When Bernie Madoff received his 150-year prison sentence for a massive Ponzi scheme, it seemed like justice had been served. Yet after the 2008 financial crisis, which devastated millions of Americans, virtually no high-level Wall Street executives faced criminal charges. Why not?
In this episode of the “Oh My Fraud” podcast, Miriam Baer—a former prosecutor with the prestigious Southern District of New York, corporate compliance professional, and former Vice Dean at Brooklyn Law School and currently Dean and President of California Western School of Law—shares insights from her unique career journey that help explain this paradox.
From Princeton to the Prosecutor’s Office
Baer’s journey through the world of white-collar crime began far from where she expected. After attending Princeton (where, yes, she knew Ted Cruz) and Harvard Law School, she initially had no intention of becoming a prosecutor.
Her path changed after working at a law firm on securities fraud cases, which gave her a crash course in understanding how companies manipulate their books. From there, she joined the prestigious U.S. Attorney’s Office for the Southern District of New York under then-U.S. Attorney Mary Jo White.
At the prosecutor’s office, Baer handled everything from mail and wire fraud to bank fraud and money laundering, learning the intricacies of federal criminal prosecution. This experience gave her first-hand knowledge of how prosecutors decide which cases to pursue—knowledge that helps explain why some financial criminals face justice while others seem to escape it.
Why Some Cases Get Prosecuted While Others Don’t
When massive financial scandals don’t result in criminal charges, public frustration often follows. “Why aren’t these people in jail?” becomes a common refrain. But Baer identifies a more nuanced reality than simple theories about wealthy people being above the law.
“There’s a tendency to look at the scope of the harm,” Baer explains. “Someone says, ‘Well, he caused all that horrible harm. Why aren’t you prosecuting him?’ The answer is, well, I’m bound by the statute.”
Baer identifies two distinct thresholds prosecutors consider:
- The “threshold of liability” – Whether a crime technically occurred under statute
- The “threshold of viability” – Whether prosecutors believe they can win the case
This second threshold is crucial but often overlooked in public discussions. Based on past wins, prosecutors develop mental “prototypes” of successful cases that shape how they evaluate new evidence.
“When someone says, ‘Is this a fraud case? Is it a viable fraud case?’ [prosecutors] think in their minds about what most recently was viable,” Baer notes.
During the 2008 financial crisis, prosecutors’ mental prototype of fraud was based on early 2000s accounting scandals that featured whistleblowers, clear paper trails, and cooperating witnesses—elements largely absent in the financial crisis cases.
“My whole theory is that especially what happened with the financial crisis is, yeah, there were folks who had passed the threshold of liability, but the prosecutors weren’t sure they were over the threshold of viability,” Baer explains.
This framework helps explain why more recent cases like Elizabeth Holmes and Sam Bankman-Fried resulted in prosecution. Both featured the crucial elements prosecutors recognize from successful cases: cooperating witnesses and defendants who “constantly talk all the time” and eventually contradict themselves.
The Problems with White-Collar Criminal Statutes
Beyond prosecutorial decision-making, Baer identifies fundamental flaws in the design of white-collar criminal statutes. Her book, “Myths and Misunderstandings in White Collar Crime,” explores these issues in depth.
“The statutes themselves are confusing us,” Baer explains. She identifies three primary problems:
1. “Flat” statutes that lack gradation
Unlike homicide laws that distinguish between first-degree murder, second-degree murder, and manslaughter, fraud statutes don’t meaningfully differentiate between degrees of severity.
“If I look up fraud, it’s just all falling under the fraud umbrella of mail fraud or wire fraud. And it really doesn’t matter that you were charged with mail fraud and I was charged with wire fraud from a moral valence,” Baer notes. “It just means you use the mails and I use the wires.”
2. “Bundled” statutes that combine vastly different crimes
Baer points to the Hobbs Act as a prime example—a single statute that criminalizes both robbery affecting interstate commerce and bribery by public officials.
“That’s very different from robbery…it’s all under the same statute,” she explains.
3. Statutes that fail to generate useful information
Perhaps most importantly, these flaws create a system that doesn’t effectively track patterns or provide clear information about white-collar crime.
“The system itself should produce information because we are the ones in charge,” Baer argues. “We can’t do that job if the system doesn’t give us information or information that we could get at.”
These structural issues create an “insider/outsider” divide in criminal justice. Those working within the system understand its peculiarities, while the public is left confused and suspicious.
“It leads to this level of people feeling estranged from the system and feeling like this system is rigged,” Baer says.
Case Studies: Timing, Complexity, and Expertise Gaps
Several practical challenges further complicate white-collar crime prosecution. One is simple timing—evidence of sophisticated fraud often emerges years after the fact, sometimes through academic research long after the statute of limitations has expired.
Baer references a paper published in 2015 that uncovered significant misrepresentations in mortgage-backed securities markets from the 2008 crisis. “Little late,” she observes wryly.
Another challenge involves proving intent at the highest corporate levels, where decisions flow through layers of management.
“The public hungers for the very top person to fall,” Baer explains. “They don’t want to hear that you got Mister mid-level dude.” Yet proving that a CEO directed fraudulent activities is often nearly impossible without direct evidence.
A third challenge stems from expertise gaps. As Baer candidly acknowledges: “I think people don’t realize the degree to which lawyers in particular are generalists… after three years of law school, I absolutely did not have forensic accounting skills.”
This knowledge gap means prosecutors must learn sophisticated financial concepts while simultaneously building cases against defendants represented by specialists in these areas.
To illustrate how criminal law sometimes misses the mark, Baer points to the “Varsity Blues” college admissions scandal. While the fraudulent behavior was clear, she questions whether criminal prosecution addressed the deeper issues.
“Whatever way you should deal with this type of behavior, which of course is terrible…it wasn’t clear to me that criminal law was doing anything to really fix it,” Baer reflects.
Implications for Accounting Professionals
For accounting professionals, Baer’s insights offer a valuable perspective. Understanding the gap between technical violations and “viable” criminal cases is crucial for effective compliance work.
“Being a world-class jerk is not the same thing as violating the mail fraud statute,” Baer points out, highlighting the gap between unethical behavior and criminal conduct.
The expertise gap between legal and financial professionals creates both challenges and opportunities. Accounting professionals who can effectively translate complex transactions for non-specialists provide immense value in both preventing and addressing potential misconduct.
Baer’s solutions include creating gradations within fraud statutes, unbundling combined statutes, and designing systems that generate better information about financial misconduct patterns. These changes would not only improve enforcement but potentially rebuild public trust.
Moving Beyond Simple Narratives
The paradox of white-collar crime enforcement shapes how our financial system operates and who faces consequences when it fails. As Baer’s analysis reveals, the seemingly contradictory patterns of prosecution stem not primarily from corruption, but from structural challenges built into our legal framework.
“If you want to have a better understanding of where the problems are and how you fix them, you need better information,” Baer emphasizes.
Baer’s book “Myths and Misunderstandings in White Collar Crime” explores these themes in greater depth. For those interested in hearing more of her insights, the whole conversation on the Oh My Fraud podcast offers a fascinating look into the world of financial crime prosecution from someone who’s seen it from multiple perspectives.