The Criminalizing of Business Failure: Bear Stearns Edition

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You knew this was coming. Apparently US prosecutors are investigating the two failed Bear Stearns hedge funds. The U.S. attorney in Brooklyn requested that Bear Stearns turn over information on the two failed funds hedge funds, whose failure cost investors $1.6 billion, said these people. This is just the beginning of course, no one has been subpoenaed. Yet.
While the Bear funds certainly made colossal mistakes, nothing we’ve heard so far has indicated criminality. Of course, creative prosecutors have found ways to criminalize business failure in the past, so don’t dismiss this investigation too quickly. There are people in jail right now who never could have known that what they were doing would be considerable a criminal offense by the courts.
Some will no doubt be happy that the guys who lost all that money may face criminal charges someday. But the less vengeful of us might want to think twice about enjoying the another instance of regulating finance through criminal prosecutions. How well has that been working out?
One thing is for certain: this will be red meat for shareholder plaintiff’s lawyers, who will seize upon the criminal investigation as a chance to file complaints about Bear Stearns. And, of course, hope to collect fees from an eventual settlement.
None of this is really surprising. But if we were slightly less hungover today, we might muster a bit more outrage over this.
Prosecutors Begin Probe of Bear Funds [Wall Street Journal]

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