When financial fraud has occurred to the American people by the alleged “Too Big to Fail” banks on Wall Street, is it more productive to the economy and society to criminally charge the executives of these financial institutions or negotiate a civil penalty that compensates victims and reforms the deceptive trade practices of our nation’s largest banks? Further, if settlement is the best solution, why settle for the less money than the financial harm caused by the big banks? The following will discuss the negotiations behind the Securities and Exchange Commission’s (hereinafter referred to as “SEC”) settlement with Goldman Sachs & Co. (hereinafter referred to as “GS&C”) and Fabrice Tourre, one of the largest securities-fraud settlements to date.
The aforementioned settlement all began with the rapid growth of subprime mortgages. This type of mortgage is typically lent to people with poor credit at a higher rate than normal residential mortgages in order to account for the increased risk of the loan.1 Subprime lending became legal during the 1980s after three Acts were implemented.2 More specifically, the Depository Institutions Deregulation and Monetary Control Act, in 1980, which preempted state interest rate caps; the Alternative Mortgage Transaction Parity Act, in 1982, which allowed variable interest rates and balloon payments; and the Tax Reform Act of 1986, which “prohibited the deduction of interest on consumer loans, yet allowed interest deductions on mortgages for a primary residence as well as one additional home.”3 Due to the foregoing Acts and changes in the housing market, high interest rates and less prime mortgage volume, the subprime market grew from $65 million in 1995 to $332 billion in 2003.4 The rapid growth led to more people enjoying the fruits of home ownership, but left the housing market on the brink of collapse.5 Executives of the big banks on Wall Street anticipated this