Why only fines? Doesn’t fraud require more than that?

Posted on August 22 2008

The FT has reported:

Merrill Lynch, Goldman Sachs and Deutsche Bank on Thursday agreed to buy back up to $14.5bn of auction-rate securities and pay $162m in fines to resolve investigations into whether they misled people who bought the debt instruments.

The biggest fine will be paid by Merrill, which sold $12bn of auction-rate securities to retail investors. It will start buying back the ARS on October 1, when it estimates $10bn of the now-illiquid securities will be outstanding.

The settlement was announced by Andrew Cuomo, New York attorney-general, who struck a deal with John Thain, Merrill chief executive, during a meeting on Thursday. Mr Cuomo said he had been ready to file a lawsuit against Merrill Lynch today if a deal had not been reached.

I find this amazing.

These people have been fined. Not token gesture fines. Not for minor offences. Serious sums of money (maybe not serious enough, but big, none the less). These fines aren't for mistakes. They are for misleading people to secure financial advantage for themselves. This is fraud. And yet no one is being asked to take personal responsibility. No one seems to be going to prison.

Why? Give me a reason why a well paid conman is treated better than a 'benefit fraudster'? I don't know of one.

I can't be the only person who gets angry at this duality.

But what really annoys me is that these fraudsters (and I'll stress: I think the fraud systemic within these organisations) will continue to advise governments, will continue to be considered fit and proper people for financial services purposes and will continue as a result to commit fraud on us all.

That makes me very angry.

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4 Responses

  1. Georges says:
    August 22 2008 at 9:35 am

    Richard,

    Putting aside the undoubtedly political nature of the settlement, let us stick with the post. TR-UK’s edit function is still working we see. Why not include this snippet from the very same FT article:

    Mr Cuomo stressed that the settlements did not absolve individuals at any of the banks. “We could still bring actions against individuals,” he said, though he would not specify the number of individuals he was investigating.

  2. Tax Research LLP says:
    August 22 2008 at 10:34 am

    Georges

    Thank you

    Two reasons:

    1) They have not happened

    2) I was stressing that I think the failure systemic as well as individual

    I might add, I think that for the second reason they won’t happen

    But my point was this will be ignored for other purposes and that is inappropriate: these organisations need to be barred as not fit and proper

    Richard

  3. Tim Worstall says:
    August 22 2008 at 1:21 pm

    I have to admit that I’m struggling to understand what was the fraud here. Auction Rate Securities appear just to be a variation of floating rate debt. The floating rate being determined not by reference to LIBOR or some such, but to who is actually willing to bid on that specific tranche of debt at the time of the auction.

    Where’s the fraud in that?

  4. Tax Research LLP says:
    August 22 2008 at 1:41 pm

    Tim

    Try product misrepresentation

    That’s what the fine was for

    Richard