There will be no end to corporate crime unless CEOs, CFOs and COOs start going to jail. The crash of 2007 revealed all kinds of shady, unscrupulous financial industry practices. Banks paid billions in fines — often referred to as ‘the cost of doing business’ — but only one executive served any time, Kareem Serageldin of Credit Suisse.

And so it is not surprising that banks and the like are back to behaving badly. This time it is Wells Fargo.

The New York Times published a story on how Wells Fargo might face an additional fine of $1B for screwing its customers. It added an opinion piece that agonizes over whether the punishment is just desserts or overly tough on the current stockholders.

We can easily dispose of the stockholder claims. Unlike bondholders, who merely lend money, equity holders have an ownership stake in the company — and as such, they are legally liable to the full extent of that ownership (i.e., the value of their stocks). If the company commits a crime, they are party to it and shouldn’t be indemnified for corporate losses. In Mitt Romney’s infamous words:

“Corporations are people, my friend. Everything corporations earn ultimately goes to people. Where do you think it goes?”

While the article refers to stockholders as “battered”, it makes no mention of the effect on employees in forgone wage increases or worse, job losses. Once again the worker is consigned to the low rung of the sympathy ladder.

But the meat of the matter is that once again senior management of a criminal enterprise are let off.

“Whether they’ve [management] paid adequately for their multiple transgressions is an open question — no one has gone to jail, or even faced criminal charges.” 

They haven’t paid adequately. Although CEO John Strumpf was fired and suffered a $69 million ‘claw back’ from his final compensation, he still sailed into retirement with $130 million. Carrie Tolstedt, who led the community banking division responsible for the fake accounts still held on to $57 million after a $67 million ‘clawback’.

The bank itself, even after the $1 billion dollar penalty, will still show 1st quarter profits of $5.1 billion. (Note: the hit to earnings is only $800 million because they can use the fine to reduce their tax liability.)

Can you imagine if you ‘punished drug dealers by taking 20% of their profits and told them they had been very naughty? It would hardly deter the future drug dealers of America from pursuing their careers.

The bottom line is that many corporate bosses will not aggressively address corporate crime if the only effect is to the bottom line. They have to be personally charged with crimes, they have to stand trial, and they have to go to jail.

We do that to people who rob banks, why don’t we do it to bankers who rob people?

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