June 30, 2011
Are institutional investors the new sheriff in town?
Over at the Harvard Forum, Chad Johnson has posted "Too Big to Fail or Too Big to Change." Johnson does a nice job of compiling much of the "they-knew-what-they-were-doing-and-it's-called-fraud" evidence, and bemoans the "lack of criminal prosecutions of, and absence of truly significant fines levied against, the senior executives and companies responsible for igniting the subprime meltdown." Johnson asks: "Are large, systemically important institutions and their ilk too big to be threatened with sanctions that approximate the size of the frauds perpetrated against the public? Has 'too big to fail' transformed into 'too big to challenge?'" He then goes on to argue that, whether due to unwillingness or inability, the SEC's failures here have opened the door for institutional investors to play a greater role in providing some accountability (the noteworthy recent Bank of America settlement may be further evidence of that). Finally, Johnson concludes by noting that perhaps it's time to give institutional investors some of the enforcement tools the SEC has seemingly failed to utilize, such as a more expansive rights of action against secondary actors and greater extraterritorial reach. The entire post is worth a read.