Hit Them in the Wallets: What if Executives Were Held Personally Liable?
Some of you may recall our post from last year regarding the surprise rejection of the Citibank SEC settlement whereupon Judge Rakoff expressed his disdain with the evasive language "neither admit nor deny."
In their Dealbook article, Why S.E.C. Settlements Should Hold Senior Executives Liable the authors Claire Hill and Richard Painter review the findings of the Congressional hearing on the subject and make a provocative argument to hit the defendent in their wallets instead.
Hill and Painter say that "Requiring settlements to include an admission of guilt is not the best way to proceed. A more effective approach would be to make senior, highly compensated officers of the bank pay some portion of the fine."
"The Congressional hearing addressed the fact that a penalty assessed against an entity is effectively paid by its shareholders. The shareholders neither caused the behavior that led to the fine nor were they responsible for preventing it. By contrast, the Citigroup officers who were responsible do not bear a significant portion of the penalty, except to the extent they are shareholders or their bonuses are tied to earnings, now reduced by the penalty. They thus have little incentive to change their behavior."