White (Collar) Justice
David Dayen has a great review of Jesse Eisneberg’s new book, “The Chickenshit Club”, which describes the nexus of the incestuous world of white-shoe law firms and the erosion of the tools with which to fight has led to the explosion in unchecked white collar crime.
The title of the book comes from an address by James Comey of all people, who described those prosecutors who had never lost a case as being members of “the chickenshit club” because they obviously never risked taking a case they actually might lose.
As I have written, the turning point for (not) prosecuting white collar crime came with the conviction of Enron’s top executives and its accounting firm, Arthur Andersen, for engaging in a massive fraud and compounding that criminality with an almost as massive obstruction of justice. Unfortunately, the conviction of Arthur Andersen forced the company to surrender its accounting license, throwing thousands of employees around the world out of work and creating a backlash against that type of prosecution. According to Eisinger, “Andersen had to die so that all other big corporations might live.”
In the wake of that scandal, in the decade after Enron, prosecutions for white collar crime dropped by nearly 30% at the same time that the country saw the greatest financial collapse since the Great Depression, largely driven by massive fraud in the housing and banking industries. Yet not one senior executive at any of the major banks or mortgage companies ever did any jail time and virtually all of them were never even indicted. Prosecutors basically never tried.
Dayen writes, “If it’s easier to get a corporate plea bargain than to win a conviction against a top executive, that’s the path prosecutors will favor. If it’s easier to design a deferred prosecution agreement than to take down a company abusing its investors or customers, that’s the path. If it’s easier to make headlines with seven-figure fines than to undertake the painstaking work of obtaining justice, that’s the path. If there isn’t 100 percent certainty of a conviction, then discretion—some would say spinelessness—argues for settlement. Every prosecutor knows that, in the end, those who take the easier path will enjoy rewards, and those who challenge power won’t. Eric Holder got a corner office and a lucrative partnership. James Kidney, who pushed for aggressive prosecution at the SEC, got a small retirement party, where he said, in a speech that leaked, ‘For the powerful, we are at most a toll booth on the bankster turnpike.'”
The most devastating example of this failure might be the story of Purdue Pharma, the maker and marketer of OxyContin. Purdue falsely marketed the drug as effective for 12 hours, a claim that had no basis in science but was simply devised by Purdue’s marketing department. The result was a surge in people addicted to the drug and increasing overdoses. In 2006, a suit essentially proved that Purdue’s claim about the drug were false and the company settled the suit for a paltry $75 million. Subsequently, federal prosecutors convicted the company of criminal misbranding and an “intent to defraud and mislead”. The result of the conviction was to have three senior executives at Purdue plead guilty to a criminal misdemeanor. The CEO of Purdue was never charged. And Purdue just kept right on selling OxyContin, in large part creating the opioid and heroin epidemic that is killing 175 people a day. As Republican Senator Arlen Specter noted at the time, the case amounted to “expensive licenses for criminal misconduct”.
Prosecutorial cowardice is not just related to financial or political matters. For far too long, prosecutors have been unwilling to tackle sexual assault cases, especially where powerful, usually white, men are involved. The #MeToo movement has exposed just how widespread and how long the abuse has been going on. But the fact that people like Cosby, Ailes, O’Reilly Weinstein, Wieseltier, Trump, and so many others have gotten away with their abuse for so long shows just how badly the criminal justice system has failed. Obviously, there is real difficulty in proving some of these cases when it is one person’s word against another as does the fact that the cases always involve witness intimidation in one form and/or forum or another. But often, prosecutors won’t even try. That leaves the abused with the only option of pursuing civil cases where they receive compensation in return for having that agreement remain sealed and a gag order which usually only applies to the victim. That is not justice but just another license for criminality as the litany of constant abuse shows.
The chickenshit club is in many ways a real club, a place where genteel discussions take place between lawyers who move from prosecutor to defender with ease. Says Dayen, “Today, federal prosecutors rarely question the targets of their own investigations, instead trading evidence and queries with defense attorneys. Findings in cases are negotiated, not discovered; frontal assaults on high-powered law firms are eschewed. To launch one, Eisinger writes, would create ‘social discomfort.’ Prosecutors would have to take on their mentors, their friends, and their future bosses”. It is primarily a male club still but women are certainly welcome. In the financial world, you can look at Mary Jo White’s virtually non-existent enforcement efforts at the SEC. Even in the world of sexual assault, you see lawyers like Lisa Bloom have surprisingly become a member..
Beyond prosecutorial cowardice, however, is the fact that the Supreme Court has also stripped prosecutors of some of the necessary tools to actually convict white collar criminals. The case against Arthur Andersen was overturned on a technicality, but too late to save the firm. The Court overturned the conviction of Enron’s CEO and restricted “honest-service” fraud to just bribery and kickbacks. The Court recently made it almost impossible to obtain political bribery convictions with the overturning of the case against Virginia governor Bob McDonnell. Insider trading cases and other types of white collar crime are one of the few areas of the law where it is required to show intent, again making it virtually impossible to convict except for the most brazen lawbreaker.
One could make a pretty strong argument that Donald Trump’s success is in large part due to the chickenshit club. As Vox reports, “Trump has been repeatedly fined for breaking federal money laundering rules, paid millions in hush money to settle civil fraud claims, been caught breaking New Jersey casino law, been caught violating the Hart-Scott-Rodino Act, been caught violating federal securities law, been caught violating New York nonprofit law, and — of course — been accused of multiple counts of sexual assault. Yet throughout this storied history of lawbreaking, Trump has never faced a major criminal charge. He gets caught, he pays a civil penalty, and he keeps on being a rich guy who enjoys rich-guy impunity”. Trump, like the current opioid epidemic, is the awful and devastating legacy of the chickenshit club.
