Thursday, May 1, 2003 | 8:43 a.m.
The news Monday that 10 Wall Street firms would pay a total of $1.4 billion in penalties for willfully deceiving investors was both mildly encouraging and highly disappointing. Principally, the 10 firms were found to be guilty of enticing investors to buy securities the firms knew to be overvalued. While the individual investors lost heavily, the firms collectively reaped billions in transaction fees.
The settlement, announced by the Securities and Exchange Commission and the New York state attorney general, requires changes in business practices designed to protect future investors and to restore confidence in the market. And while the settlement protects the firms themselves from any further regulatory action involving the cases that had spurred the investigation, it leaves individual members of those firms open to class-action lawsuits. This means investors who were wronged by the scandal, who lost billions in their dealings with these firms during the bull market of the late 1990s through 2001, may someday recover more than the pennies on the dollar the settlement will bring them. Those are the mildly encouraging aspects of the settlement.
Unfortunately, however, no one will be tried criminally, even though enough evidence exists to bring charges of colossal wrongdoing. This is highly disappointing, as it clearly sends a message that crime pays. The combined $1.4 billion penalty is one paddle compared to the boatloads of money the firms pried loose from unwitting investors. A fine that amounts to a fraction of ill-gotten gains is hardly a disincentive to continue illegal business practices. The two executives who most epitomized the scandal were ordered to personally pay a total of $19 million into the settlement, a pittance compared to what they earned during their years of deception. According to the New York Times, one of the executives -- over just a three-year period in the 1990s -- earned $67 million.
We're glad regulators exposed the scandal and instituted changes in the way Wall Street does business. But we're unhappy that the perpetrators will never stand before a judge and jury for a more just accounting of their activities.
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