I'm not talking about the $1.37 billion deal that the ratings agency made with the government Feb. 3 over its role in the financial crisis. That's a big check to write, but the executives didn't issue it from their personal accounts. They didn't even chip in.
It's the actions against S&P and one of its former executives in late January that actually left a mark. In a $77 million settlement with the Securities and Exchange Commission and other regulators over post-crisis violations, S&P had to do more than write a check.
It agreed to a one-year ban from rating a segment of the commercial mortgage-backed securities market. And in a related SEC action that really got people's attention, Barbara Duka, the former co-head of S&P's commercial mortgage group, was accused of fraud in an administrative action. The case is now tied up in the courts.
Finally, a case involving a firm we've all heard of where an actual person was named. A boss, even.
Why don't we see more of that in enforcement cases against financial firms?
Settlements are typically made with the firm, not with the people running it. Indeed, that's what happened when the Justice Department, 19 state attorneys general and the District of Columbia settled with the ratings agency in the case on Feb. 3.
Weird as it sounds, there are incentives for regulators to charge firms, but not people. Banks will settle for bigger amounts if executives get a pass, which leaves management with a clean record and lets regulators take a bow for negotiating colossal deals. Then there's the cultural thing.
"It's very much a question of 'Are you in the club?'" said William K. Black, a law professor at University of Missouri and former senior deputy chief counsel at the Office of Thrift Supervision. "Boiler room folks don't wear nice suits and don't give political contributions, and they're never going to give you a job offer you would accept."
Thus, we wind up with a system that favors punishments that don't hurt over those that do -- for big firms, anyway. Allegations against CEOs, dismissal of rainmakers and temporary shutdowns of businesses all hurt. But fines? Shareholders pay those things.