JOBS Act: Fraud-Friendly and Guarantees Full-Time Jobs for Criminologists

March 20th, 2012
in Op Ed

by William K. Black, Henry N. Pontell, Gilbert Geis and Janet Tavakoli from New Economic Perspectives

As white-collar criminologists (and a former financial regulator and enforcement head) and experts in ferreting out sophisticated financial frauds, our careers and research focus on financial fraud by the world’s most elite private sector criminals and their political cronies.  Therefore, we write to thank Congress and the President for preparing to adopt a JOBS Act [Editor's note: background (here)(here)(here)] that will provide us with job security for life. We will be the personal beneficiaries of Congress’ decision to adopt the law without the pesky hearings that would allow critics to launch devastating attacks on the proposed bill based on a brutally unfair tactic – the presentation of facts.  Unfortunately, in our professional capacities, we must oppose the bill.

This bill is an atrocity.

Follow up:

The “Jumpstart Our Business Startups” Act, the comically forced effort to create a catchy acronym, is the most cynical bill to emerge from a cynical Congress and Administration.  It is an exemplar of why Congressional approval ratings are well below those of used car dealers.  The JOBS Act is something only a financial scavenger could love.  It will create a fraud-friendly and fraud-enhancing environment. It will add to the unprecedented level of financial fraud by our most elite CEOs that has devastated the U.S. and European economies and cost over 20 million people their jobs.  Financial fraud is a prime jobs killer.

Powerful regulatory regimes – strong accounting rules, strict corporate governance, tough securities laws, and vigorous civil and criminal enforcement of the regulations and laws is the greatest infrastructure for strong economic growth that a nation can provide.  For decades, the U.S. had an enormous competitive advantage over other nations in raising funds through securities because investors placed great trust in issuers that were subject to effective regulation.  U.S. equities traded at a substantial premium compared to securities issued in other nations (which means that companies could raise capital much more effectively and inexpensively).  Regulators serve as the “cops on the beat” that prevent a Gresham’s Dynamic in which “bad ethics drives good ethics out of the markets.”

Our system worked brilliantly.  America prospered.  American businesses and investors prospered.  Unfortunately, economists decided to destroy what worked and to replace it with a fraud-friendly, deregulated world.  Alan Greenspan was only the most prominent high priest of the following dogma: “a rule against fraud is not an essential or … an important ingredient of securities markets” (Easterbrook & Fischel 1991).  This faith-based economics had no basis in reality, but it led to aggressive anti-regulatory leaders whose policies were so criminogenic that they led to recurrent and ever-larger serious financial crises.

George Akerlof, Nobel Laureate in Economics (2001), and Paul Romer wrote the definitive economics article on financial fraud in 1993 (“Looting: the Economic Underworld of Bankruptcy for Profit”).  They ended it with the following to emphasize a profound policy message.

Neither the public nor economists foresaw that S&L deregulation was bound to produce looting.  Therefore, they could not imagine how serious it would be.  Thus the regulators in the field who understood what was happening from the beginning found lukewarm support, at best, for their cause. Now we know better.  If we learn from experience, history need not repeat itself” (p. 60).

But economists, as a group, proved that they did not “know better” and that their problem was not that they were “unaware of the concept” of looting “control frauds” (frauds led by the leaders of seemingly legitimate entities).  Economists, overwhelmingly, have ignored a Nobel Laureate in economics, white-collar criminologists, and experts on public administration and regulation.  They have compounded their mistakes and they have dominated financial policy in the U.S. and Europe – the epicenters of the crises.

Among the many fraud-friendly policies that led to the deregulation that prompts our recurrent, intensifying financial crises, the undisputed most destructive aspect is the recurrent, intensifying embrace of the “regulatory race to the bottom.”  The “logic” of the argument in the securities law context is that (1) dishonest issuers like bad regulation because it allows them to defraud with impunity, (2) our “competitor” nations (typically described as the City of London) offer weaker regulation to induce the fraudulent issuers to locate abroad, and (3) we must not allow this to happen; we must make sure that fraudulent issuers are based in America.  Of course, they never phrase honestly their “logic” about dishonesty.  Four national commissions investigated the causes of financial crises – the S&L debacle, the ongoing U.S. crisis, the Irish crisis, and the Icelandic crisis.  Each of the commissions has decried the idiocy of the “race to the bottom” dynamic and warned that it must end.  The arguments advanced by industry in support of the JOBS Act reflect and worship at the altar of “the race to the bottom.”

It is self-defeating for us to say this because as criminologists and anti-fraud specialists we would have job security for life if this bill was adopted.  It is literally composed of the wish list in regard to fraud-friendly provisions that those intent on cheating have been dreaming about and salivating to achieve for decades.  This bill will kill millions of jobs because financial frauds are weapons of mass financial destruction.  It will start an international fraud-friendly deregulation race to the bottom and will become the basis for further criminogenic U.S. Congressional actions.


William K. Black
Associate Professor of Economics and Law
University of Missouri-Kansas City


Henry N. Pontell
Professor of Criminology, Law and Society
University of California, Irvine

Gilbert Geis
Professor Emeritus of Criminology, Law and Society
University of California, Irvine

Janet Tavakoli
Tavakoli Structured Finance, Inc.

Barry Ritholtz,
CEO; Director of Equity Research,
Fusion IQ


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William K. Black is the author of The Best Way to Rob a Bank Is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.

Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Networkauthor page and at the blog New Economic Perspectives.

Follow him at: @WilliamKBlack

Henry N. Pontell is professor of criminology, law & society in the School of Social Ecology and of sociology in the School of Social Sciences. He currently serves as Director of the Master of Advanced Study Program in Criminology, Law & Society, the first online degree program at the University of California. He has previously served as Chair of the Department of Criminology, Law & Society, Director of Graduate Studies in Social Ecology, Associate Dean of Graduate Studies for UCI, and Faculty Assistant to the Vice Chancellor for Research. He has held visiting appointments at the Australian National University, the University of Virginia, the University of Melbourne, the University of Macau, Macau University of Science and Technology, the University of Hong Kong, and Waseda University in Tokyo, Japan.

His research and teaching interests include deviance and social control, white-collar and corporate crime, punishment and criminal justice system capacity issues, financial and health care fraud, identity theft, comparative criminology, and cyber crime. He has lectured at universities and government offices throughout the world, testified before the U.S. Senate on financial fraud, given invited presentations to The National Academies and the U.S. Department of Justice, and worked with numerous organizations and law enforcement agencies including the FBI and the U.S. Secret Service. His research on white-collar crime has been highlighted in the national and international media.

Among other awards and honors, Dr. Pontell has received the Albert J. Reiss, Jr. Distinguished Scholarship Award from the American Sociological Association, the Donald R. Cressey Award from the Association of Certified Fraud Examiners, the Paul Tappan Award from the Western Society of Criminology, and the Herbert Bloch Award from the American Society of Criminology. He is an Honorary Professor and Fellow in the Centre for Criminology at the University of Hong Kong, and a recipient of the Cecil and Ida Green Honors Chair at Texas Christian University.

His most recent books include International Handbook of White-Collar and Corporate Crime, Social Deviance, and Profit Without Honor: White-Collar Crime and the Looting of America. Dr. Pontell has served as Vice-President of the American Society of Criminology and President of the Western Society of Criminology, and is a fellow of both organizations.


As a retired professor, Gil Geis is able to do pretty much what he pleases in regard to research projects - presuming he is capable of mastering the subject. In the past few years, he has co-written books on a 17th century witchcraft case in England, on five "crimes of the century" in the United States, and on the fertility clinic scandal at UCI, and edited, with Mary Dodge, a collection of essays by leading figures in criminology on their advice for newcomers. In the same period, he also co-authored a textbook on criminology (4th edition) and on juvenile delinquency (3d edition). He publishes a great deal because he likes to write and has been at it long enough to have gotten some sense of how to put together an acceptable article or book chapter.

His major interest always has been white-collar crime, but he will tackle anything that he finds interesting and intriguing - he and a colleague,
for instance, have written some five articles during the last two years on the Americans with Disabilities Act as it relates to the construction of sports arenas.

Janet Tavakoli is the founder and president of Tavakoli Structured Finance, Inc. (TSF), a Chicago based consulting firm providing expert experience to maximize the value of derivatives and structured products and avoid getting burned. TSF consults for financial institutions, institutional investors, and hedge funds.

Ms. Tavakoli is a world renowned author and speaker on derivative products and securities and their systemic risks and granular rewards. She has appeared as an expert before forums of the International Monetary Fund, the Federal Reserve Bank, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission.

Her books, Structured Finance & Collateralized Debt Obligations (2003, 2008), and Credit Derivatives (1998, 2001) revealed grave flaws in the methodology for rating structured financial products and abuses in the credit derivatives markets.

Ms. Tavakoli also provides exceptional quality expert report writing and crisp, persuasive testimony. Plaintiff engagements include Bank of America N.A. et al. v. Bartmann, JPM Chase, et al.; total claims in the consolidated litigation exceeded $1.2 billion, and Merrill Lynch & Co. Inc. Securities, Derivative and ERISA Litigation, 07-9633; total claims in the consolidated litigation were $550 million. Engagements include representatives of plaintiffs or defendants depending on the issues.

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1 comment

  1. roger erickson says :

    Fantastic message. Hopefully, readers in all 50 states will forward this to every single member of congress.

    And don't leave out the innocent frauds like this fellow Jeff Bussgang:



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