Why there won't be Wall Street perp walks

By David Ellis, staff writer

NEW YORK (CNNMoney.com) -- Don't expect Wall Street to give up their tasseled loafers and French cuff dress shirts for orange jumpsuits anytime soon.

The Justice Department just abandoned its criminal probe against AIG, which means that executive Joseph Cassano, who once led the firm's troubled financial products division, won't face any charges.

Prosecutors have also yet to take any action against Lehman Brothers or other key players in the financial crisis despite pleas from some members of Congress for federal law enforcement officials to investigate the questionable accounting practices at Lehman leading up to its collapse.

At this point, the likelihood that bankers could face formal criminal charges, much less a conviction, is growing bleaker by the day, according to legal experts.

"I think it is a super long shot," said one former federal prosecutor, who could not officially comment on the matter out of fear it could harm her firm's ability to attract potential clients.

There has been no shortage of speculation about legal troubles facing many of the country's biggest financial firms recently.

Earlier this month, the Wall Street Journal reported that the Justice Department was expanding a criminal probe into whether big banks including Citigroup (C, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) misled investors about their role in sponsoring mortgage-bond deals.

Morgan Stanley (MS, Fortune 500) and rival Goldman Sachs (GS, Fortune 500), which is the subject of a civil-fraud suit from the Securities and Exchange Commission, have also been rumored to be facing similar investigations from federal authorities.

But legal experts said it's not likely that any of those reported investigations will lead to substantial charges against any Wall Street firm or individual bankers.

For starters, criminal cases are generally more difficult to win than civil trials. Prosecutors must be able to prove beyond a reasonable doubt that the company or its employees were guilty.

There is also the sheer complexity of these transactions, which often times involved a variety of participants dabbling in intricate investment products.

Many of the questionable mortgage-related investments, for example, were sold by banks, with the blessing of the ratings agencies, to highly-sophisticated investors such as other banks and hedge funds.

"It is going to be tough to show there was an intent to defraud anybody," said Paul Hayes, a former FBI investigator who served on the Justice Department's Enron task force and currently works for Milberg Investigators, an investor and consumer protection law firm.

Others have wondered just how willing federal law enforcement officials are to go after crimes related to the financial crisis.

It wasn't until after the SEC announced its civil fraud suit against Goldman Sachs that reports of a Justice Department probe of Wall Street's top firms surfaced.

Others have said it was curious that Merrill Lynch or its current owner Bank of America (BAC, Fortune 500), was not named in that same report. In both 2006 and 2007, Merrill Lynch was the leading underwriter of collateralized debt obligations, or CDOs, issuing some $85 billion worth of these mortgage investments.

"How can you have a serious criminal probe of this sector if you don't include the largest player?" said Rochdale Securities analyst Richard Bove, who tracks many of the top financial firms.

Of course, the Justice Department has not exactly fared well in prosecuting such cases.

Last fall, it lost the case it brought against two former Bear Stearns hedge fund managers despite having a damning series of emails between the two men. This is the only case tied to the 2008 Wall Street collapse that the DOJ has tried so far.

"They got spanked," said one former federal prosecutor. "I think prosecutors are going to have to be very careful and they will be. They don't want to be embarrassed."

Former law enforcement officials maintain that many of these cases may well remain fertile ground for other seemingly unrelated charges like wire fraud or additional instances of civil securities fraud against individual employees.

Legal experts unanimously agree however, that despite all the pressure top banks are facing these days, none of the firms themselves are likely to face formal criminal charges.

Prosecutors have backed away from the practice in recent years after criminal charges eventually led to the collapse of accounting firm Arthur Andersen. The company was eventually exonerated of all charges.

With securities firms so heavily reliant on client relationships, a criminal charge could very well lead to financial ruin for a top Wall Street bank, notes Bove.

"The punishment would be far more than the crime," he said. "The punishment would be excessive." To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,672.60 -141.38 -0.79%
Nasdaq 4,757.88 7.48 0.16%
S&P 500 2,051.82 -11.33 -0.55%
Treasuries 1.82 -0.08 -4.17%
Data as of 12:15pm ET
Company Price Change % Change
Bank of America Corp... 15.73 -0.36 -2.24%
General Electric Co 24.48 0.20 0.82%
Apple Inc 112.98 0.58 0.52%
Avon Products Inc 7.98 -0.68 -7.85%
Intel Corp 36.44 -0.46 -1.26%
Data as of Jan 23


Investors get to check Corporate America's pulse as over 140 S&P 500 companies report earnings this week. More

The National Hockey League is partnering with GoPro to get hockey fans closer to the action than ever before. More

Hershey has forced an importer to stop selling proper British chocolates in the United States, angering fans of Cadbury and Toffee Crisps. More

Target-date funds have become a wildly popular option among those seeking a hands-off approach to retirement investing. But not all of these funds are created equally. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2015 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2015. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2015 and/or its affiliates.