Fraud Friday — SIGTARP Proposes Rules to Make Wall Street C-Suite Bank Officers Criminally Liable for Institutional Fraud

October 28, 2016

By Bob Coleman
Editor, Fraud Friday


The list is long of community bankers who are paying the price for their institution’s failures — SIGTARP boasts 85 indictments, but not one Wall Street Banker is on the list.

Now TARP’s Inspector General, Christy Romeo, wants the tools to go after those Wall Street Bankers.

In her quarterly report to Congress she writes, “I propose that Congress remove the insulation around Wall Street CEOs and other high-level officials by requiring the CEO, CFO and certain other senior executives to sign an annual certification that they have conducted due diligence within their organization and can certify that that there is no criminal conduct or civil fraud in their organization.

“No longer allowed to stay ‘in the dark’, a crime and fraud certification forces the CEO to be ‘in the know.’

“Crime and fraud cannot be allowed to go unchecked at our largest institutions.

“Modeled after the annual Sarbanes-Oxley certification, this crime and fraud certification would create an incentive for top executives to institute strong antifraud internal controls on lower level executives and managers.

“It will also motivate lower level executives and managers to have conversations with leaders of the organization if fraud or crime is occurring.

“SIGTARP, which investigates crime at companies that took TARP bailout funds, has had significant success in the prosecution of senior executives at medium sized banks and smaller banks.

“(However) we have faced significant difficulties in proving criminal intent of senior officials in large organizations that are purposely designed to insulate top officials from knowing about crime or civil fraud.

“Orchestrated in boardrooms and law firms, this insulation often puts senior executives ‘in the dark’ and therefore just out of reach of prosecution.

“Currently, Wall Street CEOs and other high-level executives do not have an incentive to identify crime and civil fraud in their organization. They can hide behind the idea that because their firm is so big, they cannot be expected to know everything that happens within it. This insulation presents a serious challenge to law enforcement to prove criminal intent – a challenge that requires a permanent incentive for CEOs and other high-level executives to be ‘in the know.’

“To bring accountability to the ‘Insulated CEO’ and other senior executives on Wall Street, incentives are needed to raise knowledge of crime and civil fraud to the highest levels of financial institutions.

“We know that the financial crisis, TARP bailout, and subsequent fraud scandals have not provided enough incentive. Crime or fraud in an organization’s business practices should be detected in the due diligence and rise to the CEO.

“And if executives cannot certify, they should call law enforcement, such as SIGTARP, immediately.

“Stopping fraud and immediately reporting it to law enforcement is the right response.

“On the other hand, if after learning about the fraud, the CEO and senior officers knowingly file false statements with the FDIC or SEC, they would be more in the reach of law enforcement than in the past. In SIGTARP’s investigations, the annual Sarbanes-Oxley certifications can serve as evidence to prove that executives (CEO, CFO, or others who signed sub certifications) with knowledge of the fraud also knew that they were filing false financial statements, leading to charges such as bank fraud.

“A similar certification could do the same for crime and fraud at large banks. This reform would be a significant step forward toward greater accountability. It would benefit large financial institutions by giving the CEO and other leaders the opportunity and accountability to stop fraud, fix it, and report it to law enforcement, such as SIGTARP. If leadership fails to act, it gives law enforcement a path to bring justice to the “Insulated CEO” and other senior executives.

“And it would give the public more confidence that the law applies to everyone, whether they sit in a cubicle or corner office.”