“You only find out who is swimming naked when the tide goes out,” wrote Warren Buffett. He was talking about the recession in 2002, but it also describes the lives of prosecutors and regulators following the financial meltdown in 2008. Now that markets and the economy are rebounding and the tide is rising, will the white-collar watchdogs get a rest in 2014?
Don’t bet on it.
Cybercrime, corruption and mortgage fraud are still alive and kicking. And the new year will bring new frontiers. Here are four predictions from the corporate crime beat for 2014.
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New sheriff in town
After five years marked by a variety of controversies, look for Attorney General Eric Holder to step down soon. Holder has had some notable successes in white-collar enforcement, but in that realm he may be best remembered for Senate testimony last March—which he says was taken out of context—that some banks have become too big to prosecute.
Manhattan U.S. Attorney Preet Bharara has been mentioned as a possible replacement, but don’t bet on it. No question he has the chops, and those who know him say he is ambitious. But he doesn’t need to burnish his law-enforcement credentials, nor does he need the headaches (and controversy) that come with the top job.
The new top cop could come from the world of politics: Massachusetts Gov. Deval Patrick and Minnesota Sen. Amy Klobuchar are among the possibilities.
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CEOs walk free
This is becoming a perennial prediction, but no, we will not see a Wall Street CEO in handcuffs in 2014. Here, I am at odds with my colleague Jeff Cox, who predicts “someone huge goes down” in 2014. Here’s why he is wrong and I am right.
While no prosecutor worth his or her salt—including Eric Holder and Preet Bharara—wouldn’t give their right arm to land a really big fish, and while the statute of limitations on some frauds relating to the 2008 financial crisis has at least another year to run, these cases are incredibly difficult to make. They require proving beyond a reasonable doubt that the executive deliberately fudged information with the intent to commit a crime. They also require lower-level operatives to plead guilty and testify against the boss. So far, that has not happened.
That is not to say criminal prosecutors won’t be busy in 2014. The insider-trading probe is not over, and JPMorgan—despite a record $13 billion settlement—is not out of the woods. The Justice Department gets some new energy with a new attorney general—whoever it turns out to be—as well as a new head of the criminal division, Leslie Caldwell, likely to be confirmed by the Senate early in the year. The first director of the Justice Department’s Enron Task Force, from 2002 to 2004, Caldwell knows a thing or two about bringing big cases amid public outrage. She also knows a thing or two about only bringing cases she has a good chance of winning.
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Public officials in the crosshairs
How about a juicy Washington scandal? Or insert your city or your state capital here.
The time is right, and the ingredients are there: lots of taxpayer money sloshing around in a variety of government programs, public pension systems in shambles, and an increasing focus by prosecutors on public corruption. The FBI calls it “our top priority among criminal investigations,” and some states, most notably New York, have created blue ribbon commissions to look into the problem.
Maybe it’s a crooked contractor in cahoots with a politician on the take. Maybe it’s a public pension fund cooking the books. Kickbacks. Overbilling. Influence-peddling. Conflicts of interest. Campaign finance fraud. Look for criminal charges against a well-known public official, present or former, in 2014.
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The tide may be rising in the equity markets, but not so much in the commodity markets. Will we find out in 2014 who has been swimming naked in oil? (Yuck!)Gold? Currencies? The next big financial scandal could come in commodities.
A look back at 2013
Not only was I right about no Wall Street CEOs in handcuffs in 2013, I correctly predicted tougher enforcement of the Foreign Corrupt Practices Act. The SEC collected more than $700 million in penalties related to the antibribery law in 2013, a 400 percent increase over 2012. I predicted a big cyber bust in 2013. Among the many: Bharara’s move in September to shut down the shadowy “Silk Road” website, which prosecutors say was a conduit for money laundering. I predicted more action on insider trading, and SAC Capital pleaded guilty to criminal charges. I said the Libor interest rate–rigging scandal would heat up again, and sure enough, it did.
—By CNBC’s Scott Cohn. Follow him on Twitter @ScottCohnCNBC.