How banks make promises not to break laws - and then break laws

Let's just say that Wall Street honchos don't exactly quake in their loafers at the prospect of being sued by the Securities and Exchange Commission. Unlike a criminal case, which could mean actual jail time, the SEC can only file civil complaints - and rather than have cases drag out in court for years, government lawyers are often willing to arrange financial settlements in which the defendants promise never to be bad again. Trouble is, they're frequently bad again, whether it's Ponzi scammers or investment bankers. From the NYT

Citigroup's main brokerage subsidiary, its predecessors or its parent company agreed not to violate the very same antifraud statute in July 2010. And in May 2006. Also as far as back as March 2005 and April 2000. Citigroup has a lot of company in this regard on Wall Street. According to a New York Times analysis, nearly all of the biggest financial companies -- Goldman Sachs, Morgan Stanley, JP Morgan Chase and Bank of America among them -- have settled fraud cases by promising that they would never again violate an antifraud law, only to have the S.E.C. conclude they did it again a few years later. A Times analysis of enforcement actions during the past 15 years found at least 51 cases in which the S.E.C. concluded that Wall Street firms had broken anti-fraud laws they had agreed never to breach. The 51 cases spanned 19 different firms.

So why aren't more cases prosecuted by the Justice Department? That, of course, is one of the leitmotifs of the Occupy Wall Street movement: The people who are largely responsible for the financial meltdown aren't being sent to prison. The problem is that white collar cases are notoriously difficult to prove beyond a reasonable doubt, as federal prosecutors have discovered the hard way. They're also very expensive and time consuming. Civil suits, which have a much lower culpability threshold, become an alternative. But...

Senator Carl Levin, a Michigan Democrat who is chairman of the Senate permanent subcommittee on investigations and has led several inquiries into Wall Street, said the S.E.C.'s method of settling fraud cases, is "a symbol of weak enforcement. It doesn't do much in the way of deterrence, and it doesn't do much in the way of punishment, I don't think." Barbara Roper, director of investor protection for the Consumer Federation of America, said, "You can look at the record and see that it clearly suggests this is not deterring repeat offenses. You have to at least raise the question if other alternatives might be more effective."