An old joke: an accountant is asked, “how much do one and one make?” He answers, “how much do you want them to be?” Such was the attitude of big accounting firms, suborned by huge consulting contracts, that abetted Enron and other frauds a decade ago and has informed the more recent behavior of bond rating agencies suborned by lucrative commissions.
They knew prospective buyers, unaware that the agencies had been bought off by sellers, would rely on evaluations biased in favor of their deep-pocket customers.
Of the securities acts, the Racketeer Influenced and Corrupt Organizations Act, mail and wire fraud statutes, and state fraud laws surely some will apply. This isn’t much different than real estate appraisers who abet mortgage frauds by over-valuing properties in order to keep sellers’ business. Eliot Spitzer would have been at the courthouse by now.
New regulations aren’t enough because Wall Street can find a way around any rule by creating new frauds. That’s why, along with better regulations, frauds must be prosecuted to take the profit out of them. This is what President Obama must do if he truly wants to show he isn’t in Wall Street’s pocket.
If the Federal government won’t act, attorney General Cuomo should ask, “what would Eliot do?” Yes, the crooks in Brooks Brothers can hire expensive lawyers, but the State of New York has much to gain and will surely find good lawyers to fight for the people.
