Too Big To Jail


Judge Rakoff and Jail Time for Execs

Too Big To JailSuppose you heard the Mafia had settled a federal fraud case by paying a big fine, requiring other Mafiosi to attend ethics classes, and promising to appoint “friends” as compliance officers? Would it make you feel better if  the deal was part of the ever popular “Deferred Prosecution”  settlement with no jail time nor admission of guilt?

Although corporate fraud does more harm to more people than the Mafia—it gets the Deferred Prosecution (DP) treatment. When a huge pharmaceutical corporation is guilty of distorting test results of widely used drugs, DP is their escape route. When a financial services corporation lies about the ratings of bonds and mortgages, millions of pension funds of ordinary Americans are diminished or disappear, but DP solves the corporate problem.

U.S. Southern District of New York Judge Jed Rakoff argues DP is not the answer, but that jail time for top corporate execs would be more effective in dealing with corporate fraud. His latest broadside against DP is in his review of Too Big To Jail*, a book by Brandon Garrett who has extensive and persuasive evidence that DP does not change American corporate culture. (According to Rakoff, DP started 80 years ago as a new idea for getting teenagers back on the straight and narrow.)

But proceed with caution: sending corporate execs to jail has risks: They might meet inmates with new ideas about profiting from fraud. Those felons also might become candidates for top management after they and the top execs are back in business.

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*To read the Rakoff review, see Justice Deferred Is Justice Denied in The New York Review of Books of February 19, 2015, page 8. The book, Too Big To Jail: How Prosecutors Compromise With Prosecutors is published by Belknap Press/Harvard and is available in hardcover or as an eBook. I relied heavily on the Rakoff review for this post and have not yet read the book.

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