Discretionary justice A comparison and discussion of criminal prosecutions in the history of major financial crimes

• Published in: Journal of financial crime Vol. 22; no. 1; pp. 5 - 15
• Main Authors: Gilsinan, James F., Islam, Muhammed, Seitz, Neil, Fisher, James
• Format: Journal Article
• Language: English
• Published: 05.01.2015
• ISSN: 1359-0790
• DOI: 10.1108/JFC-02-2014-0009

Purpose – The purpose of this paper is to understand the reasons why some financial crises do not result in extensive criminal prosecutions. Design/methodology/approach – The authors examine three major events: the crash of 1929 leading to the Great Depression, the collapse of the US Savings and Loan industry circa 1990 and the sub-prime mortgage meltdown. The authors explain how circumstances surrounding these financial collapses led to stark differences in criminal prosecutions. Findings – This review of prosecutions during three financial crises underscores the contingent nature of seeking criminal penalties for financial wrongdoing. The decision is influenced by a number of factors, including a prosecutor’s level of risk tolerance (probable win test); the potential economic impact of a successful conviction; the number of laws and regulations available in the prosecutorial tool kit; and the desired outcome which can range from new regulatory structures, to prosecutions that fix blame and satisfy the desire for scapegoats, to seeking financial penalties that shore up the government’s bottom line. Research limitations/implications – This study covers three crises and focuses on the US responses. A broader study could look across countries. Practical implications – Regulators and lawmakers are interested in avoiding future crises. Because crises are not anticipated, responses are determined by conditions of the moment. A frequent result is that laws and regulations are not in place. Decisions about likely preferred responses would allow anticipatory legislation and regulations. Social implications – Financial crises obviously have major implications for ordinary citizens far removed from the centers of finance. Improved responses to mitigate or avoid disasters would have profound impacts on people’s quality of life. Originality/value – The three crises have been studied individually. This work is different in that it examines the impact of a common set of factors over three crises covering a span of 80 years.