DOJ Turning Target on Bank Executives for Financial Fraud Prosecutions
Finally, it is worth mentioning the Department of Justice’s increasing attention to investigating and prosecuting individual officers at financial institutions, although these cases will not necessarily be in the area of securities enforcement. As Attorney General Eric Holder prepares to leave the Department of Justice, he faces criticism that the DOJ has failed to hold individuals accountable for financial fraud that led to the 2008 financial crisis, focusing instead on extracting massive fines from JPMorgan, Citi, BNP Paribas SA, Credit Suisse AG, Bank of America, and others. Apparently, Holder is not ready to hang up his hat just yet. In a recent speech at New York University’s law school, he said that the DOJ expects to bring charges against individuals involved in the fraudulent activities (particularly in the residential mortgage-backed securities arena) that led to the financial crisis. Holder explained that although the DOJ has resolved civil and criminal cases against several banks, they have almost always reserved the right to continue civil and criminal investigations into the individual executives at the various firms. Holder confirmed that the DOJ expects to bring charges in the coming months.
The DOJ is also shifting resources back toward investigating white-collar crimes and turning to tactics traditionally seen in non-white-collar criminal investigations, like wiretaps and informants. The DOJ has approached banks and urged them to implicate their own employees when alleged criminal behavior has occurred, holding out the promise of more lenient treatment in exchange. A DOJ representative indicated that companies will face harsher consequences if they choose not to cooperate.
The potential increase of rewards for certain financial industry whistleblowers and the renewed effort to pursue criminal financial fraud cases should give executives, particularly bank executives, pause. Although the “actual knowledge” or “conscious avoidance” (of knowledge) standards remain the same, bank leaders may face renewed scrutiny from prosecutors looking to maximize deterrence by making an example of a few alleged bad actors.
Holder also alluded to a potential “responsible corporate officer” doctrine, which has been adopted in the UK and requires banks to designate an officer to be held accountable if something goes wrong. Such a doctrine might be similar to the existing Park doctrine used in the pharmaceutical industry to hold executives criminal responsible for violations of the Food, Drug, and Cosmetics Act involving their company, even if they did not personally participate in or know about the violations. Such strict liability is not available currently as a tool for prosecutors in financial fraud cases. Holder’s statements advocating its development in this context can be read as either a harbinger of things to come, or an admission by DOJ that it has been unable to prosecute corporate officers at financial institutions because evidence of criminal intent is lacking.
In this new era of enforcement, executives should ensure appropriate compliance measures are in place at their companies and are operating correctly. Being proactive and responsive to potential problems can minimize potential liability and protect not just the company, but the executives as well.