51 Cases

There are at least three ways to vitiate the best criminal/civil enforcement efforts: 1. Don’t pass the laws or regulations in the first place. 2. Refuse to enforce (or lack the capacity to enforce). 3. Punish lightly or not at all. Everyone knows we have too many criminal and civil statutes. We house a quarter of the world incarcerated criminals even though we only have 5% of the world’s population… mostly for drug-related offenses. And our proclivity to imprison and convict exceeds our ability to pay. California is the first of many states forced by court order to release prisoners (about 4% of the total population) because of judicially intolerable housing conditions. So sentences tend to be less than they seem for all but the most hardened criminals. Lindsay Lohan is like so many non-threatening inmates; in her latest conflict with the law, she was sentenced to 30 days in jail, but only spent 5 hours there. There’s just no room at the jail.

We seem to be putting too many of the wrong folks in prison anyway. Minor offenders cost too much money to incarcerate, and repeat offenders who commit major fraud on tons of people seem to be able to pay fines and continue to defy the legal system without any risk of jail time. Let’s look at the obvious first: we simply are convicting more people than we have room to imprison.

California’s not a whole lot different from the rest of the United States, but it does appear to lead the race to the bottom. Like most states these days, it spends more on its prison system than it does on education: “The budget for the California Department of Corrections and Rehabilitation increased from about 3 percent of the state's general fund in 1980 to 11.2 percent for this fiscal year, according to figures prepared at the request of The Bay Citizen by the state Department of Finance. Meanwhile, funding for [University of California] and [California State University] dropped from 10 percent of the state's general fund 30 years ago to about 6.6 percent this fiscal year.

“Nationwide, state spending for criminal corrections has boomed. According to an April 2011 study by the Pew Center on the States, spending for corrections quadrupled over the last two decades, making it the second fastest growing area of state budgets, behind Medicaid. In California, spending for criminal corrections has more than tripled since 1980.

“The state's prison population has increased significantly over the last 30 years, largely because the state began imposing determinant sentences, meaning the vast majority of crimes have fixed prison terms. Compounding the problem is the state's three strikes law, established in 1995. The number of prisoners climbed from about 25,000 in 1980 to about 165,000 in 2010. About two-thirds of the people who enter the state's prisons each year are offenders who have violated the terms of their parole. The state spends about $50,000 per inmate each year.” The Bay Citizen, August 30, 2011.

OK, time to look at the second part of this issue: If you are big financial institution, you can commit repeated and massive fraud, but no one is going to get any jail time. Something is seriously wrong. If you are part of america’s financial elite, you can even buy your way out of repeated commissions of financial fraud, avoid jail time and watch the regulatory agencies – particularly the Security and Exchange Commission – squirm with the mandate that they investigate and regulate but with the sneaky budget reduction that took away the staff to do implement their mandate. They’ve only passed about 10% of the regulations expected from the watered-down Dodd-Frank law passed to reign in a seemingly cowboy-esque Wall Street rogue mentality; they just don’t have enough people to conduct the regulatory enactment process mandated by Congress or to investigate all the allegations of wrongdoing against Wall Street.

Last month’s $285 million fine of Citigroup for civil fraud during the housing crisis is actually an example of how lax the process is… it happens so rarely. Indeed, despite the despicable practices of the nation’s biggest financial institutions, not one senior Wall Street executive of one of these bad big boyz has ever been jailed as a result of the crass and often illegal manipulations of the system that brought this nation… the world… to its knees. The New York Times (Nov. 7^th) explains why it is not unusual for such big firms to repeatedly violate the same laws: “Citigroup has a lot of company in this regard on Wall Street. According to a New York Times analysis, nearly all of the biggest financial companies — Goldman Sachs, Morgan Stanley, JP Morgan Chase and Bank of America among them — have settled fraud cases by promising that they would never again violate an antifraud law, only to have the S.E.C. conclude they did it again a few years later.

“A Times analysis of enforcement actions during the past 15 years found at least 51 cases in which the S.E.C. concluded that Wall Street firms had broken anti-fraud laws they had agreed never to breach. The 51 cases spanned 19 different firms… Judge Jed S. Rakoff of the Federal District Court in Manhattan, an S.E.C. critic… has asked the agency what it does to ensure companies do not repeat the same offense, and whether it has ever brought contempt charges for chronic violators. The S.E.C. said in a court filing Monday that it had not brought any contempt charges against large financial firms in the last 10 years.

“Since the financial crisis, the S.E.C. has been criticized for missing warning signs that could have softened the blow. The pattern of repeated accusations of securities law violations adds another layer of concerns about enforcing the law. Not only does the S.E.C. fail to catch many instances of wrongdoing, which may be unavoidable, given its resources, but when it is on the case, financial firms often pay a relatively small price.” And while $285 million is a lot of money to most of us, to these monoliths it is a gentle slap on the wrist.

The problems noted above come from our tendency to pass legislation first and ask questions later… often decades later. Knee-jerk reactions of outrage – often countered by the mega-lobbying expenditures of imbedded interests with the power to halt the regulatory process against their worst behavior – have resulted in a solidly unworkable system of “justice,” where the most important crimes with the most far-reaching impact on all of us go virtually unpunished, where our children are deprived of a solid education in favor of spending another $50 thousand to house one more convict, and where our financial capacity to pay for this folly is rapidly coming to an end. In world of left-right sloganism and mythology, where are the pragmatists who can really make a difference? Oh, the system pretty much makes sure they are “unelectable.”

I’m Peter Dekom, and do you detect a touch of frustrated cynicism in my voice today?