Wall Street Still Doesn’t Have a Sheriff

By RICHARD C. SAUER
NYT

THE current range of opinion on the Securities and Exchange Commission’s $550 million settlement in the Goldman Sachs fraud suit lines up closely with that evoked by previous S.E.C. settlements with corporate defendants. Some Americans are outraged that Goldman “got off easy,” while others feel the deal could be a model for gaining some measure of justice against those responsible for Wall Street’s meltdown.

Both sides are wrong: at best, such agreements reflect case-specific facts and circumstances; at worst, they are nearly arbitrary. While the government often claims such high-profile deals are of historic significance, they typically have little effect on future cases and do nothing to resolve long-standing conflicts as to how the law should treat misconduct by public companies.

The question of how best to discipline what Chief Justice John Marshall in 1819 called “an artificial being, invisible, intangible and existing only in contemplation of law” is indeed vexing. A corporation can’t be put in jail, its fines are ultimately paid by investors not responsible for the misconduct, and a court order forbidding future violations merely shelves the issue until the next occurrence.

In 19th-century America, permissive incorporation laws and rapid economic development led to the rise of the large corporation, which, in turn, led to a century of expanding federal regulation. Most measures regulated certain forms of conduct and prohibited others, specifying fines for failure to comply. There was little consideration given to questions of when, as a matter of practical legal policy, an artificial entity should be treated as if it were a person.

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