Tags: S&P | fraud | person | charge

LA Times: Why Is No One Being Charged in the S&P Fraud Case?

Monday, 11 Feb 2013 02:31 PM

By John Morgan

The government fraud lawsuits against Standard & Poor’s address a major issue in the U.S. financial meltdown, but there is a gaping omission in the case because no individuals are charged, according to the Los Angeles Times.

The newspaper noted that companies themselves are inanimate and thus cannot manipulate numbers, lie about their “independent” judgment or fire those who try to fix wrongdoing — only people can do those things.

“These new lawsuits replay the only story uglier than the financial meltdown itself, which is the government’s pathetic record at prosecuting the crimes that produced it,” the Times reported.

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“In accordance with the government’s standard approach to financial crisis justice, no flesh-and-blood people are on the hook in these cases. Only companies, which (more’s the pity) can’t be put in jail for their wrongdoing.”

The S&P lawsuits include a federal government demand for $5 billion in penalties and actions by more than a dozen states. The essence of the fraud case is that S&P claimed to be an objective and independent appraiser of investment securities — especially residential mortgage-backed bonds — but it was not.

The lawsuits allege S&P tailored its credit ratings to keep its clients happy by exaggerating the safety of their securities, the Times said.

“This is essentially a criminal fraud case,” said Henry Pontell, a criminologist at the University of California, Irvine. “The only difference between civil and criminal cases is that they [the prosecutors] can spend a lot less on civil cases because the burden of proof is lower.”

S&P’s response to the lawsuits included the assertion, “The fact is that S&P’s ratings were based on the same subprime mortgage data available to the rest of the market — including U.S. Government officials who in 2007 publicly stated that problems in the subprime market appeared to be contained.”

Bank analyst Meredith Whitney told Bloomberg last week the government’s case against S&P would be very difficult to prove.

However, Frontline reported the Justice Department case may mark a comeback for a legal statute that emerged from the 1980s savings and loans crisis. That statute, the Financial Institutions Reform, Recovery and Enforcement Act, was used to prosecute individuals who defrauded federally insured deposit institutions.

The statute allows the government to pursue civil charges for a variety of violations usually addressed through criminal statutes, including mail fraud, wire fraud and bank fraud.

Cases under the statute only require guilt be established by a preponderance of the evidence, not beyond a reasonable doubt like criminal cases require.
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