Editorial: A new sheriff seeks justice on Wall Street

One of Wall Street’s high-rollers has finally been forced to admit he’s guilty of wrongdoing in order to settle a case with federal regulators. That’s an important break from the Securities and Exchange Commission’s previous standard operating procedure of imposing stiff fines but never demanding that malefactors fess up.

In a deal announced Monday, hedge fund honcho Philip Falcone admitted he improperly borrowed $113 million from a company fund to pay his taxes, manipulated the bond market, and allowed selected big investors to secretly withdraw money from a fund while preventing others from doing the same. Falcone was barred from the hedge fund industry for five years and he and his company, Harbinger Capital Partners LLC, were fined $18 million.

Falcone was the first offender to come clean since new SEC chair Mary Jo White announced the get-tough policy in June. The settlement should help dispel concern that White — a former federal prosecutor who also spent years as a defense attorney representing financial firms — will be a captive of the industry she now regulates. But by Wall Street standards, Falcone is a minnow. White must take the same hard-nosed stance when it’s one of the industry’s whales on the hook and an admission of guilt could set loose a tsunami of litigation against a major bank.

The public was infuriated that bankers who kneecapped the economy in 2008 did no prison time. But this isn’t just about extracting a pound of flesh.

It’s about deterrence. The risk of derailing their careers should make industry titans think twice about crossing the line. And it’s about making sure that runaway greed doesn’t undermine the financial health of New York City and the state. Both rely heavily on taxes from the industry’s richly remunerated workers. To maintain investor confidence, protect jobs in New York and keep that money flowing, the region needs an honest Wall Street.

Fines without confessions allowed the SEC to resolve cases more quickly than it otherwise might. But it also made getting right with the SEC little more than the cost of doing business. It’s high time the SEC raised the stakes.