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Can a crime be committed if there is no criminal to commit it? According to the Securities and Exchange Commission, the answer to that Zen koan is apparently "yes." The SEC collected a $50 million settlement from GE Capital after concluding that the corporation "misled investors" by committing accounting and bank fraud, but then apparently decided that no individuals were responsible.

GE has been one of corporate America's worst repeat offenders, with a long history of settlements and guilty pleas. Its behavior in this case casts a spotlight on the world of "shadow banking," where institutions can behave like banks without being banks. That's another koan-like statement, and it's a very convenient one that lets them avoid a lot of oversight and regulation.

The SEC concluded in this case that General Electric used the financial tools available to its shadow-banking subsidiary, GE Capital, to deceive investors by booking revenues for the sale of locomotives the company hadn't actually sold yet. The company also "improperly overstated GE’s 2002 net earnings by approximately $585 million" for its aircraft engine parts division, says the SEC, although that and other offenses were allegedly performed in more traditionally fraudulent ways.

There's lots more in the SEC's report, and the words of its complaint in this case carry a certain weight and depth. Among other findings, the SEC concluded that "GE, acting primarily through senior corporate accountants, engaged in knowing or reckless fraudulent activities resulting in numerous materially false and misleading statements or omissions in connection with the January 2003 change in CP hedging methodologies and the recognition of revenues and profits in the fourth quarters of 2002 and 2003 for the bridge financing transactions."

The SEC concludes: "The conduct of GE involved fraud, deceit, or deliberate or reckless disregard of regulatory requirements, and resulted in substantial loss, or significant risk of substantial loss, to other persons, within the meaning of Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]. " (emphasis mine)

In other words: The former lightbulb company kept investors in the dark about its finances in order to fraudulently deceive. Now the SEC's failure to complete its investigations leaves the rest of us in the dark.

The SEC's report didn't mince words in concluding that a few specific individuals had done bad things. It concluded that GE, "acting primarily through senior corporate accountants, made a number of improper accounting decisions which resulted in its reporting materially false or misleading results." Yet despite the gravity of the charges and the size of the settlement, and despite its announcement that it was investigating individuals, the SEC quietly dropped that part of its investigation. Jonathan Weil of Business Week lays the facts out clearly, and with justifiable outrage, in a piece entitled "Wall Street Justice Means Nobody Gets Pinched." Weil, who first revealed that the investigation of individuals ended last year, lays out the evidence that the SEC accused GE of fraud, negotiated a large settlement, then held nobody legally responsible.

What is the sound of one hand not being handcuffed?

The SEC can't arrest people, of course, but it can refer cases to the authorities for prosecution and it can impose individual as well as corporate penalties. Instead the SEC followed its usual pattern for corporate offenders: It settled a case involving multiple counts of criminal behavior with a settlement paid by the corporation. That's a double injustice: Not only are shareholders forced to pay for the misdeeds of others, but in this case they were among those who were misled.

The SEC settlement didn't just leave the alleged perpetrators unpunished. As with most of its deals, it also allowed the company to avoid acknowledging wrongdoing, leading to that now-shopworn phrase in the newspapers: "GE did not admit or deny the allegations." Gelatinous statements from Robert Khuzami, director of the SEC's Division of Enforcement, only reinforced the themes of guiltless crime and koan-like language: "GE bent the accounting rules beyond the breaking point," said Khuzami.

Somebody could say that John Dillinger bent the "severe penalty for early withdrawal" rule beyond the breaking point, too. The only logical way to interpret Khuzami's "bending the rules beyond the breaking point" comment is that GE broke accounting rules - which is a crime. Justice and economic security are badly served by elliptical statements like Khuzami's. The nation deserves a simple answer to a simple question: Were crimes committed or not? If they were, then the criminals should pay for them, both figuratively and literally, by forfeiting their ill-gotten income. Anything else encourages more financial fraud. (If nobody committed crimes, the SEC should give the $50 million back - and we know that won't happen.)

It's especially important to punish wrongdoers when they work for a repeat offender like GE. Here are some of the entries on its corporate rap sheet: GE settled with the SEC in 2004 after allegations that it repeatedly misled investors about former CEO Jack Welch's retirement compensation package (which provided roughly $2.5 million in benefits in his first year of retirement). And in July of 2010 GE was accused of bribing Iraqi officials in the so-called "oil for food" scandal.

Media watchdog FAIR compiled a (pretty overwhelming) list of GE's pre-2000 offenses, which include overcharging the Army for battlefield systems in 1990, which led to a $30 million fine, and a guilty plea on charges of fraud, money laundering and corrupt business practices while selling jet engines to Israel. FAIR cites a 1994 report from the Project on Government Oversight which "found that GE had 16 instances of fraudulent activity against the government since 1990 -- the most of any company listed."

What were the long-term repercussions of GE's criminal behavior in the nineties? More Defense Department contracts and a government green light to become a dominant player in the media landscape. But the best was yet to come for our corporate renegade.

Three major cases against GE - the accounting fraud case, the issue of Jack Welch's compensation, and the Iraqi bribery case - all occurred during the tenure of its current CEO, Jeffrey Immelt, who assumed that role in 2001. You're probably wondering how the government chastised the head of a company that's been fined tens of millions of dollars as the result of multiple charges of criminal behavior on his watch? Here's how: By asking him to replace respected economist Paul Volcker as head of the President's Economic Advisory Panel.

Not that GE's punishment was limited to prestigious Presidential appointments. It also received billions of dollars in bank bailout money - despite the fact that it's not technically a bank. No problem, said the government. It promptly created a loophole that enabled GE to receive TARP assistance without being required to follow that program's limits on executive compensation (or any of its other rules). That loophole also allowed GE to benefit from the government's low interest emergency loan facility for banks, the Temporary Liquidity Guarantee Program. ProPublica reports that "GE received nearly a quarter of the $340 billion in debt backed by the program," which allowed GE to save billions of dollars.

That'll teach 'em.

Sandals like GE's hurt a lot of innocent people, and the victims often include the wrongdoers' colleagues. (That's something I observed personally during the AIG scandals since, as a former employee, I still had friends there.) A number of extremely bright and talented people work at GE, and they've developed some excellent products and services. Those products are sold under GE's new "Imagination at Work" slogan, and Immelt deserves praise for emphasizing the intellectual-capital side of his business. In that sense he's an excellent role model for other CEOs, especially in his commitment to hiring and developing smart people and giving them an environment where they can flourish. But those people don't deserve to be tarred with guilt by association with the alleged perps among them - although GE's accounting showed a lot of "imagination."

Sometimes you'll see a sign like this in a warehouse, on a bus, or in a factory: "Over [ ] days without an accident." Now that they've dropped "we bring good things to life," maybe GE's new slogan should be "over [ ] days without an indictment."

If individuals committed crimes at GE, they should pay for their actions.That would be a service to GE's other employees, who would no longer be tainted by the misdeeds of a few senior-level people. It would serve the cause of justice, too. And it would protect the economy by discouraging future acts of economically destabilizing financial fraud. Until crime is met with punishment, investors and the general public will be up against bad actors who win through deception, not competition.

As the GE Security website reminds us: "They say the house always wins." I couldn't have put it better myself.

This post was produced as part of the Curbing Wall Street project.

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