Today’s story is a tale of Big Crooks and Little Crooks. The morale of the story is that if you have to be a crook be a big crook, preferably the biggest crook, because that way you are almost certain to escape punishment and it is unlikely that you will be deprived of some at least of your ill gotten gains.
It is a crime to mislead investors in most legal jurisdictions in the world. Although there is a legal principle that they buyer must beware, there is another legal principle that making false statements to induce a person to invest in a worthless business, venture or other investment is criminal activity and rightly so.
However in most so called civilised nations of the world this crime is enforced only against the small crooks, not against the biggest crooks.
A con man might induce a lonely pensioner to buy shares in a worthless company in a small boiler room operation. The crook, if caught, is punished and his assets sequestrated as proceeds of crime. The crook will then usually serve a term of imprisonment and society feels vindicated and that justice is done; crooks should not con pensioners out of their life savings, whether lonely or not.
If a multinational business, such as a bank, cons investors into making an investment in such things as interest rate hedging products or poor quality mortgage loans by pretending that the IRHP is required for protection or that the mortgage loans are of excellent quality then I regret that different rules apply, although the essence of the crime is the same.
Unlike the boiler room operator the bank will not have its assets sequestrated as proceeds or crime nor will any of the executives who devised these confidence tricks or the board of directors who approved their use spend any time in prison. After a long fight lasting years – so many years that the crime is largely forgotten, the bank will be ordered to repay some of its ill gotten gains (although not all, because the passage of time will have meant some of the people conned are no longer around or no longer have the wherewithal to fight) and the bank may have to pay a small fine.
Recently in the USA the headlines told us that Bank of America will have to pay $16 billion for misleading investors about the quality of loans it sold. The prosecutor claimed that no institution is too large or powerful to escape punishment but a closer examination of the case shows that no one went to prison, of the $16 billion about a third comprised giving people some of their money back ( that is to say not a fine but a restitution) and $5 billion is a fine. The rest goes to providing “consumer relief” which will not repair the damage done by Bank of America to the American economy.
The fine will simply mean that the Bank’s profits for a year will be wiped out. It will still maintain its banking licence and will regard its fine as merely a business expense. Interestingly, when the fine was announced shares in the bank rose by 1.3%.