WASHINGTON/NEW YORK Wed Sep 17, 2014 2:20pm EDT
United States Attorney General Eric Holder holds a news conference announcing updates in the Justice Department's investigation in the shooting of Michael Brown in Ferguson, Missouri, in Washington September 4 2014.
Credit: Reuters/Gary CameronWASHINGTON/NEW YORK (Reuters) - U.S. Attorney General Eric Holder on Wednesday called for changes that could help prosecutors build criminal cases against senior Wall Street executives, saying companies often insulated their leaders from responsibility for misconduct.
In a speech before New York University School of Law, Holder made some of his most extensive comments yet on how the department might better prosecute white-collar crime, proposing larger rewards for Wall Street whistleblowers and more FBI agents with forensic accounting expertise.
The Justice Department has faced years of criticism for bringing few marquee prosecutions against Wall Street executives for conduct that contributed to the 2007-2009 financial crisis.
It has reached multibillion-dollar settlements with top institutions, including JPMorgan Chase & Co, Bank of America Corp and Citigroup Inc, for misrepresenting the risks of shoddy mortgage bonds sold before the crisis, but no individuals have faced related charges.
At the speech, students passed around a flyer criticizing Holder's appearance as a "whitewash" and saying he had "provided impunity" to banks that solid toxic assets and that he had "refused to prosecute" them.
"When it comes to financial fraud, the department recognizes the inherent value of bringing enforcement actions against individuals, as opposed to simply the companies that employ them," Holder said.
But Holder said that in some instances prosecutors could not establish that high-ranking executives far removed from day-to-day operations knew about a particular scheme.
He pointed to how companies sometimes have blurred lines of authority that prevent responsibility for individual business decisions from sitting with a single person.
"We need not tolerate a system that permits top executives to enjoy all of the rewards of excessively risky activity while bearing none of the responsibility," he said, before an audience that included Manhattan U.S. Attorney Preet Bharara and U.S. District Judge Jed Rakoff.
Rakoff in the past has sharply criticized U.S. authorities for not pursuing more individuals in connection with cases against financial institutions.
Holder suggested lawmakers look to a requirement in the Sarbanes-Oxley Act of 2002 that forces a single company executive to sign accounting forms and bear liability for any misrepresentations, and consider applying the same concept to other areas of corporate wrongdoing.
WHISTLEBLOWER REWARDS
Since the financial crisis, prosecutors have stepped up efforts to pursue bankers, traders and others in the industry for other types of financial fraud, including insider trading and the manipulation of interest rate benchmarks and foreign exchange rates.
Some of those efforts have been helped by cooperating witnesses inside major financial institutions, and more cases could come in the coming months.
But the law caps rewards for potential whistleblowers in cases that do not involve fraud against government programs and hurts the ability of prosecutors to get Wall Street executives to cooperate, Holder said in his speech.
"We should seek to better equip investigators to obtain this often elusive evidence," Holder said.
In one recent case in which a federal judge ordered Bank of America to pay $1.27 billion for fraud at its Countrywide unit, a whistleblower who served as the government's star witness is entitled to $1.6 million. Holder described that amount as a "paltry sum" for an industry in which the collective bonus pool stood above $26 billion last year and median executive pay was $15 million.
(Reporting by Aruna Viswanatha; Editing by Karey Van Hall, Chizu Nomiyama and Steve Orlofsky)
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