NEW YORK (TheStreet) -- In case you are keeping score at home, the government is now 77-0 in prosecuting a multi-year insider trading probe, after former SAC Capital Advisors portfolio manager Michael S. Steinberg was convicted by a New York jury on Wednesday on five counts related to criminal insider trading.
Government prosecutors have also won a guilty plea by SAC Capital Advisors, once one of the mightiest hedge funds in the world, in their dragnet of insider trading on Wall Street
But before we begin comparing Preet Bharara, U.S. Attorney for the Southern District of New York, to the likes of Joe DiMaggio or Bill Russell's Boston Celtics, it is important to point out that the government's perfect record on insider trading is marred by its failure to prosecute the largest U.S. banks or their executives for the alleged widespread fraud at the heart of the housing bubble and the 2008 financial crisis.
Yes, insider trading is an appalling abuse of financial markets and undermines the system by which many companies raise capital and most Americans save for retirement. But the losses caused by the alleged and admitted crimes of SAC Capital and its perceived ring of market abusers pales in comparison to the trillions of dollars that were lost by investors and ordinary Americans as a result of the housing bubble and bust.
Unfortunately, the government has been reluctant to define the faulty misrepresentations to homeowners, shareholders and mortgage bond investors as fraud or as crimes that can be prosecuted. The nation's largest banks, including JPMorgan (JPM - Get Report), Bank of America (BAC - Get Report) and Citigroup (C), have spent years paying billions of dollars in fines to the Securities and Exchange Commission, Department of Justice and state attorneys general to settle charges related to their pre-crisis lending, financial disclosures, and securities sales, but have yet to face criminal charges or be asked to admit to fraud.
In JPMorgan's $13 billion settlement with a host of federal and state regulators, New York State Attorney General Eric Schneiderman feigned the notion that the bank had admitted fraud and misrepresentation, however, the Jamie Dimon-run bank made sure to impress upon investors that no such admission had actually been made.
The growing number of convictions in the government's SAC Capital case begs the question of whether it should have taken a much tougher stance against the Wall Street banks at the heart of the crisis.
Judge Jed Rakoff of the Federal District Court in Manhattan, one of the most influential minds on Wall Street fraud, recently excoriated the SEC and DoJ for not bringing cases against the major banks at the heart of the crisis.
Sitting judges don't often speak about ongoing cases that might be brought onto their dockets, but Rakoff expressed the belief that five years after the crisis, the window of opportunity had passed for criminal cases against any major bank.
"[Not] a single high level executive has been successfully prosecuted in connection with the recent financial crisis, and given the fact that most of the relevant criminal provisions are governed by a five-year statute of limitations, it appears very likely that none will be," Rakoff said.
For Rakoff, a lack of prosecutions against individuals revealed alarming and systemic failures of the criminal justice and regulatory system. Explanations for not prosecuting Wall Street executives, such as difficulty in proving intent to defraud investors, the sophistication of Wall Street counterparts, and instances where prosecutions could undermine the economy, were "hollow" and "lame," in Rakoff's words.
Indeed, according to Rakoff, if there was widespread fraud in the mortgage market, prosecutors should have been able to prove executives acted with criminal willful blindness. Government prosecutors, meanwhile, wouldn't need to prove that sophisticated investors relied on disclosures made by a firm for a fraud to have been committed.
Rakoff also characterized ongoing criminal prosecution of insider trading -- including the SAC Capital probe -- as easy and in-process cases that might appeal to an ambitious prosecutor. That would contrast to building a criminal case from scratch against a top Wall Street banker, which could anger government officials who had brokered bailouts, shotgun marriages among failing banks, and also were responsible for misguided de-regulatory policies that helped bring the crisis about in the first place.
It is hard to have more negative perspective on the work of a prosecutors office that now boasts a 77-0 record when trying insider trading.