Bailout

Cuomo?s parting shot

By Felix Salmon

Andrew Cuomo has decided, reports the WSJ, to file civil fraud charges against Ernst & Young in the waning days of his tenure as New York’s attorney general — news which has been received with delight by Yves Smith, on the grounds that it might strengthen a criminal case against Dick Fuld.

But what does this mean for E&Y, and for David Einhorn’s theory, as recounted to Andrew Ross Sorkin, that the government has held back on crisis-related prosecutions because of ?an embedded belief that they did the wrong thing with Enron and with Arthur Andersen ? the criminal prosecution, particularly of Andersen??

One way of looking at the news is that Cuomo is stepping up where federal prosecutors fear to tread, and is filing the suit now precisely because he knows that if he doesn’t, the chances are that E&Y will suffer no consequences at all for the way that it signed off on Lehman’s books.

On the other hand, a civil fraud suit is not a criminal prosecution. Even if E&Y fights the charges and loses, it probably won’t find itself on the receiving end of the kind of criminal charges which brought down Andersen. Still, I’m sure that Cuomo’s office is doing nothing to downplay the contingent existential threat here, in its negotiations with E&Y.

So what happens once Cuomo moves to Albany? Will the U.S. attorney general, Eric Holder, pick up where he left off? It’s probably more likely that Cuomo’s successor, Eric Schneiderman, will take note of the way in which both Cuomo and his predecessor, Eliot Spitzer, used Wall Street prosecutions to boost their public profile in their quest to become governor. But in general, Cuomo seems to be by far the most zealous prosecutor out there. Without him, the number of crisis-related fraud charges is likely to dwindle sharply.

Full post as published by Macroprudential on December 20, 2010 (boomark / email).