• Recently At Forbes: Prosecuting Crisis Criminals, Jail For Rajaratnam But Not Sokol

    By • May 23rd, 2011 • Category: Food for Thought

    I’ve recently written two pieces for Forbes.com and my column, Accounting Watchdog, about Wall Street and criminality.

    Early on there were many who tried to pin the label “inside trader” on David Sokol, Warren Buffett’s protégé who resigned suddenly from Berkshire Hathaway at the end of March. That label was incorrect and those journalists eventually caught up.

    That means David Sokol is not going to jail. In fact, he’s thriving.

    But the case of Raj Rajaratnam is different. He’s the founder of hedge fund Galleon, and he’s going to jail for using material non-public information he bought or otherwise cajoled out of pleasers like Rajat Gupta, the Goldman Sachs board member, to trade illegally in the shares of public companies.

    My Forbes colleague Walt Pavlo does a great job in his column yesterday of telling us what went wrong for Rajaratnam.

    There were a number of factors beyond the playing of the tapes that did Rajaratnam in.  First, there were a number of former friends and associates that chose to testify against Rajaratnam…Second, those that did testify for the prosecution had credibility…Third, there were clearly defined moments of insider trading without looking to those gray areas that constitute expert network information or a “mosaic” theory of global information gathered by Galleon to be used for definitive trades….Fourth, a majority of the defense witnesses had all received some form of payment from Rajaratnam, thus cutting to their credibility.

    David Sokol, on the other hand, is only, so far, accused of an “inside job”, not insider trading. He’s still out there doing deals, although he took a shellacking from his former mentor and benefactor Warren Buffet at theBerkshire Hathaway Annual Meeting.

    Read the rest in Forbes, “Why Rajaratnam Is Going To Jail And Sokol Is Not.”

    There’s been constant chatter, growing louder with the addition of Matt Taibbi’s contributions at Rolling Stone, about why no one has gone to jail over the financial crisis. Many make comparisons to the numerous prosecutions during the Enron crisis period 2001-2003 and the savings and loan crisis before that in the 90’s.

    Instead, this crisis, which had a more profound effect on the overall economy globally than either of the other two combined, seems to be routinely dismissed as “something that just happened”.

    I’d liken the reluctance of many to prosecute now to the attitudes expressed by those who debate whether to seek out and punish all those guilty of crimes against humanity after World War II. Or perhaps to the wrenching debate in Argentina, for example, about whether to honor the wishes of the Mothers of the Plaza de Mayo to find and prosecute those who murdered their sons and daughters and stole their grandchildren during the dictatorship there in the 70’s and 80’s.

    They rationalize that leaving difficult, painful crimes in the past, putting them to rest via a national forgiveness, avoids nationally embarrassing or potentially shocking revelations of what actually happened that may point to figures currently in power or living among us.

    Unfortunately, that’s what criminals count on.

    Roger Lowenstein, a well known author and columnist for BusinessWeek and other prestigious publications, uses pretzel logic to suggest that no crimes were committed during the financial crisis because there have been no prosecutions.

    It’s a “trust authority” kind of argument that I reject and that you should too, after all we’ve been through and are still going through.

    Roger Lowenstein planted a big flag in the debate over fraud guilt for financial crisis players in a piece called, “Wall Street: Not Guilty”.

    A more unambiguous exposition of his position I can’t imagine.

    Lowenstein, for reasons that can only now be described as somewhat delusional and possibly self-interested, takes 3,000 words to paint those who call for at least investigation, if not indictment and prosecution, of the obvious fraudulent acts that were committed before, during, and after the crisis as variously “violent”, “”a hindrance”, “populist”, “paranoid”, and “conspiracy theorists”. Finally, he implies, we are ungrateful for the restraint shown by prosecutors when responding to the pitchfork-wielding mobs clamoring for hangings, any hangings.

    Professor Jay Rosen: “Lowenstein wants to de-excite us. He’s pulling the savvy on us. His argument is for what he claims is the cooler, calmer, more rational and more sophisticated view.”

    It’s so easy to poke holes in “arguments” that require straw men, ad hominems, and illogical syllogisms to make their weak points. I’m stealing the nerdy kid’s lunch money.

    Even worse, Roger Lowenstein is “talking his book”. He’s got a vested financial interest in keeping the big firms like Goldman Sachs free and clear of prosecution. Read the rest, “Roger Lowenstein Dismisses Charges Against Wall Street; Not So Fast.”

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    2 Responses »

    1. Who says David Sokol won’t be prosecuted? I say he’s toast.

    2. @Mark Holtzman

      We shall see………………..

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