Grime pays even if crime doesn't

Playing dirty doesn't seem to hurt Wall Street CEOs.

Fraud-Tarred Finance Firms’ Trail May Mean Blankfein Keeps Job

Even after being sued for fraud by regulators and paying multimillion-dollar fines, the biggest financial firms rarely depose their leaders.

Citigroup Inc., Goldman and Merrill Lynch & Co. were among 10 firms that agreed to pay $1.4 billion in 2003 to settle claims that analysts manipulated recommendations. Not one CEO lost his job over the claims. There was a similar result in 2006, when Citigroup and Goldman Sachs were among lenders that paid $13 million for manipulating the market for auction-rate bonds.

That same year Bear Stearns Cos. paid $250 million to settle SEC claims it had helped clients break mutual-fund trading rules. CEO James “Jimmy” Cayne didn’t just keep his job -- he accepted a total 2006 payout of almost $34 million.

Since 2001, when the SEC said companies that promptly disclose suspicions of wrongdoing and cooperate with investigators may receive lighter penalties, CEOs have been forced out only when they were personally involved in improprieties or if the misdeeds were systematic or involved a failure to supervise properly, said Joseph Grundfest, a former SEC commissioner who is now co-director of Stanford University’s Rock Center for Corporate Governance.

“Criminal charges are the game changer,” said Gerald Rosenfeld, deputy chairman of Rothschild North America Inc. and co-head of the business and law program at New York University. “If Goldman were to be criminally charged, then all bets are off. It’s sort of a truism on Wall Street that no securities firm can survive in such a regulated industry if the firm is indicted.”