Terra Extraneus

The federal government is prosecuting far fewer fraudulent stock schemes than eight years ago, according to Eric Lichtblau of the San Diego Union Tribune, in December. Darla Mercado of Investment News reported today that the Attorney General of Massachusetts concluded her prosecution of Goldman Sachs by an agreed fine of $60 million on a neither admit nor deny basis. The Goldman Sachs fine was for Goldman Sach’s role in securitizing subprime-mortgage loans.

While the fine is not insubstantial, the cost of the subprime mortgage collapse has been astronomically more than $60 million. The combined lack of focus on federal stock prosecutions and the devolution to state by state enforcement apparently may have been a factor in bringing about a pervasive lack of securities industry standards. With recent statutory limitations on stock class actions and the general tort reform mood of the country, the ability of the average victim to enforce securities law violations has also been reduced.

With less to fear from the federal government, the fragmentary enforcement available from the state level, and the diminished capacity of the private class action bar, the securities industry may have gotten its wish. But, maybe it should have been frightened of getting it.

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