As Deadlines Loom for Financial Crisis Cases, Prosecutors Weigh Their Options | The Untouchables | FRONTLINE | PBS

As Deadlines Loom for Financial Crisis Cases, Prosecutors Weigh Their Options | The Untouchables | FRONTLINE | PBS

As Deadlines Loom for Financial Crisis Cases, Prosecutors Weigh Their Options

January 22, 2013, 9:40 pm ET by Jason M. Breslow

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For more than four years, authorities have struggled to successfully prosecute a Wall Street bank or its executives for alleged misconduct during the financial crisis. Now, time may be running out.

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Under federal securities law, the statute of limitations in fraud cases normally lasts five years. Given that the bulk of the mortgage-related securities that precipitated the crisis were created in 2006 and 2007, the window of opportunity for authorities to bring new charges is rapidly closing.

“So much sand has fallen out of the hour glass, now there’s not much left,” said James Cox, a professor of corporate and securities law at Duke University. “I think the government has had plenty of chances to bring high-profile cases and haven’t.”

As of Jan. 9, the Securities and Exchange Commission had charged 153 entities or individuals in crisis-related cases, and won $2.68 billion in penalties. The largest penalty was a $550 million agreement with Goldman Sachs to settle claims it misled investors over a mortgage-related security called Abacus 2007-AC1. In its complaint, the SEC charged that Goldman never revealed that the hedge fund manager who created Abacus, John Paulson, was betting against the same mortgage bonds that made up the security. Though Goldman did not admit to the SEC’s allegations, it acknowledged that marketing material for Abacus “contained incomplete information.” 

But government watchdogs are quick to remind that enforcement has focused mainly on civil penalties, rather than criminal charges against executives from any Wall Street firm. The government’s first criminal case, a nine-count indictment against two former Bear Stearns executives for securities, mail and wire fraud, ended in November 2009 with a not guilty verdict on all counts.

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