But nearly no bankers responsible for the 2008 financial crisis ever went to jail:
https://www.theatlantic.com/magazine/archive/2015/09/how-wal...
The SEC finds very public cases and then brings the hammer down in order to act a deterrent. Martin Shkreli broke the law, something he didn't have to do. It isn't like it was mob justice and some hugely biased jury convicted him of all the crimes he was committed of without thought. The jury by all accounts fairly deliberated his actions and convicted him of crimes that he did, while letting him off for crimes he didn't do.
Then all Shkreli had to do was show some remorese and kiss the ring a little bit, but he continued to be a troll and mock the justice system. He downplayed his crimes literally minutes after being convicted of them, which showed a lack of remorse (and maybe honestly so, but the justice system doesn't like that). He continued to be a troll, including the whole Hillary Clinton incident, many of these statements used against him in sentencing.
This isn't a case of the tall blades of grass getting cut first. It's a case where we have a subjective justice system that doesn't want to be mocked while it is doing it's job. Shkreli went out of his way to mock it, he went out of his way to mock the SEC, all the while he actually did commit a crime. Yes, it is a witch hunt in that the SEC will throw the book at some people while letting other people who committed worse crimes off the hook (Phil Mickelson vs Martha Stewart), but that how any limited investigative body works. If you don't want to be a target of a witch hunt, don't break the law. And if you do, kiss the ring. I'm not convinced it is a huge indictment of our society that people who break the law all the while trolling everybody get unfairly harsh punishments, though I admit it is unfair in the sense that life as a whole is unfair.
If you waste their time by trolling them and drawing excessive attention, it consumes their resources responding to comments from the media. Instead of y'know, performing their investigatory/judicial functions.
1) guy who lied to investors, still made them money (ie. Shkreli)
2) guy who lied to investors, lost 90% of their money (for example, ironically, Clinton's son in law [2], who has lost more money than the GDP of about 70 countries, and yet [3] happened)
They would have a strong preference for 2). But the SEC is a HUGE example of selective justice. Harsh "correct" treatment for whomever offends the elite, just for insulting and rejecting them (Shkreli IS an idiot, VERY publicly rejecting and insulting one of the elites WHILE she was running an election for president AND giving her an excuse ("threatening her") to send the law after him), or just by being poor. But nothing ever gets done about members of the elite, even if they're very low level.
And I get it, what Mr. Mezvinsky did was probably in a panic, and it was political decisions of someone else that did him in, nothing he could have done (as I'm sure is true for 90%+ of criminals of course, it never seems to count as an excuse). And it did do serious damage to his career. But he should be in prison, and owe hundreds of millions of dollars to people.
The issue I have with that is, if you or I, or probably anyone who may read this did what he did, we'd be locked in a maximum security prison for 40+ years, as well as being destitute.
[2] https://en.wikipedia.org/wiki/Marc_Mezvinsky
[3] https://www.recode.net/2017/5/18/15660060/social-capital-hir...
Add revolving doors to this and everything makes sense.
On top of this, Shkreli brought a seedy but commonplace practice in the mighty pharma industry to the front page during a presidential campaign and made powerful enemies, including public opinion.
He wasn't sentenced for that, just like Al Capone wasn't sentenced for gangsterism.
https://www.nbcmiami.com/news/local/Penelope-Soto-Woman-Who-...
I think it’s troubling that judges have the ability to hand down sentences far above some established norm, even if those sentences are legal.
I agree, but that's not what happened in Shkreli's case. The crime he committed really does have a very long sentence.
That's basically what this comes down to.
Imagine if jay walking was punishable by death but it was only ever enforced against people who mocked Trump.
Inconsistent enforcement just allows the people in power to go after their political oponents for the "real" crime of hurting their feelings.
The judge didn't create the law regarding securities fraud, nor did she instigate the charges of fraud, nor did she even have a voice when it came to deciding to convict (it was a jury trial). So how does this all boil down to a judge's feelings being hurt?
All crimes will be inconsistently enforced until we've built a policing apparatus that operates like the equivalent of red-light cameras but for every crime [0]. Hopefully we never get to that point, which means enforcement will continue to be resource-limited and inconsistent, so are you arguing for no enforcement at all?
[0] I'm being rhetorical of course. I don't mean to suggest at all that the enforcement of red-light violations, even when caught on camera, is anywhere near consistent: http://www.chicagotribune.com/news/watchdog/redlight/ct-met-...
The way I read the parent is that this conviction would almost certainly not merit seven years in a typical non-Shkreli case.
But the judge handed down seven years, not because of his crime, but because of his attitude. The OP even suggested as much, suggesting if he had just "kissed the ring", the sentence would have been substantially less.
I read the parent's outrage as being that justice isn't blind - it metes out sentences based on the feelings of a judge toward a defendant's attitude. The crime itself only matters insofar as judges must abide by minimum and maximum sentencing guidelines. Within those guidelines, how you feel about a defendant is fair game.
edit: I would also add that, for those of us with less than stellar social skills, it's easy for social incompetence to be misinterpreted by other people as being an asshole. For us, this aspect of the justice system is at least mildly worrying.
I guess the statute text has embedded minimum and maximum sentencing guidelines in a sense, but the term Sentencing Guidelines in the US federal judicial context means something specific.
I agree that feelings are inextricably involved when human judges and juries make decisions. And all initiatives to correct for this — such as the 3-strikes law and mandatory sentencing guidelines — are likewise imperfect. I’m personally surprised at the severity of Shkreli’s sentence, but that’s because I don’t know this area of law or its precedent. And in the arguments I’ve seen asserting the sentence is too severe, I haven’t seen citations and evidence that contradict the precedent she used in her judgment.
Yes, much of Shkreli’s situation has no precedent. But we should consider that judges can act cautiously in extremely publicized trials, especially ones involving defendants who are rich enough to mount an appeal. You think the judge faces no risk if she decides to draw up a sentence without defensible legal basis?
I agree that we should worry if justice is meted out by judges who aren’t aware or empathetic toward defendants who are socially incompetent or otherwise social/psychological outliers. But just because popular media/opinion seems to hate Shkreli doesn’t necessarily mean we can ascribe such bias to the judge without empirical evidence.
Because other, similar cases seem to have lesser sentences, not greater. This case has a larger sentence compared to other actual practical cases, though clearly it wasn't as large as it could legally have been.
> You think the judge faces no risk if she decides to draw up a sentence without defensible legal basis?
What are the risks that judges face? My understanding is that Federal judges are appointed for life, with no chance of removal outside of impeachment. Is this not the case?
Similarly, cops don't spend all their time giving out tickets to every single jaywalker or every single speeder. That would be a waste of their time. But they need to give out some tickets every once in a while or else the law becomes meaningless. Given a choice between giving a ticket to a random person spotted jaywalking, vs. giving a ticket to someone who took out a full page ad the day before declaring the time and place in which they plan to jaywalk and taunting the police for being unable to do anything about it, the police will choose to give the ticket to the latter person, and that totally makes sense to me.
That's very different from going after socially awkward people who don't know when they're being assholes.
This has actually been shown to be a very bad idea. It is way better to punish immediately, even if lightly, every single transgression than to do it randomly but more severely. (Probably because we're all thinking "it won't happen to me".)
What you're saying afterwards is "the mundanes should not taunt their rulers". True in the world-as-is, but that reinforces a caste system. No. The cops and the judges are NOT nobility. They should NOT be treated as superior to the little people.
The indictment of our society is that hundreds of millionaires can enrich themselves further via dishonest and illegal means, wreck world economies, and suffer no consequences, while a regular joe can be chocked to death for selling cigarettes on the street (disruptive!)
This isn't an impossible problem to fix. We just start voting for politicians willing to execute white collar criminals.
An American writes this and doesn't shriek in anger. 2018.
Here's the facts as I understand them:
1) He ran a hedge fund, and lost a lot of money.
2) He didn't disclose to his investors that he lost the money, and falsified reports.
3) In an effort to make sure people didn't lose money (whether to protect himself or to make sure his investors were made whole) he took profits from another company he ran and used them to pay these investors.
4) Almost all investors in the hedge fund ended up making a profit because of this.
It's fairly easy to interpret this as someone that screwed up bad, and then broke the law to cover it up and try to make it right, and by lucky happenstance was actually able to get people's money back, but still ended up breaking the law. That's a fairly good story to have, and I would think lends itself towards a mitigated sentence.
On the other hand, he repeatedly presented himself in an unsympathetic way that antagonized the judge and the regulatory bodies involved.
It is, to put it mildly, a fairly complex and (to my layman eyes) unique situation, compounded by the fact that his behavior may or may not have to do with being socially inept (is it right to punish someone for a social disability, if that is indeed the case here?)
There was a discussion about this when the guilty verdict was announced[1]. Much of my info comes from that article and this other one[1] from the same time period.
1: https://news.ycombinator.com/item?id=14931004
2: https://www.nytimes.com/2017/08/04/business/dealbook/martin-...
That is a myth. Dozens of bankers were arrested and put in prison over crimes related to the 2008 financial crisis. That includes a number of bankers at large enterprises. It excludes the very top tier bankers, at the systemically important financial firms, who all managed to skate.
It's not illegal, generally speaking, to make dumb investment decisions, and or to take a lot of risk, and lose money. The responsibility for the 2008 financial crisis is spread across both the public and private sector, from Congress & multiple Presidents to the Federal Reserve to hundreds of banks, thousands of bankers, and tens of thousands of mortgage brokers and realtors. Spurred on by low interest rates, it was collective financial insanity that millions of people willfully, cheerfully, participated in.
"The idea that no bankers went to prison for crimes related to the financial crisis is a myth, according to the watchdog overseeing the federal government's bailout fund. There have been 35 bankers sentenced to prison, said Christy Goldsmith Romero, the special inspector general for the Troubled Assets Relief Program (SIGTARP), in a report to Congress released Thursday."
"There have been 59 bankers convicted of crimes, including two executives at NOVA Bank in Philadelphia who were convicted on Wednesday of fraud conspiracy related to TARP funds. An additional 19 bankers have been charged with crimes, with many awaiting trials."
http://money.cnn.com/2016/04/28/news/companies/bankers-priso...
But if you are Jon Corzine - well, you can abscond with $1.2B of your customers' money, tell Congress you just don't know where it went, and then pay $5MM to avoid an embarrassing and inconvenient trial, all the while throwing that sucker Edie O'Brien under the bus for being dumb enough to miss that "getaway" at the Hamptons last year. (yes, this was a bit later than the 2008 blowup, but the cause and effect were the same)
Or you can be Lloyd Blankfein, who testified to knowing full well that their MBS desk was shorting the very products they were selling to their clients with sales pitches containing materially false claims. But Lloyd is a great guy, and he's had a rough go if it what with losing his hair and all. So we're not even going to prosecute, er, actually, we won't even bother to investigate the captain of who was privvy to the fraud on his ship, but didn't technically commit the fraud himself. So we'll go after that dumb trader Fabrice Tourre instead. $800k is a pretty stiff fine for someone who earns double that in a year. I'm sure he'll learn his lesson.
Or you could be Dick Fuld....
Perhaps you see a pattern here?
In the 1980s, when regulators and prosecutors didn't regularly get together for drinks with each other at Valentino, over ONE THOUSAND bankers were convicted, with roughly a third going to prison, with an average sentence of 3.2 years for the crimes. Not only including, but ESPECIALLY the captains of the ships.
And they went after EVERYTHING - even violations of campaign contributions laws unrelated to the S&L crisis itself.
Fast-forward to today. For a crisis arguably MORE fraught with fraud, with substantially worse fallout for the country: 59 convictions. Most were traders, in security sales, or ran tiny local banks. ZERO of them were Wall Street C-suite, directors, vice presidents, or anyone else who signed off on the fraud at a higher-than-upper-management level.
In most cases, regulators and prosecutors are hesitant to even INVESTIGATE.
This is to say nothing of the fact that nearly all large Wall Street banks are regarded by Federal regulators as recidivist banks, meaning that they keep breaking the law, getting fined less than the profits made from the crime, and doing it again. And again. And again.
Nobody at HSBC went to prison for facilitating the murder of thousands of Mexicans by cartels. And nobody ever will. There are plenty of statutes on the books to criminally prosecute the bankers responsible. But we won't. Because some people are more equal than others.
These constant apologetics for the parasites are, frankly, sickening.
Same with the constant apologetics for arbitrary enforcement of law. What exactly is the point of having laws if the existential importance of the criminal to a bank is a critical deciding factor in whether or not to investigate, charge, prosecute, or convict?
Fraud isn't purchasing a house that's advertised as "clean" only to discover that there was asbestos in the basement. Fraud is advertising as such after a legal definition for the word "clean" has been established to include "asbestos-free" and yet the house has asbestos anyway.
There aren't any strict legal definitions for what "BB" and "BBB" and "A" and etc. mean, and that's why the ratings agencies could rate them as AAA, because the subjective expectation (as unfounded as it was) was for the housing market to keep booming forever, which was enough to slap a AAA rating without it being fraudulent.
(note I'm not trying to excuse or justify the ratings agencies behavior, only to explain)
But, yeah. The agencies didn't really have much incentive to be skeptical of their models.
> It's not illegal, generally speaking, to make dumb investment decisions, and or to take a lot of risk, and lose money
You're not going to find criminals if you don't look for them. Bill black:
> All right so you have massive fraud driving this crisis, hyperinflating the bubble, an FBI warning and how many criminal referrals did the same agency do, in this crisis. Remember it did well over 10,000 in the prior crisis. Well the answer is zero. They completely shut down making criminal referrals
http://neweconomicperspectives.org/2011/09/william-black-why...
I think Shkreli was obnoxious and crude; the sentencing should've aligned with the crime. But America, so vengeance porn.
https://www.nytimes.com/2014/05/04/magazine/only-one-top-ban...
A lot of people being stupid does not equal fraud.
The bottom line is, for the 2007/8 crisis, there are hundreds if not thousands of people guilty of fraudulent misrepresentations, and for inventing their own laws, with no reprecussions. I think the most egregious case is the "robo-signing" and MERS case (which are intertwined), which appear to involve thousands of cases of perjury, non of which were prosecuted, or even investigated -- but the publicly available evidence is damning enough, even if no justice official decided to investigate.
But why go back so far? So far, the recent wells fargo fraudulent account opening case [0] has resulted in a slap on the wrist and no one being charged. I don't know who committed fraud specifically, and it seems no one who can find out wishes to find out either. In 8 years, someone like you is going to ask "but who specifically committed fraud? this always comes up". There are clear examples of fraud; if there aren't clear examples of who committed that fraud, it is only because the powers that be decided they do not want to know.
[0] https://en.wikipedia.org/wiki/Wells_Fargo_account_fraud_scan...
The 2008 financial crisis was very complex and had many bad actors on many sides, but the majority of outright fraud was committed by small time mortgage originators (or employees of large originators) and the individual homeowners who lied to get loans.
Shkreli broke the law. The financiers causing the financial collapse did not. Perhaps the laws should be changed.
They weren't prosecuted. That doesn't mean they didn't break the law.
https://www.justice.gov/opa/pr/bank-america-pay-1665-billion...
As part of the RMBS Working Group, the U.S. Attorney’s Office for the District of New Jersey conducted a FIRREA investigation into misrepresentations made by Merrill Lynch to investors in 72 RMBS throughout 2006 and 2007. As the statement of facts describes, Merrill Lynch regularly told investors the loans it was securitizing were made to borrowers who were likely and able to repay their debts. Merrill Lynch made these representations even though it knew, based on the due diligence it had performed on samples of the loans, that a significant number of those loans had material underwriting and compliance defects - including as many as 55 percent in a single pool. In addition, Merrill Lynch rarely reviewed the unsampled loans to ensure that the defects observed in the samples were not present throughout the remainder of the pools. Merrill Lynch also disregarded its own due diligence and securitized loans that the due diligence vendors had identified as defective. This practice led one Merrill Lynch consultant to “wonder why we have due diligence performed” if Merrill Lynch was going to securitize the loans “regardless of issues.”
Disclaimer: I was privy to this having known several mortgage underwriters who identified this fraud, and despite reporting it with extensive documentation (which I personally collated and delivered via FedEx) to the SEC, DOJ, and OCC, were ignored.
What you're describing in the paragraph above is even one step removed from the sandwiches. Knowing that "loans had material underwriting and compliance defects" doesn't prove that Merrill Lynch lied when it said "the borrowers ... were likely and able to repay their debts." It might lead to an inference to that effect, but it's not indisputable proof. Likewise, the fact that it "rarely reviewed the unsampled loans to ensure that the defects observed in the samples were not present throughout the remainder of the pools" might lead to an inference of negligence, but is not indisputable proof of fraud.
Everything described in that paragraph is classic civil fraud and negligence, not criminal fraud.
Is it purely a matter of partial delivery, or does magnitude matter? What if it's "they sold me 10 tons of gold as 12 tons of gold?" Because that's a big difference.
Then again, 10 inch sandwhiches sold as 12 inch sandwhiches allows you to save over 15% of materials, which if you're a nationwide chain could be quite a lot of money as well.
The mortgages are even harder. The banks are accused of lying about whether borrowers could pay. The fact they couldn’t pay doesn’t prove that. The fact that the banks ignored warning signs doesn’t prove that. The fact they knew about underwriting failures doesn’t prove that. Not beyond a reasonable doubt.
The article is garbage.
The author's theory is that Dimon is liable under SOX Section 906, because he certified that JP Morgan has "adequate internal controls" under SOX Section 404, but admitted that their controls need some work a month later.
But Section 404 is addressed to "internal control structure and procedures for financial reporting." I.e. do you have controls in place to address the Enron-style situation of people using creative accounting to cook the books. What Dimon was talking about, in the context of the London Whale, were risk management controls. The author tries to lump them together, but the statute clearly addresses accounting controls, not risk management controls. See 15 U.S.C. 7262(a). There's lots of different kinds of "controls" in a company. E.g. there are controls to make sure employees don't pay bribes in foreign countries so as to expose the company to FCPA liability. SOX only addresses controls in connection with financial reporting.
Even if you got past that hurdle, the article is wrong to suggest that you could bring a SOX 906 prosecution for violation of a SOX 404 requirement.
SOX 906 states:
> The statement required under subsection (a) shall certify that the periodic report containing the financial statements fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer. That's the result of the Enron debacle, where the company and its auditors were misrepresenting the financial status of the company (revenues, liabilities, etc.).
Securities Exchange Act Sections 13(a) or 15(d) don't say anything about adequate internal controls. That's part of SOX Section 404. By the plain terms of the statute, Section 906 liability doesn't attach to misrepresentations directed to Section 404 requirements.
There is a separate certification provision that covers the Section 404 requirements, SOX Section 302.[1] But to bring a criminal action for violation of the Section 302 certification, you have to get a little creative, applying the other securities criminal statutes: http://dodd-frank.com/u-s-brings-criminal-charges-for-false-....
The problem is, those other criminal statutes are directed to protecting people who own or are considering buying JP Morgan stock, not people who bought financial products from JP Morgan. They're designed to prevent Dimon from misrepresenting JP Morgan's financial health to JP Morgan's investors, not to prevent JP Morgan employees from lying to transactional counterparties.
[1] https://www.mofo.com/resources/publications/sec-requires-ceo...
> A single act of fraud can be prosecuted as a criminal fraud by prosecutors, and also as a civil action by the party that was the victim of the misrepresentation.
> It might lead to an inference to that effect, but it's not indisputable proof.
Again we're back to the lack of evidence not implying innocence if the supposed crime wasn't adequately investigated. That's what an investigation is for, to find and assemble evidence for a suspected crime.
Its a common belief that no serious effort to incriminate top bankers was initiated. To me it is beyond argument at this point. Do you still believe that is a questionable supposition?
[1] http://bochettoandlentz.com/criminal-fraud-vs-civil-fraud-wh...