A recent New York Times investigation of Securities and Exchange Commission (SEC) cases involving fraud by some of the nation’s biggest banks discovered dozens of instances over the last decade in which banks were charged with violating anti-fraud laws but were never punished because they “promised” not to violate the law again.
For example, Citigroup agreed last month to pay $285 million to settle civil charges that it defrauded customers during the housing meltdown. They promised not to violate the law again, even though they had made this same promise in settling similar charges in July 2010 and several other instances going back to 2000.
An analysis of enforcement actions during the past 15 years found at least 51 cases in which the SEC concluded that Wall Street firms had broken anti-fraud laws they had agreed never to breach. The 51 cases spanned 19 different firms, including Citigroup, Bank of America, Goldman Sachs, JP Morgan, and Morgan Stanley.
Critics of the SEC and big banks are urging Congress to take action against the agency and force it to do the job it is intended to do as the nation’s watchdog and enforcement agency for financial and banking laws. Sen. Carl Levin (D-MI) is calling for an investigation into the agency’s enforcement practices. When asked why none of the banks had been charged with contempt of the law for repeatedly violating promises not to break anti-fraud laws, the SEC could only respond that it had not brought any contempt charges in the last decade despite repeated violations.
The cozy relationship between banks and politicians is primarily to blame for the failure of both markets and market oversight in this country. If the SEC is unwilling to enforce the law’s it is charged with enforcing, then Congress and the Obama Administration have the duty to force a turnover in that agency and appoint regulators who will do their job. When regulators don’t do their job, private actors are encouraged to make poor and risky economic decisions that adversely impact the rest of us. It’s time Congress put teeth into the regulation the financial and banking industries. Otherwise, it is not a question “if” there will be another financial collapse but “when.” ::KPS::