Via Naked Capitalism.
The second reason is timid prosecutors. A commonly invoked excuse for the failure to file criminal cases is that they are hard to win. But the standard set by the investigators seems to be that they will win all or most of the cases, which is bizarre. As long as a prosecution does not look foolish or overreaching, filing cases where there are good grounds for doing so does have deterrence value. High profile cases are costly to the targets: they consume management time and generate bad PR. Stanley Sporkin, the SEC’s head of enforcement in the 1970s was feared all over Wall Street precisely because he was not afraid to go after questionable behavior, even if he might not prevail in court.
And you aren’t going to be any good at litigating financial cases if you are afraid to try them. That in turn leads to a vicious circle: you won’t attract high caliber law school grads if you aren’t seen as being a good training ground (by contrast, the County of New York Robert Morgenthau was always able to attract talent because it was recognized in the law profession as a top flight operation; Sonia Sotomayor, Eliot Spitzer, and Andrew Cuomo were all assistant DAs under Morgenthau).
An obvious example is the SEC’s recent failed prosecution against former Bear Stearn hedge funds executives. Conventional wisdom is that the outcome proves that the loss confirms that it is hard to win complex criminal cases. But Enron was vastly more complex, yet it resulted in a raft of settlements (with jail time and big fines) and convictions. The fact is the SEC did a bad job. It made rookie mistakes, like relying overmuch on e-mails that looked damaging and failing to do adequate discovery on the surrounding circumstances.
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