Jed Rakoff, here overseeing the 2002 WorldCom trial, is nostalgic for the days when corporate criminals got what they deserved. Artist: Shepard/ Bloomberg News.
Jed Rakoff, here overseeing the 2002 WorldCom trial, is nostalgic for the days when corporate criminals got what they deserved. Artist: Shepard/ Bloomberg News.

In my previous post, I summarized Judge Jed Rakoff's objections to all the reasons federal prosecutors have given for failing to charge top financial executives with criminal wrongdoing. So, what explains the hesitance to bring to justice those who contributed to the worst economic crisis since the Great Depression? In his speech before New York securities lawyers last week, Rakoff, the outspoken federal judge, laid out a few theories.

Notably, he doesn't suspect the infamous "revolving door" -- the idea that bureaucrats are simply positioning themselves to move to cushy private-sector jobs. Prosecutors, he said, want to make a name for themselves. The easiest way to do that is by bringing cases against high-level people, and the prospect of eventually going to work for a Wall Street firm isn't a deterrent.

Here, rather, is where Rakoff believes the real culprits lie:

Theory 1: U.S. attorneys and the Federal Bureau of Investigation have other priorities, whether it's antiterror cases after the Sept. 11 attacks, accounting frauds after Enron's bankruptcy, or Ponzi rip-offs after Bernard Madoff's huge scam. Financial frauds are particularly tough to crack, and many of the prosecutors with the requisite knowledge have been moved to other areas.

Theory 2: Law enforcement agencies have had to compete for a shrinking pot of money from Congress, and the best way to do that is by beefing up their statistics with smaller, easier cases and avoiding the years-long financial fraud probes that may turn up nothing. The Manhattan U.S. attorney, moreover, has been preoccupied with the sprawling insider-trading case against hedge-fund owner Raj Rajaratnam. Tapes of his conversations have been a gold mine -- resulting in slam-dunk cases that have led to numerous convictions -- for Manhattan prosecutors who previously would have focused on bank fraud.

Theory 3: The federal government's involvement in the mid-2000s bubble -- encouraging more people to buy homes, deregulating the financial industry, keeping interest rates low and giving Fannie Mae and Freddie Mac way too much leeway -- may also have given prosecutors pause.

Theory 4: The U.S. has shifted over the last 30 years from prosecuting high-level individuals to using delayed-prosecution agreements to settle cases against entire companies. That shift “has led to some lax and dubious behavior on the part of prosecutors," Rakoff said, including allowing managers to sweep crimes under the rug.

Most U.S. jurisdictions, Rakoff explained, require evidence of at least one crime by a manager to prosecute a company. If that can be proved, why not prosecute that person instead? Corporate executives, he said, love deferred prosecution agreements. Even if they require companies to pay hefty fines and adopt expensive reforms, they spare executives from investigation -- and jail sentences. Going after companies is "technically and morally suspect," Rakoff said.

Calls by lawmakers, filmmakers and commentators to send bank executives to jail for causing the financial crisis are often slapped down by legal experts as populist diatribes from people who just don't understand criminal law. The mortgage crisis, these experts say, was a society-wide breakdown involving home buyers, mortgage lenders, Wall Street securitizers, ratings companies and yield-seeking investors. But it wasn't, at root, fraud.

Judge Rakoff apparently disagrees. But even the outspoken jurist admits he is too late.

(Paula Dwyer is a member of the Bloomberg View editorial board. Follow her on Twitter: @paulaEdwyer.)