Why ‘Too Big to Jail’ Is Still a Matter of Debate
by John Heltman

WASHINGTON — The failure to prosecute bankers as a result of the financial crisis has sparked an ongoing debate about whether enforcement officials lacked the will to move forward with any cases—or didn’t have enough proof that any crimes had been committed.  Far from fading into the background, the issue remains in the forefront as policymakers debate how to address “too big to jail.” A lack of will could be addressed by more forceful leadership, but a lack of proof might call for changes to the way financial crimes are prosecuted.  On the one side are Wall Street critics who argue that if the Justice Department acted more vigorously and dedicated more resources to investigating the banks and uncovering violations, the agency could have brought charges and won convictions.  Karen Shaw Petrou, managing partner of Federal Financial Analytics, said that there were attempts early on to go after bad actors related to the financial crisis. In 2008, DOJ tried former Bear Stearns executives Ralph Cioffi and Matthew Tannin on charges of fraud and insider trading, but a federal jury found both men not guilty in November 2009, largely because the email evidence that the prosecution relied on was too flimsy to demonstrate guilt beyond a reasonable doubt. That loss may have warned off other prosecutors who were looking to build a case, Petrou said.  “I think that chastened prosecution,” Petrou said. “There are significant obstacles to the kind of prosecutions that … people would like to see. The U.S. bank regulators have much less flexibility to do that — but Congress could.”  Congress did amend the evidentiary standard in one important respect after the crisis. Dodd-Frank amended the Commodities Exchange Act — the authorizing statute for the Commodity Futures Trading Commission — to substantially ease the standard of evidence for the CFTC to charge firms and individuals with market manipulation.