Amid the flurry of securities-fraud investigations, a Senate Judiciary subcommittee today is considering whether the laws governing conduct on Wall Street need an overhaul.
The subcommittee on crime and drugs, chaired by Sen. Arlen Specter (D-Pa.), is hearing testimony from academics, advocates, and at least one voice from Big Law. One major point of dispute: a proposed requirement for some financial-services employees to meet a fiduciary duty to their customers, or else face criminal charges and potential prison time.
“I have long believed that it is insufficient to have fines for fraud,” Specter said in an opening statement, adding that fines from the Securities and Exchange Commission are “calculated as part of doing business.”
The Justice Department has brought criminal fraud charges stemming from the financial crisis, but one of its biggest cases, against two former Bear Stearns hedge-fund managers, ended in acquittal in November.
Among those testifying at the hearing is Andrew Weissmann, former director of the Justice Department’s Enron Task Force. Now the co-chair of the white-collar defense practice at Jenner & Block, he said a new criminal statute relating to fiduciary duty would raise questions of fairness and proper notice to those who might be covered.
“Would every breach of a duty of care now become a crime?” Weissmann asked this morning.
Another witness, Damon Silvers, associate general counsel of the AFL-CIO, said such a statute would not be unique. “I would submit that there’s nothing particularly exotic about criminalizing willful breaches of fiduciary duty. It’s a well-known feature of our pension law today,” Silvers said.
Click here for video of the hearing, which is likely to last much of today. Assistant Attorney General Lanny Breuer, head of the Justice Department’s Criminal Division, is scheduled to testify at 2 p.m.
Sen. Ted Kaufman (D-Del.) said the public is demanding some action by Congress, especially in the wake of last week’s congressional testimony by Goldman Sachs executives. “I just think there’s a crisis, in terms of people thinking there are two sets of rules,” Kaufman said.
UPDATE (11:26 a.m.): The hearing has adjourned until Breuer's planned testimony at 2 p.m.
UPDATE (1:35 p.m.): Separate from the hearing, Specter has proposed an amendment to the pending financial regulatory overhaul that would override the U.S. Supreme Court's decision in Stoneridge Investment Partners v. Scientific-Atlanta. The amendment (PDF) would allow lawsuits, including class actions, against so-called "aiders and abettors" of securities fraud. Votes on amendments are possible this week.
Actually, the better question is, should conviction of a serious crime be cause to put the guilty corportion into runoff mode and disolve it.
Posted by: Multiple parties | May 05, 2010 at 09:29 AM
We have plenty of criminal statutes on the books oriented towards policing Wall Street and other investment crime or fraud situations. Enacting more criminal statutes will not solve the problem when the regulations and statutes we already have are only haphazardly enforced. The more complex the criminal scheme the more difficult it is for law enforcement agencies to effectively investigate, uncover, and successfully prosecute. Nowhere is this more true than the investigation of investment fraud schemes and questionable financial and accounting practices. More enforcement resources with aggressive attitudes and armed with more extensive training and better knowledge of complex financial and business transactions is what is needed. Not more laws.
Criminal statutes carrying imprisonment as punishment should address well-defined, easily identifiable misconduct, such as knowing or grossly reckless and misleading material misrepresentations, omissions or practices. We have criminal statutes for those types of violations already. What we need is the aggressive application of investigative and prosecutorial resources [including adequate funding] coupled with intelligent and knowledgeable direction.
Enacting more laws just makes the politicians look like they are addressing the problems without spending a dime to really correct them.
Posted by: MarkSevigny | May 05, 2010 at 01:11 AM
as a retired white collar guy, I have an aversion to white collar crime. Never? well...hardly ever, as the song goes. Egregious, over-the top behavior seems to suggest jail time- and/or felony charges with loss of voting rights.
But, egregious, like beauty, is in the eye of the beholder.
I punt.
Posted by: auntywbush | May 04, 2010 at 07:44 PM