I speculated facetiously awhile back that some NY Times editors are reading this blog. Now, I’m really starting to wonder.
First, over the weekend, the NY Times ran this less than flattering article on the Lord of Regulation’s recent defeat in the Sihpol case, which dovetails with much of the criticism that this blog has leveled toward Mr. Spitzer over the past year.
Now, Joseph Grundfest pens this Times op-ed in which he addresses an issue that this blog has been hammering on for a long time: that is, the tactic of prosecutors damaging or — in the case of Arthur Andersen — effectively terminating a business entity before the nature or scope of alleged criminal activity is proven:
Andersen’s demise did serve as a stern reminder to corporate America that prosecutors can bring down or cripple many of America’s leading corporations simply by indicting them on sufficiently serious charges. No trial is necessary. …
The current situation of the insurer American International Group is a case in point. Would you buy an insurance policy from a company that might be crippled by a criminal indictment that the New York attorney general, Eliot Spitzer, decides to file tomorrow morning? Neither would I. If the government insists that A.I.G.’s chief executive be fired as part of the price of not indicting the firm, the chief executive is gone. It doesn’t matter that he ranks among the most powerful executives in America. A.I.G. has no realistic choice but to cooperate fully with the government, even if evidence might later demonstrate that the government’s theories were legally infirm or that factual allegations couldn’t withstand cross-examination. Who, after all, wants to be put out of business when indicted, only to be vindicated years later by a jury verdict or appellate ruling? . . .
. . . The prosecutor’s decision to indict is largely immune from judicial review. The prosecutor acts as judge and jury. Traditional due process safeguards, like the right to confront witnesses, can’t protect the potential corporate defendant. The innocent can therefore be punished as though they are guilty, and penalties imposed in settlements need not bear a rational relationship to penalties that would result at a trial that will never happen.
Hat tip to Professor Bainbridge for the link to the Mr. Grundfest’s op-ed.
while i respect your opinions in many matters, i am continuously amazed at your position on prosecution of corporate entities for perceived wrongdoings. you seem convinced that arthur andersen was as lilly white clean and innocent as any corporate entity has ever been and, almost without exception, each and every investigation taken against corporate defendants is an abuse of prosecutorial discretion. i am sure, as an attorney, hammering this opinion in the minds of the general public has some value, but some of us aren’t buying it.
plain and simple, the deck is so stacked in favor of corporate insiders that the general public has, by and large, quit expecting law enforcement to act in the interests of the general public. god knows, jamie olis, michele valencia, todd geiger and the like were never given the option of simply paying a fine, being allowed to not admit any guilt and walking away as if nothing had ever happened. just this week we have seen two corporate entities (citi and jp) do just this.
with respect to the mutual fund timing scandal, the disgusting stunts the investment bank analysts pulled by pumping up internet stocks then dumping them on the public and a number of other investigations in which spitzer initiated, if it weren’t for him, those practices would still be going on today.
i worked in nyc on wall street for a major international bank from 1988 until 2000 (when i decided i had had enough and moved back to houston). i saw first hand some of the crap that was going on (many of these illegal activities have still never been investigated by the s.e.c).
for years the s.e.c. and the n.a.s.d. knew what was going on and they conciously did nothing. it was spitzer that embarrased the s.e.c. into finally doing something. in the end, after reaping tens of billions of dollars (if not more) in profits from their schemes, the wall street firms paid back pennies on the dollar in fines, admitted no wrongdoing and moved on to the next scam.
eliot spitzer is not part of the problem. the s.e.c. that refuses to be a viable watchdog is the problem. i have personally been involved with trying to bring fraudulent activity to the attention of the s.e.c. and i can tell you that it is next to impossible to get them to take action. they want to collect filings and store them in their database – period. the s.e.c. has no interest in entering into an investigation that will incite the congressional delegation beholden to a given corporate interest into mobilizing in defense of the corporate entity.
that corporate america is scared the pendulum is swinging and that they possibly might some day be expected to cease and desist (for a short time) in highly questionable schemes is not a reason to villify those who have the tenacity to ask questions when they detect malfeasance. if corporate america is starting to get scared, good. its about time.
i personally favor putting eliot spitzer in charge of the s.e.c. maybe then corporate america will live under the same fear of prosecution that the average american lives under. the reason i try to live my live in compliance with the laws we have established is the fear of someday being held accountable for my actions. there is no reason that same behavior moderating influence should not extend to corporate america.
i do not fear unwarranted intrusions by the police into my everyday life. few americans do. however, if i live my life in open defiance of the law of the land, i reasonably should expect someone to ask questions.
plain and simple, corporate america has no fear of the s.e.c. the commission has been a lapdog for far too long.
Charles- While I agree in theory with a lot of what you are saying, I think the reality is that the current trend of prosecutions and walk away agreements with corporations are tied to the prosecutions of individual employees who for the most part, were doing their jobs within the confines of the rules set and defined by the action or inaction of regulatory authorities which as you pointed out, were a part of the problem all along. The people you named were all relatively low level employees who didn?t make millions per year like some others and surely didn?t create a system of manipulative trades or controlled financial reporting or single handedly interpreted complex rules for their entire corporation, however, they were the prosecutors targets with their companies? very avid assistance. Were they living and working in compliance with the laws? I?d bet every one of them would have said Yes without hesitation in the days before a prosecutor accused them of being criminals.
What is a reasonable interpretation of a rule v what is an intentionally advantageous reading of a rule v what is an accepted practice v what is unethical all seems to be blurring into a grey area that are now considered crimes by prosecutors. Seems that the corporate charges are the first step and that basically accomplishes two things 1. it easily funds expensive white collar government prosecutions (have you ever seen any of this money go to the alleged victims?) and 2. it comes with a ?full cooperation? agreement which is extremely valuable to the prosecutor that wants to make his or her mark. Cooperation agreements require actions ranging from firing individuals who may later be defendants, cutting off their legal expenses and so cutting off valuable legal advice(and consider that complex defense fees will easily run to $500k and well beyond that. Jeffrey Skilling for instance had $23Million to contribute to his defense fund); and very important, assisting prosecutors through conducting ?internal investigations?. These ?internal? investigations are really a work up for prosecutors because corporations have full access to its unrepresented employees, have the power to terminate them, and many times corporations enjoy the trust of its employees which is very useful in this process. They also control all the documents and can make them very available to prosecutors and very unavailable to employee targets or defendants. Cut employees off financially, accuse them publicly of crimes, leave them in the dark about the evidence, let them find out that they have to sell their family home and borrow every dime they can just to begin their defense and then threaten them with 10 or 30 years in prison… and all of a sudden, the government has a very viable criminal conspiracy case.
Prosecutors are overreaching in what they have decided to call crimes and it doesn?t just affect corporations. Those corporations who have refused to cooperate in building prosecution cases are being hit hard and those that do get to walk away and let their employees pay the price for the rest of their lives. This may be the real crime by these corporations. The deal with corporations is pay a fine, admit no wrongdoing, get out of the headlines and work with prosecutors to put employees in jail. What a lovely deal for the faceless entities that seem the least deserving of a second chance.