The Fizzling Criminal Prosecutions

The federal criminal investigation into Washington Mutual’s lending practices has been closed. Further, it looks as if similar investigations into the mortgage lending of IndyMac Bancorp and New Century Financial are dormant and likely also to be closed. These three institutions were among the first to collapse under the weight of truly heavy subprime loan portfolios. Angelo Mozilo, former CEO of Countrywide (now saddled onto Bank of America), also escaped criminal prosecution when the investigation into his role in that company’s weighty subprime portfolio was also closed. Mr. Mozilo did pay a fine of $67.5 million and at least one IndyMac officer has settled civil charges.
We should not forget the derivatives of the subprime mortgage market and the players there. Ralph Cioffi and Matthew Tannin, the Bear Stearns hedge fund managers who were the first Wall Streeters to be charged criminally for their collapsed funds, were acquitted of all charges. However, the SEC announced this week that it will pursue civil charges against the two former managers.

We look at the financial carnage the mortgage lenders and the mortgage-based fund managers hath wrought and think, “Surely there was some crime here!” The proof of criminal intent and finding the fingerprints of crime are both tall orders. You look at the fact that a toddler’s remains were found in Hefty bags in a Florida swamp and conclude, “Surely there was something wrong here!” You glance at the carnage the subprime mortgage market caused and conclude the same. However, bad outcomes are not always the products of provable criminal conduct. Were the lenders and managers stupid? Nope. Were they ill-informed about the nature of the mortgages and CDO instruments? Nope. They based a business model on lending and selling practices that were developed, embraced, and expanded by herds of lenders and managers. They all went off the cliff together. Stupidity is not yet a crime. However, it can result in civil charges that stick, something we may have to settle for on this latest round of destructive business debacles.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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