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The Small Price to Pay for Financial Fraud


Meager settlements with the SEC do little to deter fraud.


If you knew that you might only have to pay $1,000 if you got caught committing securities fraud that would net you $100,000, would you do it? What if I said you could pay the grand and not admit guilt? Would you do it then?

These may not be the precise questions that C-suite executives ask themselves when they decide to travel down that fateful path of securities fraud, but given the example set by the Securities and Exchange Commission, perhaps they should.

This week, the SEC reached settlements with two corporate giants: Bank of America (BAC) and General Electric (GE). The congratulatory announcements by the SEC made the regulators seem like tough cops on the beat. Bank of America paid $33 million to settle charges it misled investors about the billions in bonuses it agreed to pay Merrill Lynch employees after acquiring their firm. And General Electric paid out $50 million to put an end to the allegations of accounting fraud.

Now, $83 million sure sounds like a lot, especially in times of empty government coffers and bankrupt municipalities. But in the world of Wall Street and multi-billion dollar corporate conglomerates, it's all about perspective.

Bank of America's fine was a tiny fraction of the bonus money contested. Less than one percent, to be precise. If the government is serious about ending the exorbitant paydays on Wall Street, evidently the SEC did not get the memo. Other banks that are currently facing similar bonus conundrums might pause to ask themselves why they're bothering. As Reuters columnist Felix Salmon wrote earlier this week: "If I were Citigroup (C), and the Feds were telling me not to pay Andrew Hall his $100 million bonus, I'd be inclined to just pay it anyway. And then sheepishly apologize and pay a $920,000 fine. So much easier than doing the right thing from the beginning."

As for General Electric, don't believe the hype that the SEC was the victor. As is often the case, the lawyers were the real winners.

After a four-year investigation, the SEC found that GE had used improper accounting methods to boost its earnings by more than $1 billion during a two-year period. With this week's settlement, GE puts the matter behind it without admitting guilt.

And what about that $50 million? General Electric proudly admitted it spent four times that amount on the lawyers who negotiated it for them. Well done!

Click through the slideshow for more examples of swindling the SEC.
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