International BusinessAnn Woolner: Wall Street 'corruption' might buy crooks a break
A federal judge implied this week he might go easy on two brokers convicted of securities fraud because they worked within a “culture of corruption".
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Imagine Tony Soprano getting convicted and being given a shorter prison sentence because he worked in a criminal environment. That would be getting it backward.
A federal judge implied this week he might go easy on two brokers convicted of securities fraud because they worked within a “culture of corruption”. He wasn’t talking northern New Jersey. He was referring to Wall Street.
In the case of two former Credit Suisse Group AG brokers, US District Judge Jack Weinstein said that at their sentencing he would take into account “how pernicious and pervasive was the culture of corruption” when the duo ripped off their customers.
He asked government and defence lawyers to address that point when they write their sentencing recommendations. You might think the request signals that he wants to slam the men for spreading the sort of corruption that, in his words, “brought our financial system to its knees”.
But Weinstein made it sound like the more widespread the wrongdoing, the less punishable it might be.
Let’s be clear. Eric Butler and his co-defendant Julian Tzolov didn’t merely fail to predict the collapse in value of their clients’ holdings, a jury found and Tzolov admitted. The reason they might face decades in prison is that they told their clients they were investing them in one thing but put them in another.
NOT SO SAFE
Friends and partners at Credit Suisse, the two of them claimed to corporate customers that they were putting their money into securities backed by government-guaranteed student loans. Their money would be almost as safe as cash.
In fact, they put those clients into riskier products linked to auction-rate securities, which tanked in the economic downturn. Their clients lost $900 million.
Tzolov, who pleaded guilty just before trial, testified against his former buddy and made it clear they knew they were lying about what products they were selling. They did it, he said, to rake in higher commissions.
So, after a three-week trial, it took the Brooklyn jury two hours to find Butler guilty on August 17.
Butler’s lawyer says he will appeal, and blames market failure--not his client--for the losses.
“Everybody in the financial community believed that the bonds sold in this case were of the highest quality and were safe short-term investments,” attorney Paul Weinstein said in a post-trial e-mail. (He and the judge aren’t related.)
‘SERIOUS NEGLIGENCE’
The judge set sentencing for the pair in October. In the meantime, he wants defence and prosecution sentencing briefs to speak to the “lack of regulation” of the industry and the “serious negligence in the financial services industry in supervising people like this.”
That federal regulators were dozing while Wall Streeters threw our money around carelessly and reaped multimillion-dollar bonuses is beyond dispute by now.
How does that help these guys? Just because no one’s watching doesn’t mean you should lie to investors. It only means you might not get caught. (In their case, Credit Suisse put the feds onto the pair’s crimes, the firm says.) That recklessness pervaded the Street is also clear.
ME, TOO
Again, so what? In my adolescent past, I, too, offered the widely used but rarely successful everyone-does-it defence. That tactic usually provoked this rebuttal, “If everyone jumped off a cliff…” You know the rest.
Could Soprano say that murder and beatings didn’t seem so bad because they were rampant in his world? I don’t think so.
Financial crimes are different, to be sure, and so are white-collar criminals. They don’t inflict death, physical pain and terror. But they do rob the innocent and cause immense suffering.
Weinstein said he would impose “reasonable” yet “serious” sentences, including fines, restitution and forfeitures. As for prison time, the life sentences the prosecution wants would be too much. He’s right.
I agree he shouldn’t exact punishment on this pair for the entire financial crisis. But he’s wrong if he plans to shorten their sentences because of the context of the crimes.
NO APPRECIATION
Some defence lawyers could use a “culture of corruption” argument “to try to convince the judge that the defendants didn’t fully appreciate the wrongfulness of their conduct,” says Robert Mintz, a former prosecutor and now a white-collar criminal defence lawyer at the Newark, New Jersey, firm McCarter & English.
When everyone’s doing it and no one’s getting nabbed, “at some point a defendant believes that the conduct is no longer illegal,” Mintz says.
Weinstein’s reasoning follows a different course. He said in court that long sentences don’t deter would-be criminals “in a system where rewards for greed and short-term gain are so enormous.”
“Fraud and arrogant disregard of others’ rights and of ethics almost naturally result,” Weinstein said.
(Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own)