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Who Is Going To Jail For The Economic Collapse?

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Who Is Going To Jail For The Economic Collapse?

Who Is Going To Jail For The Economic Collapse?

Who Is Going To Jail For The Economic Collapse?

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Federal authorities are looking into the demise of Washington Mutual, the largest bank failure in U.S. history. Meanwhile, New York Attorney General Andrew Cuomo is investigating what he calls "unwarranted and outrageous" spending by American International Group. We examine how to prosecute a financial crisis.

ALEX CHADWICK, host:

From NPR News, it's Day to Day. State and federal authorities have announced investigations into the failure of Washington Mutual Bank and into excessive spending at American International Group, that's the huge insurance company. Marketplace's Nancy Marshall Genzer joins us now.

Nancy, if these investigations turn up wrongdoing, what can be done to punish these companies? AIG is broke, and Washington Mutual is bankrupt.

NANCY MARSHALL GENZER: Yeah, you're exactly right, Alex. And AIG is being supported by taxpayers, of course. So, it would hardly make any sense for taxpayers to have to pony up any fines against AIG. I figured that Lynn Turner would be a good person to talk to about this. He's a former chief accountant of the Securities and Exchange Commission, And Turner told me that prosecutors may just want to make an example of these companies.

Mr. LYNN TURNER (Former Chief Accountant, Securities and Exchange Commission): If you're talking about trying to get millions out of a turnip, you know, it just isn't going to happen, no matter how much you squeeze. Frankly, if they won their case, probably more likely just to turn around and get the company to agree not to do it again in the future.

CHADWICK: But what about the executives of these companies, Nancy? Can they be fined?

MARSHALL GENZER: Yes. They absolutely could be, and that may be where prosecutors have the most luck. In fact, New York Attorney General Andrew Cuomo is trying to get AIG's former top executives to surrender these big bonuses they got even as AIG losses were piling up.

Cuomo sent a letter to AIG's board of directors, and Cuomo said that he would consider bringing civil charges if AIG didn't make an effort to get that bonus back. I talked about the legal aspects of these investigations with Carl Tobias, and he's a law professor at the University of Richmond. Now, Tobias says we could very well see Enron-type trials of executives at the firms being investigated.

Prof. CARL TOBIAS (School of Law, University of Richmond): People could be convicted and pay large fines or actually serve jail time, depending on the violation of any criminal laws or perhaps some civil law.

CHADWICK: Nancy, exactly what laws are we talking about here that have been broken?

MARSHALL GENZER: Well, as far as AIG goes, Attorney General Cuomo is thought to be relying on a New York State law that says that creditors can challenge any payment made by a company if they don't think the company got good value in exchange for that payment. And as far as AIG goes, the argument would be that the executives were paid millions of dollars, but their services weren't worth that kind of money.

Now, in Washington Mutual's case, prosecutors haven't said what laws investigators think may have been broken by the bank, but there are a number of possibilities. Investigators might be looking into whether Washington Mutual's financial statements or statements to analysts were false or misleading. There's also the possibility of charges of predatory lending. So stay tuned.

CHADWICK: Thank you, Nancy. Nancy Marshall Genzer of public radio's daily business show, Marketplace.

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