Accountability Series: Up in smoke

Not too long ago, the raging debate in this country was about tobacco. The negative effects of smoking were quite known, but the powerful tobacco lobby was able to resist any efforts to regulate the industry.

In 1994 heads of tobacco companies testified in Congress that cigarettes are not harmful, and that the tobacco companies are not trying to get people addicted to smoking.

Later, an former industry executive came forward and testified that the tobacco companies suppressed research showing effects of smoking and they had indeed tried to spike cigarettes with additives that would increase addiction. The Insider movie was made about it, with Russel Crowe playing the role of the executive - Jeffrey Wigand.

The specific crime Mr. Wigand blew the whistle on was that tobacco top executives intentionally mislead Congress while under oath - a crime of perjury. While the movie is quite interesting, with another subplot of how CBS News management delayed the airing of the story on 60 Minutes, the important issue is that eventually none of the tobacco executives was charged with perjury, and none was punished.

One of the most interesting news this week is that a US District Judge Jed S. Rakoff has refused to approve the settlement between SEC and Bank of America regarding the bank's management misleading the bank's shareholders regarding payment of bonuses to Merrill Lynch prior to the bank buying the company.

Merrill payed $3.6 billion bonuses to their managers, while declaring a huge loss. The company was effectively broke and was receiving billions of taxpayer money. The company also tried to pay bonuses before the merger. Bank of America was also getting TARP funds and was given additional funds to buy Merrill Lynch. Effectively, the US taxpayers, many of whom are unemployed, were giving these billions to the super rich Wall Street types.

When news of these payments came out in February it caused a massive backlash. Congress' Financial Services subcommittee had a special hearing, where Ken Lewis - Bank of America CEO, President and (then) Chairman of the Board - claimed that the company did not know about Merrill's bonuses prior to the merger.

Now, in their statement to Judge Rakoff, BofA claims that the payment of bonuses was "widely known."

Well, they can spin their story any which way they want. And they can do it because of the the position of Securities and Exchange Commission, which refused to aggressively enforce the law. SEC had agreed to the settlement in which BofA would not admit any wrongdoing and pay a paltry sum of $33 million in fines, which will not penalize the management, but the company's shareholders. This means that the bank's management which violated relevant SEC statutes of reporting material information to the shareholders will not be charged with crime. Despite all the talk of "new SEC", the agency's behavior is quite similar to the way it looked the other way before.

Additionally, and this is how it links to the story of tobacco industry, there appears to be no interest on the part of Congress to charge Ken Lewis with perjury regarding his testimony to the Financial Services committee. If anybody is calling for his head, it is only in reference to him stepping down from the leadership position in Bank of America.

Obviously, with no one punished for their white collar crimes, we are bound to go through the cycles of the financial crisis over and over again.