A federal judge in New York who wrote a scathing opinion article questioning the lack of high-level financial crisis prosecutions says he was offering his views "not as a judge but as a citizen." Still, U.S. District Judge Jed S. Rakoff is making no apologies.
"Judges have to be neutral, but they don't have to be eunuchs," Rakoff said.
Rakoff spoke exclusively with CNBC in some of his first public comments following the controversial essay in the Jan. 9 edition of the New York Review of Books headlined, "The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?"
In the article, the judge writes that if the financial crisis is a result of intentional fraud, "the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years."
In the interview, conducted by phone while the judge was in his chambers in New York, Rakoff said he wrote the article because he was puzzled by what he called "seeming inconsistencies," with some parts of the government—such as the independent Financial Crisis Inquiry Commission—concluding that there was fraud, while the Justice Department has so far declined to prosecute top Wall Street executives.
Rakoff said some prosecutors' explanation for the lack of high-level cases is "implausible." He called the suggestion by top officials, including Attorney General Eric Holder, that some prosecutions would damage the economy—the "too big to jail" argument—"a doubtful proposition."
It is rare for sitting judges to offer opinions about issues that could come before them—rarer still for them to grant interviews to journalists. But Rakoff said he has been careful not to cross any ethical boundaries, repeatedly pointing out, for example, that he has no opinion as to whether fraud actually occurred.
"I did my very, very best to couch my article in terms that were fully within the bounds permitted by judicial ethics," he said. As a result, he is not concerned that his comments might complicate a future case in his court.
Rakoff said his restraint did leave him open to what he called "a cheap shot" by Justice Department spokesman Brian Fallon, who complained in a statement following the article that "the judge does not identify a single case where a financial executive should have been charged, but wasn't."
"That would be inappropriate for a federal judge, even when giving his opinions as a citizen, to say I think X should have been prosecuted or Y should have been prosecuted, and I think the Justice Department well knew that I couldn't do that," Rakoff said.
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Fallon also noted that the department has prosecuted thousands of defendants since the financial crisis and pointed to the record $13 billion settlement last month with JPMorgan Chase as an example of authorities being tough on big institutions for their role in the meltdown.
But Rakoff is critical of a growing emphasis by the Justice Department on prosecuting corporations instead of individuals.
Manhattan U.S. Attorney Preet Bharara, whose office handles most securities fraud cases, declined to comment on Rakoff's article. In the past, Bharara has argued that charging or threatening to charge a corporation can have a longer-lasting impact, forcing a company to change its culture.
"I have huge respect for Preet Bharara, a great U.S. Attorney by any measure. But even great men can make mistakes," he said.
"If you prosecute a CEO or other senior executive and send him or her to jail for committing a crime, the deterrent effect in my view vastly outweighs even the best compliance program you can put in place."
Bharara has argued for prosecuting both individuals and corporations. But Rakoff, himself a former white-collar prosecutor, said that is often impractical as prosecuting high-level executives often requires the use of confidential informants and undercover investigations. If the company itself is a target, he said, that cover is blown.
"When you get a report from the outside counsel as to what's wrong in the company, at that point it's too late for anyone to wear a wire," he said. "No one who is involved in a higher level isn't already on notice that the government is looking into this."
The 70-year-old judge, a Clinton appointee who has been on the federal bench since 1995, has never shied away from upsetting the apple cart.
In 2009, he initially refused to approve a settlement between the Securities and Exchange Commission and Bank of America over executive bonuses at Merrill Lynch, which the bank acquired during the depths of the crisis. Rakoff called the proposed deal "a contrivance designed to provide the SEC with the facade of enforcement" and sent the parties back to the drawing board.
And in 2011 he blocked a proposed $285 million settlement between the SEC and Citigroup because it allowed the bank to resolve the charges without admitting or denying guilt. The SEC has appealed the ruling but has since revised its policy allowing companies to "neither admit nor deny" wrongdoing.
Rakoff said the time is right to speak out about the financial crisis because the five-year statute of limitations for many potential cases is running out.
"I think it's common sense to say that the longer away from a crime it gets prosecuted, the less deterrent effect there is," he said.
And while the Justice Department points to a provision in the Dodd-Frank law passed after the crisis extending the statute of limitation to six years in some cases, Rakoff is skeptical.
"The government has indicated that it views the six-year statute of limitations under Dodd-Frank as retroactive—that a crime that cannot otherwise be prosecuted now can be because Congress changed the law after the crime was committed," he said. "That is sure to be a litigated issue in any case brought under that approach, and therefore I have no opinion on that subject whatsoever because that issue might come before me."