According to William K Black,Â the FBI and the DOJ will not be likely to prosecute the elite bank officers that ran the enormousÂ “accounting control fraudssÂ that drove the financial crisis. While over 1,000 elites were convicted of felonies arising from the savings and loan crisis from the 1980’s and 1990’s , there are no convictions of controlling officers of the large nonprime lenders. The only indictment of controlling officers of a far smaller nonprime lender arose not from an investigation of the nonprime loans but rather from the lender’s alleged efforts to defraud the federal government’s TARP bailout program.
Black proposes thatÂ the U.S. needs to take three major steps to be effective against the epidemic of accounting control fraud. First, DOJ needs to realize that it is dealing with accounting control fraud. That task is not terribly difficult. The criminology, economics, and regulatory literature — as well as the data on fraud and analytics are all readily available. The FBI must end its “partnership” with the MBA. Second, the regulators need new leadership picked for a track record of success as vigorous regulators and a willingness to hold elites accountable regardless of their political allies. Third, the regulators and the DOJ need to partner with the SEC and the state AGs to share data (where appropriate under Grand Jury rule 6e). The federal regulators need to end their unholy war against state regulatory efforts and the SEC needs to end its disdain for the state AGs.
1. According to the author, what is the four-part recipe for maximizing fraudulent accounting income in the short-term?
2. According to the author, what is the downfall of the FBI in the role of successful investigationÂ and prosecution of accounting control fraud?
3. What are liar’s loans and what is their role in the financial crisis?Â
4.Â How do you see this lack of criminal prosecution affecting the accounting and finance profession? Do you agree with Black’s proposals?
Source: Black, W.K. (2010). 2011 Will Bring More de Facto Decriminalization of Elite Financial Fraud, The Huffington Post.com, December 28 (Retrievable online at http://www.huffingtonpost.com/william-k-black/the-role-of-the-criminal_b_802115.html)