This is something of a second wind for federal prosecutors, who have thus far have little to show for their attempts to hold Wall Street to account for the financial crisis. As Felix writes about the trial of former Goldman trader Fabrice Tourre: “The rather dispiriting truth of the matter is that the SEC has spent four years and millions of dollars trying to find someone, anyone, to prosecute in the wake of the financial crisis — and has ended up bringing to trial a guy whose biggest mistake was to display a little too much braggadocio in private emails to his girlfriend”. — Shane Ferro

On to today’s links:

A judge finds S&P’s puffery defense “deeply and unavoidably troubling” – WSJ

“Ladies and gents, we seem to have have reached peak smartphone” (growth) – Rebecca Greenfield

Economically speaking
America is increasingly homogenous – Paul Krugman

The latest round of depressing unemployment projections – OECD

The Fed
“Appropriate to begin to moderate the monthly pace of purchases later this year” – Ben Bernanke
Bernanke is leaving “open the option of changing that plan if the economic outlook” changes – Reuters

Old Normal
“The lower classes must be kept poor or they will never be industrious” – Emily Badger

Brewers want big banks out of the metal warehousing business – Shahien Nasiripour and Zach Carter

Classic Bess
“George Soros And His Bride-To-Be Don’t Need You To Buy Them A KitchenAid® Artisan® Series 5-Quart Tilt-Head Stand Mixer With The Pasta Roller Attachment” – Bess Levin

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