Senator Warren Highlights 20 Cases of "Feeble Enforcement against Corporate Criminals in 2015"
Commentary by Steven Lofchie
U.S. Senator Elizabeth Warren (D-MA) highlighted "20 of the most egregious civil and criminal cases during the past year in which federal settlements failed to require meaningful accountability to deter future wrongdoing and to protect taxpayers and families." The list of cases appeared in a report, titled "Rigged Justice: How Weak Enforcement Lets Corporate Offenders Off Easy," prepared by her office.
Senator Warren's list of cases covered: (i) financial services, (ii) education and student loans, (iii) automobile safety, (iv) occupational safety, (v) the environment, and (vi) drug manufacture.
Senator Warren singled out the SEC as being "particularly feeble . . . often failing to use the full range of its enforcement toolbox." She argued that "because the prosecutors never took any of these corporations or their executives to trial, there was never a need for anyone to answer in court under oath for their actions." Specifically, Senator Warren argued that the SEC "frequently uses its prosecutorial discretion to grant waivers to big companies so that those companies can continue to enjoy special privileges despite often-repeated misconduct that legally disqualifies them from receiving such benefits."
The report is the first in a series of annual reports on enforcement.
Commentary
Senator Warren raises important questions about enforcement patterns against corporate officers. Her criticisms fall into three categories: (i) the penalty imposed was too light; (ii) the government should have taken the offender to court rather than entering into an out-of-court settlement; and (iii) individuals at the relevant entity should have been charged.
The first two criticisms are likely to be met with skepticism. From the vantage of those who work within the financial services industry, the size of the penalties to market participants are often shocking and disproportionate to the violations. In some instances, these penalties are levied in cases in which it is not even clear that a violation has occurred. It most cases, it seems perfectly reasonable that the government chooses to seek a settlement instead of going to court when the proposed penalty is adequate (or more than adequate, as is often the case). The reality is that the harshest penalty is rarely the most appropriate penalty. For that reason, the regulators' decision to avoid seeking the harshest penalty often is a sign of being not feeble but reasonable.
The Senator's third criticism concerning a prosecutor's discretion to charge an individual in a case is more problematic. In some cases, it may seem fairer for the government to charge the individual and not the corporation, though there are many examples of governmental overreach. In other cases, it may be simply more difficult for regulators to obtain settlements if they had to charge individuals. Still, Senator Warren's question is valid.
Perhaps Senator Warren's next report should include instances of violations by government and municipal officials. Taking strong action against governmental misconduct is as important – perhaps even more important – to the operation of a just society than action against private misconduct.