Judge Jed Rakoff on Fraud and Fraudsters

As I wrote last week, I attended the inaugural Petter J. Henning lecture today at Wayne State University Law School.  The Honorable Jed S. Rakoff offered insightful remarks on the sustainability of fraud: why fraud continues to occur unabated and why fraudsters get away with it.  In short, after citing to data on decreasing rates of crime of other kinds, Judge Rakoff noted that fraud rates have been holding steady.  He posited a number of reasons why fraud persists, as set forth below:

• Deterrence requires speed and certainty of punishment, and fraud enforcement actions are slow and uncertain.
• The Anglo-American common law of fraud makes it hard to prosecute.
• Public enforcement is underfunded.
• Pressure to generate short-term profits is strong.

Judge Rakoff also offered--relevant to some of the work that I have done and am doing on friends-and-family insider trading cases--that based on his personal experience, fraud and other white collar criminal misconduct may be motivated by greed, a desire for power or status, psychological issues, etc.  But he noted overall that those who commit business fraud have a well-founded belief that they can get away with their misconduct--and they actually do.  These fraudsters get off the hook, he says, in part because of a prosecutorial double standard that jails some and not others and also because of an enforcement shift from a large number of individual white collar prosecutions in the early part of the new millennium to legal actions taken against the business entities that employ the actors committing the fraudulent activity.

It was a fitting lecture--an appropriate celebration of Peter's many contributions to business and white collar crime law.  I was pleased to be able to be there to honor Peter and spend time with some of his family, colleagues, and friends.  I look forward to the next lecture in the series.