Posts filed under “Legal”

DoJ’s ‘Too Little Too Late’ Memo

In a move that can only mean a presidential election campaign is upon us, the Justice Department said it is finally going to pursue individual white-collar criminals.

As the New York Times reported, the Justice Department “issued new policies on Wednesday that prioritize the prosecution of individual employees – not just their companies – and put pressure on corporations to turn over evidence against their executives.” The policies are contained in a memo written by Deputy Attorney General Sally Q. Yates. They will be discussed in greater detail today at theNew York University Program on Corporate Compliance and Enforcement.

Pardon my cynicism, but after so much failure to prosecute, I remain doubtful that much if anything has changed. The onus is on the Justice Department to show that it’s serious by way of actions, not words in a memo.

After the most target-rich environment for white-collar prosecution ever, the nation’s top prosecutors have suddenly realized that “Hey, crimes! We should do something about that!” By what must be the sheerest of coincidences, almost all statute of limitations on the oodles of white-collar misdeeds committed during the financial crisis have expired.

This is a subject I have visited repeatedly, both recently (see thisthis,thisthis, and this), and in the immediate aftermath of the crisis (see thisthisthisthisthisthis and this).

As I observed several years ago, “The greatest triumph of the banking industry wasn’t ATMs or even depositing a check via the camera of your mobile phone. It was convincing Treasury and Justice Department officials that prosecuting bankers for their crimes would destabilize the global economy.”

It has been my steadfast view that this simple explanation is why no one of any consequence was prosecuted for the many obvious and easily pursued crimes of the era. It hasn’t been much of a mystery, and there haven’t been any plausible explanations offered that withstood even the slightest scrutiny. The evidence of criminality was clear and overwhelming. But instead of prosecutions and trials, we watched as the Justice Department under former Attorney General Eric Holder decided that certain financial institutions were too big to jail, and that prosecuting senior executives would damage the financial system.

Understand what this meant: The nation’s top prosecutor failed to perform his official duties because he was worried about the theoretical economic harm caused by going after top financial managers. The alternative explanation is that he was grossly incompetent.

To be fair, there is a new sheriff in town: Loretta E. Lynch has been attorney general since April, and she seems to be departing from the course steered by her predecessor, now comfortably ensconced at Covington & Burling, which is where he worked before becoming attorney general. That Washington-based law firm represents many white-collar criminals. The revolving door lives, as Holder and five of his deputies, including Lanny Breuer, former Southern District U.S. attorney, ended up there. Breuer’s responsibilities were supposed to include policing Wall Street, where he managed to avoid prosecuting anyone for much of anything. Now, he gets to defend anyone who faces the remote odds of being charged with wrongdoing. A number of observers have critically commented on Breuer’s lack of prosecutions, including former banking regulator William Black and former New York Attorney General Eliot Spitzer. A few years ago I got the chance to ask Breuer a question at an NYU symposium; his answer reveals everything you need to know about why prosecuting financial crimes wasn’t a priority.

I remain skeptical about whether anything is going to happen. The cynic in me expects a few junior brokers to be arrested and a handful of unimportant, politically unconnected bankers to be fined. I would be surprised if the Justice Department announcement of a white-collar crime crackdown is anything other than just business as usual.

While you ponder the new memo, consider a report by the Government Accountability Institute. It will make you extremely skeptical about the new initiative for prosecuting Wall Street. The Justice Department so totally failed in its duties during the crisis that one has to consider it guilty until it demonstrates otherwise.

Here we are seven years after the crisis, and only now is the Justice Department getting serious about prosecuting individuals? It’s almost enough to make one wonder if an election is coming up or something.

Originally published as: Keep Waiting for Wall Street Crime Crackdown


Category: Bailouts, Legal, Really, really bad calls

Andrew G Haldane: Who owns a company?

Who owns a company?
Speech by Mr Andrew G Haldane, Executive Director and Chief Economist of the Bank of England, at the University of Edinburgh Corporate Finance Conference, Edinburgh
BIS central bankers’ speeches, 22 May 2015

* * *

I would like to thank Jeremy Franklin, Conor Macmanus, Jennifer Nemeth, Ben Norman, Peter Richardson, Orlando Fernandez Ruiz, John Sutherland, Ali Uppal and Matthew Willison for their help in preparing the text. I would also like to thank Andrew Bailey, Mark Carney, Iain de Weymarn, Sam Harrington, Alan Murray, Rhys Phillips and David Rule
for their comments and contributions.



This might seem like a simple question with a simple answer.  At least for publicly listed companies, its owners are its shareholders.  It is they who claim the profits of the company, potentially in perpetuity.  It is they who exercise control rights over the management of the company from whom they are distinct.  And it is they whose objectives have primacy in the running of the company.

This is corporate finance 101.  It is the centrepiece of most corporate finance textbooks.  It is the centrepiece of company law.  It is the centrepiece of most public policy discussions of corporate governance.  And it is a structure which, ultimately, has survived the test of time, having existed in more or less the same form for over 150 years in most advanced economies.

That the public company has been a success historically is not subject to serious dispute.  It was no coincidence that its arrival in a number of advanced economies, in the middle of the 19th century, marked the dawn of mass industrialisation.  The public company was a key ingredient in this second industrial revolution.  Perhaps for that reason, the public company is, in many people’s eyes, the very fulcrum of capitalist economies.

Yet despite its durability and success, across countries and across time, this corporate model has not gone unquestioned.  Recently, these questions have come thick and fast, with a rising tide of criticism of companies’ behaviour, from excessive executive remuneration, to unethical practices, to monopoly or oligopoly powers, to short-termism.  These concerns appear to be both strongly-felt and widely-held.

Among the general public, surveys suggest a majority do not trust public companies, especially big companies.1  Among professional investors, sentiment is well-encapsulated by the following quote from Larry Fink, CEO of Blackrock – the world’s largest asset manager – in a letter sent to the Chairmen and CEOs of the top 500 US companies earlier this year:2

“[M]ore and more corporate leaders have responded with actions that can deliver immediate returns to shareholders, such as buybacks or dividend increases, while underinvesting in innovation, skilled workforces or essential capital expenditures necessary to sustain long-term growth.”

Among academics, John Kay’s UK government-initiated review into short-termism in equity markets and their effect on listed companies (Kay (2012)), Colin Mayer’s Firm Commitment (Mayer (2013)) and Lynn Stout’s. The Shareholder Value Myth (Stout (2012)) each raise deep and far-reaching questions about the purpose and structure of today’s companies.

Are these concerns legitimate?  What is their precise micro-economic source?  And are they now of sufficient macro-economic importance to justify public policy intervention?  To answer those questions, it is useful to start with the origins of modern-day companies, before looking at the potential incentive problems among stakeholders embedded in those structures.  Finally, I consider public policy actions that might mitigate these problems.

These problems are not specific to any industry.  But banks’ balance sheets and governance structures mean they may be especially prone to these incentive problems.  So I will use them to illustrate some of the micro-economic frictions and their macro-economic impact.  Indeed, it is no coincidence that the most significant changes to corporate governance practices recently have been within the banking sector.

A short history of companies

Let me begin by defining “corporate governance” in its broadest sense:  as the set of arrangements that determine a company’s objectives and how control rights, obligations and decisions are allocated among various stakeholders in the company (Allen and Gale (2000)). These stakeholders comprise not only shareholders and managers, but also creditors, employees, customers and clients, government, regulators and wider society.

Over the past two centuries, several dozen pieces of company legislation have been enacted in the UK alone.  This legislation has successively defined and redefined these purposes, rights and obligations among stakeholders.  This legislative path has been long and winding – Table 1 provides a summary.  It has been shaped importantly by the social, legal and economic climate of the day.  And it is the interplay between these contextual factors that, through an evolutionary process, has delivered today’s corporate governance model.

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Category: Corporate Management, Legal, Think Tank

Marijuana Laws by State

Source: FiveThirtyEight

Category: Legal

“The Fourth Amendment was designed to stand between us and arbitrary governmental authority. For all practical purposes, that shield has been shattered, leaving our liberty and personal integrity subject to the whim of every cop on the beat, trooper on the highway and jail official. The framers would be appalled.”—Herman Schwartz, The Nation     Trying to…Read More

Category: Legal, Think Tank

Campaign Cash

click for interactive graphic Source: Bloomberg  

Category: Legal, Politics, Really, really bad calls

The US Averages One Mass Shooting Per Day in 2015

Source: WonkBlog h/t KnowMore

Category: Data Analysis, Digital Media, Legal, Politics

The Tyranny of the U.S. Criminal Justice System

How can the life of such a man Be in the palm of some fool’s hand? To see him obviously framed Couldn’t help but make me feel ashamed to live in a land Where justice is a game.—Bob Dylan, “Hurricane”     Justice in America is not all it’s cracked up to be. Just ask…Read More

Category: Legal, Philosophy, Really, really bad calls, Think Tank

Legalization Nation

Source: WonkBlog

Category: Legal, Politics

FIFA Fiasco: Alleged Criminal Schemes

Awesome Bloomberg interactive on the FIFA scandal:   Click to see the full interactive graphic. Source: Bloomberg

Category: Digital Media, Legal, Sports

Which Tech Firms Protect their Users?

Source: EFF

Category: Legal, Technology