Jewish World Review May 7, 2003 / 5 Iyar, 5763

Edward I. Koch

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Consumer Reports

Wall Street settlement was not justice | "Justice, justice shalt thou pursue," is one of the most important teachings in the book of Deuteronomy. There was a striking absence of justice in the recent settlement entered into by New York State Attorney General Eliot Spitzer with a number of individual Wall Street analysts and ten of the largest securities firms in the nation.

No one included in the Spitzer settlement will be subject to criminal penalties. According to the Wall Street Journal, the securities firms "agreed to pay a record $1.4 billion to settle government charges involving the abuse of investors during the stock-market bubble of the late 1990s." Two stock analysts covered by the settlement agreed to a lifetime ban from the securities industry and "they will also pay fines totaling $19 million," described in a New York Times editorial as "a modest sum in light of their combined compensation and the nature of their behavior."

The Times, citing some anonymous "financial experts," has reported "$7 trillion in stock market losses since the broad averages peaked in March 2000." Those losses were absorbed by millions of stockholders, devastating their pension funds, 401(k)'s, bank savings and ability to retire. In other words, the stock market's slide has dealt a serious blow to Americans' quality of life. According to ABC News, "55 percent [of Americans] own either stocks or stock funds."

What I find shocking is that few, if any, editorials have criticized the settlement as too lenient. They have accepted it as reasonable and responsible or have taken the Wall Street Journal position that the "conflicts were also well known to regulators, who didn't become shocked and appalled until stock prices fell." While the Journal acknowledges that the settlement is of little value in protecting investors, it blames the investors for their losses and criticizes Spitzer and the SEC chairman, stating, "Neither ever bothered to issue any cautionary words about investors' own role in their bubble-era losses, however instructive that would have been."

The Times refutes this rationale with its editorial comment, "But 'risk' is not normally defined as embracing deliberate deception by brokers who twist their research to curry favor with investment banking clients, thereby abusing investors' trust."

Compare the outcome of this case with another decision announced last week in the Eastern District of New York by Federal District Court Judge Charles B. Sifton. Before him stood a defendant convicted of "corner[ing] the bulk of the 40 ton caviar harvest in 2001" in Russia. According to the U.S. Attorney General, "over-harvesting and poaching…has wiped out nearly 90 percent of the sturgeon population in the Caspian Sea."

The District Court Judge sentenced the defendant to 21 months in prison, the highest term available under sentencing guidelines, and fined him $400,000. This appears to me to be justice. The plight of the sturgeon and the sensibility of the wealthy folk who eat their eggs were adequately addressed by the judge's imposition of the maximum criminal sentence. Not so in the case of the grifters who eat middle-class Americans alive and brought millions of investors low with their chicanery and greed.

When O.J. Simpson was acquitted of murder, millions of Americans not only disagreed with the jury's verdict, they were horrified to see television cameras record the spontaneous joy displayed by many black citizens around the country applauding the verdict. When interviewed, many said they believed he was guilty, but their joy was in seeing O.J. having the funds to hire lawyers at the top of their profession -- the so-called "dream team" -- and beat the system as so many wealthy whites do using their wealth.

Looking back now and viewing the injustice committed against millions of Americans, many rendered penniless or virtually without savings by the actions of institutions and those in charge of those institutions who will not spend a day in jail, I now have an appreciation of the deep-seated anger in the very vitals of those people who applauded O.J. at the time of his acquittal.

According to The New York Times, "the regulators found fault with every major [investment] bank on Wall Street."

Justice in this case was clearly not pursued. Neither were the guilty. Never more appropriate than now is the cri de coeur "Cry, the Beloved Country." We should now all hang our heads and cry. The legitimate headline for this fiasco should be, "The rich get richer and avoid jail; the middle-class gets fleeced, losing as much as half of its wealth; the poor get poorer and go to jail."

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JWR contributor Edward I. Koch, the former mayor of New York, can be heard on Bloomberg Radio (WBBR 1130 AM) every Saturday from 9-10 am. Comment by clicking here.

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10/01/02: Congress is not doing its job
09/26/02: Confronting pathetic Americans in a post 9-11 world
09/19/02: Don't be fooled by Saddam
09/05/02: Necessary or not, getting congressional approval for war is common-sense
08/28/02: In defense of terrorism
08/22/02: Saddam Hussein is extremely popular in "Arab street," so why attack him?
08/15/02: My potpourri
08/09/02: Traitors: Journalistic and 'patriotic'
07/31/02: Euros should spend their time analyzing their own country's wartime actions
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© 2002, Edward I. Koch