By Ann Woolner
Ann Woolmer calls for fair justice - as a culture of corruption breeds more corruption.
Imagine Tony Soprano getting convicted and given a shorter prison sentence because he worked in a criminal environment. That would be getting it backward.
A federal judge implied this week he may go easy on two brokers convicted of securities fraud because they worked within a “culture of corruption”.
He wasn’t talking northern New Jersey. He was referring to Wall Street.
In the case of two former Credit Suisse Group AG brokers, US district judge Jack Weinstein said that at their sentencing he will take into account “how pernicious and pervasive was the culture of corruption” when the duo ripped off their customers.
He asked government and defence lawyers to address that point when they write their sentencing recommendations. You might think the request signals that he wants to slam the men for spreading the sort of corruption that, in his words, “brought our financial system to its knees”.
But Weinstein made it sound like the more widespread the wrongdoing, the less punishable it might be.
Let’s be clear. Eric Butler and his co-defendant, Julian Tzolov, didn’t merely fail to predict the collapse in value of their clients’ holdings, a jury found and Tzolov admitted. The reason they might face decades in prison is that they told their clients they were investing them in one thing but put them in another.
Friends and partners at Credit Suisse, the two of them claimed to corporate customers that they were putting their money into securities backed by government-guaranteed student loans. Their money would be almost as safe as cash, the brokers said.
In fact they put those clients into riskier products linked to auction-rate securities, which tanked in the economic downturn. Their clients lost $900m.
Tzolov, who pleaded guilty just before trial, testified against his former buddy and made it clear that they knew they were lying about what products they were selling. They did it, he said, to rake in higher commissions.
So, after a three-week trial, it took the Brooklyn jury two hours to find Butler guilty on Aug 17.
Butler’s lawyer says he will appeal, and blamed market failure — not his client — for the losses.
“Everybody in the financial community believed that the bonds sold in this case were of the highest quality and were safe short-term investments,” attorney Paul Weinstein said in a post-trial e-mail. (He and the judge aren’t related.)
The judge set sentencing for the pair in October. In the meantime, he wants defence and prosecution sentencing briefs to speak to the “lack of regulation” of the industry and the “serious negligence in the financial services industry in supervising people like this”.
That federal regulators were dozing while Wall Streeters threw our money around carelessly and reaped multimillion-dollar bonuses is beyond dispute by now.
How does that help these guys? Just because no one’s watching doesn’t mean you should lie to investors. It only means you might not get caught. (In their case, Credit Suisse put the feds onto the pair’s crimes, the firm says.)
That recklessness pervaded the Street is also clear.
Again, so what? In my adolescent past, I, too, offered the widely used but rarely successful everyone-does-it defense. That tactic usually provoked this rebuttal, “If everyone jumped off a cliff ….” You know the rest.
Could Soprano say that murder and beatings didn’t seem so bad because they were rampant in his world? I don’t think so.
Financial crimes are different, to be sure, and so are white-collar criminals. They don’t inflict death, physical pain and terror. But they do rob the innocent and cause immense suffering.
Weinstein said he’ll impose “reasonable” yet “serious” sentences, including fines, restitution and forfeitures. As for prison time, the life sentences the prosecution wants would be too much. He’s right.
I agree he shouldn’t exact punishment on this pair for the entire financial crisis. But Weinstein’s wrong if he plans to shorten their sentences because of the context of the crimes.
Some defence lawyers could use a “culture of corruption” argument “to try to convince the judge that the defendants didn’t fully appreciate the wrongfulness of their conduct,” says Robert Mintz, a former prosecutor and now a white-collar criminal defense lawyer at the Newark, New Jersey, firm McCarter & English.
When everyone’s doing it and no one’s getting nabbed, “at some point a defendant believes that the conduct is no longer illegal,” Mintz says.
Weinstein’s reasoning follows a different course. He said in court that long sentences don’t deter would-be criminals “in a system where rewards for greed and short-term gain are so enormous.”
“Fraud and arrogant disregard of others’ rights and of ethics almost naturally result,” Weinstein said.
If Weinstein shaves years off these sentences because of that, others accused of financial crimes should take comfort. As you read this, two former Bear Stearns Cos hedge fund managers, Ralph Cioffi and Matthew Tannin, are awaiting trial in federal court in Brooklyn for an alleged fraud that helped send their company down the tube.
But if a culture of corruption breeds more corruption, it would seem the proper response would be to step up the penalty.
How else can you be heard over all that corruption? How else will it end?Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own.