Did you know you can’t sue somebody if they help cheat you out of money via securities fraud? I didn’t.
Bloomberg’s Jonathan Weil has an excellent column today on that, noting how an attorney named Joseph Collins, who helped Refco pull off its multi-billion-dollar fraud, is going to hold on to his riches.
That’s mainly because Congress has made sure only the government has the right to bring civil court claims against defendants for aiding and abetting securities fraud. Private litigants are barred from doing so under federal law. That means outside investors typically have no means to seek redress in such cases, unless prosecutors or regulators choose to pursue restitution for them. As for the Collins case, the government has proved worthless in that respect.
Collins got seven years in prison, but just a $500 fine. Weil quotes a judge commisserating about the “policy choice by Congress” that forced him to throw out PIMCO’s civil suit against Collins.
Why would Congress intentionally protect fraudsters by passing such a law?
The beneficiaries of the status quo include corporate law firms, accounting firms and investment banks.
Oh, that.
Weil points out that the government has reserved for itself the right to sue securities-fraud abettors but won’t go after Collins for monetary damages. The bumbling, stumbling SEC decided it couldn’t even slap him on the wrist. Weil reports that it ordered Collins not to commit securities fraud again and allowed him to settle without admitting guilt—even though he’d already been convicted and sentenced!
The good news here is this guy got seven years in prison. But the bad news is—and this is a heckuva kicker from Weil—that:
True justice for investors duped by Refco would include the opportunity to seize everything Collins owns. As Eddie Murphy’s character Billy Ray Valentine said in the 1983 hit comedy, “Trading Places,” the best way to hurt rich people is to turn them into poor people. The Congress instead has decided to protect fraudsters such as Collins from the public. It’s supposed to be the other way around.
Like, say, Abramoff slinging pizzas.
Read the whole thing. That’s how you write a column, kids.
— Further Reading:
Audit Interview: Jonathan Weil. “You have to be willing to lose stories that depend on access.”
FT Buries the Lede on Ex-SEC Officials and Goldman. A great example of how regulatory capture works.
SEC and You Shall Not Find. Weil asks why it took a court-appointed examiner to do for Lehman what the SEC should have done long ago
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.