With public anger reaching a boiling point over plunging stock prices and Wall Street “greed,” white-collar defense attorneys are preparing for an inevitable surge in criminal prosecutions.
Stanley S. Arkin, for one, said he expects that the anger, hysteria and economic dislocation fueled by “imprudent credit policies” will “inspire” indictments that would not have been brought in a “calmer and more dispassionate time.”
There is “an underlying popular sensibility in this country that someone has to pay for all the jobs lost and the savings extinguished,” said Arkin, a partner at Arkin Kaplan Rice. “There’s a lynching quality that arises in circumstances of extreme dislocation like this.”
Other defense attorneys say they are confident that prosecutors will act responsibly in deciding what, if any, criminal charges to bring.
“I don’t think public clamor for executives’ heads to roll is going to cause prosecutors to bring charges that they otherwise wouldn’t bring,” said Alan Vinegrad, a partner at Covington & Burling and a former Eastern District of New York U.S. Attorney.
Lawyers expect heightened scrutiny of maneuvers engaged in by financially beleaguered institutions like mortgage behemoths Fannie Mae and Freddie Mac, investment banks Bear Stearns and Lehman Brothers and insurer American International Group.
Prosecutors were ratcheting up their activities even before Congress passed a $700 billion bailout bill last week. That bill provides that federal financial regulatory agencies must cooperate with the FBI and other law enforcement agencies “investigating fraud, misrepresentation, and malfeasance with respect to development, advertising, and sale of financial products.”
According to reports this week by The Wall Street Journal and Bloomberg News Service, U.S. Attorneys in the Eastern and Southern districts of New York and New Jersey are investigating whether Lehman was telling investors that its financial condition was sound at the same time its executives knew the balance sheet was crumbling — a situation that ultimately resulted in bankruptcy.