Matthew T. Bodie is a Hofstra law professor who is guest blogging over at the Conglomerate blog and, in this post, wonders why fellow law professors such as Stephen Bainbridge and Larry Ribstein are critical of New York attorney general Eliot Spitzer. After extolling the merits of the Lord of Regulation’s crackdown on the mutual fund and investment banking industries, Mr. Bodie then observes:
All of these accomplishments took creative application of the laws, as well as the settlement process, to bring systemic changes to entire industries. . . Now, apparently it makes one a naif to believe that Spitzer has improved things. But really, what is so controversial about what he has done? Who was in favor of the gross conflicts of interests at play in analysts’ recommendations, so luridly displayed in emails? Who thought the rigged bidding in the mutual fund industry was a practice to be encouraged? Really, where’s the problem?
Mr. Bodie’s question is commonly asked regarding the use of the state power to prosecute or regulate through civil litigation the unpopular and greedy businessperson of the moment. “Why shouldn’t (insert the name of any Enron defendant, Arthur Andersen, Martha Stewart, Frank Quattrone, Hank Greenberg, etc) be prosecuted or sued,” the argument goes. “They probably did something illegal. So what if the state has to cut some corners in pursuing them. That’s a small price to pay for protecting us from these evil people, isn’t it?”
Well, the problem is that sacrificing the rule of law is never a small price to pay, and sacrifice the rule of law is precisely what Spitzer has done in his quest to become the Lord of Business Regulation and the next Governor of New York. Just a quick overview of Spitzer’s tactics over the past couple of years exposes the widespread abuse of authority and the rule of law in pursuing his popular agenda:
Publicly playing to public envy and resentment of wealthy businesspeople by defaming Maurice “Hank” Greenberg (here and here) as well as Richard Grasso and Kenneth Langone;
Criminalizing those who would take the risk of creating a market for home ownership for those who most need it;
Creating employment opportunities for his chums (noted by Mr. Bodie);
Failing to coordinate investigations with other governmental agencies;
Interference with the regulatory role of other governmental agencies (here and here and here);
His prominent involvement in the drive of U.S. governmental officials to criminalize business generally;
Transparently assisting favored corporate suitors in the acquisition of target companies;
His involvement in eviscerating the corporate attorney-client privilege and in bludgeoning dubious plea bargains and settlements from business executives; and
The destruction of professional careers and personal lives left in the wake of his abuses.
In short, the problem with Spitzer is that his campaign to regulate corporate agency costs is, as Larry Ribstein has coined it, a lottery. If the prosecution pursues a bit player such as William Fuhs or Daniel Bayly in the Enron-related Nigerian Barge case and can come up with something particularly distasteful to the jury — such as Merrill Lynch’s involvement with the corporate pariah Enron — then it wins. On the other hand, if Spitzer slams a little guy such as William Sihpol while failing to pursue his dastardly superiors, then the government loses. This is a radical abuse of our justice system, and the carnage to the families of Mr. Sihpol, Martha Stewart, Mr. Bayly, Mr. Fuhs, Jamie Olis and others who are caught in this troubling spiral that Spitzer promotes simply cannot be responsibly dismissed as a “trade-off” of an imperfect system.
However, as great as my compassion is for members of those families, my even greater concern is for the principles of justice and respect for the rule of law upon which the success of our society is largely based. For if we lose those, then — as Sir Thomas More reminded Will Roper in A Man for All Seasons — “do you really think you could stand upright in the winds [of abusive state power] that would blow then?” Even wealthy business executives are entitled to justice and the protection of the rule of law in the face of the overwhelming power of the state. Not only for their protection, but for ours.
I am not as concerned about the alleged “abuse of the power of the state to prosecute” as you seem to be. I have confidence in counsel for these defendants and the ability to convince a judge that the indeed the state is being abusive in furthering any given prosecution. Whether or not the state is being abusive or vindictive is, of course, a matter for a judge to determine, not a matter for defense counsel to determine. I’m still looking for the day when you post a story about how the state is abusing their discretion by not prosecuting a corporate officer for an alleged action. Rob Doty is on the top of my list of candidates for that discussion.
Charles, why stop with Doty? Why not prosecute Chuck Watson? And while you’re at it, why not prosecute the dozens of Merrill Lynch executives who were involved in the Nigerian Barge deal? And certainly there ought to be more than a few former Arthur Andersen and KPMG partners that should be prosecuted. Just where would you stop?
Unless a clear crime has occurred, these matters are best left to being sorted out in civil litigation where responsibility can be allocated more efficiently and fairly. As we saw in the recent Duke trader case, no clear crime (such as embezzlement, for example) occurred. If the defendants breached some type of duty to the Duke shareholders by taking excess compensation, then I say tee that baby up in civil court and have at it. But criminalizing such matters makes a mockery of our criminal justice system and the resulting lottery of results undermines respect for the rule of law.
Charles, we know that the defense counsel and the judge are not infallible and that innocent people sometimes get wrongfully convicted. However, even if we could count on every wrongfully indicted person being properly acquitted, we would still need to be concerned about the improper use of the state’s power to prosecute.
Tom K. has talked about the mockery to our justice system that such abuse engenders. Consider also the impact of improper indictments on the defendants themselves. Even when eventually acquitted, the impact on these people and their families is often devastating. While the prosecutors live off taxpayer money, the defendants watch their life savings drain away in legal fees. Worse than this, they watch the stress bear down on their family and friends every day. During trial, they watch ex-colleagues who testify for them being hammered by prosecutors. In essence, these people live in a kind of dark limbo, often for years, as this process drags along.
And, to add insult to injury, if these people are eventually rightfully acquitted, then pundits tell them that their terrible ordeal is evidence that the process “worked”.
“Unless a clear crime has occurred….” In white collar prosecutions, the crimes are rarely “clear.” Giving corporate officials a free pass with respect to any possible criminal prosecutions is insane. You seem to expect an individual shareholder to discover such malfeasance as the internet analyst fraud scams or mutual fund timing and then expect the individual to also foot the bill for investigation the acts of all involved and to individually pay litigation costs to have the tortfeasors held accountable. Ma and Pa Kettle spend their lives saving for retirement and Joe Ivy League spends 3 years at business school learning how to rip off Ma and Pa and how to hide his tracks. Ma and Pa then have to match wits with Joe Ivy League to figure out how the scam worked and then Ma and Pa then have to personally handle the costs of litigation when Joe tells them if they don’t like the way he’s acting then sue him? Tom, my friend. If you are thinking of running for public office, don’t use this as your campaign platform.
The abuse is in the prosecutor’s unquestioned power to prosecute..or not. It is an extreme authority to ruin a person’s reputation by mere accusation, financially devastate a family, coerce one into pleading guilty and testifying against others for a guarantee of leniency.. or not.
Charles- you have a high expectation of defense counsel in these highly complex cases and of this system to weed out abusive prosecutions. There is no fairness and equity when prosecutors get to make deals and get to suppress witnesses and testimony through their unquestioned authority to indict or not indict. They even have power over companies to cause them to actively work against employees forcing them into vulnerability in order to help prosecutors in return for a new and “friendly” relationship with the government.
Why are there so many unindicted co-conspirators in these cases? The answer is that these cases are too weak- they are about intent and about what the ìunderstandingî was even if the written words rules really say something different- and unless the lower level people charged agree to say whatever they have to to help build a government case against a higher up, it is the lower level people who will be destroyed by this abuse. The unindicted co-conspirators most likey have exculpatory testimony for themselves and others charged but that will never surface because they are bound and gagged by that label of being unindicted co-conspirators and by the the fear of becoming an indicted co-conspirator. It can all be in a single prosecutor’s hands. Prosecutors’ ability to load the dice in this system should make anyone, especially the innocent, fearful because a case of intent to commit fraud can too easily be created through coerced testimony. If you are guilty, plead guilty and you will get a great deal from prosecutors. If you believe in your innocence, tread very carefully, because too many are willing to do anything they have to to get a guarantee that they will get to go home. Pre Booker, those guarantees could only come from the government prosecutor. And after all the hoopla, it seems that very little has changed.
Charles, don’t worry, no chance that I’m running for office. ;^)
By the way, although your Ma and Pa Kettle characters are endearing, your premise that they can compete effectively with Joe Ivy League in the market is a myth.
Tom
When you write, “The unindicted co-conspirators most likey have exculpatory testimony” the question occurs to me whether there is any factual basis for the statement.
It seems to me, in the context in which you make your statement that A) for this to be a true statement, hasn’t someone mostly waived the attorney client privilege? What are you going to say, if call before a grand jury to identity these exculpatory witnesses? And, B) if your statement lacks a factual basis, where do you stand ethically and perhaps legally (for disinformation about a criminal investigation/prosecution could well be obstruction of justice, of which the elements are a “corrupt attempt to influence”)?
John, between the Powers Committee interviews, the Examiners’ interviews, the SEC interviews, the Congressional Committee interviews, Ciscon’s testimony during the Broadband trial, etc — all of which is available to the Task Force and most of which took place before those witnesses were targeted or designated as an unindicted co-conspirator by the Task Force — the Task Force knows that there is a substantial body of exculpatory testimony. Highly doubtful that any judge would rule that there was a waiver of the self-incrimination privilege before the witness was either targeted or designated as an unindicted co-conspirator.
TK,
Having read such of the Powers Committee interviews, the Examiners’ interviews, the SEC interviews, the Congressional Committee interviews, and so forth that is in the public record, I haven’t seen anything that is exculpatory viz Lay or Skilling as to the essential charge of the indictment which is that Lay, Skilling, Causey and others oversaw a massive conspiracy to cook the books at Enron and to create the illusion that it was a robust, growing company with limitless potential when, in fact, Enron was an increasingly troubled business kept afloat only by a series of deceptions.
JLD
Why criticize Eliot Spitzer?
Hofstra lawprof Matthew T. Bodie professes himself puzzled as to why a number of bloggers are so critical of New York Attorney General Eliot Spitzer’s various crusades — is it that they admire the abusive business practices he’s trying to…
Tom:
Charles writes that he “has confidence of counsel for these defendents”…
What happens when the government freezes all of your assets, tying your hands to a defense? Then you borrow the retainer which gets used up very quickly so your lawyer withdrawls? A Receiver is appointed and gets to tell the investors what a bad guy you are and they will only get 10% of their money back, IF they get anything. Five years later, after the Receiver has sold all the properties, some for half of what they are worth, abandoned properties back to investors, auctioned properties and paid countless attorneys and accountants(accounting company owned by him)the indictments come down. All of this happens even though the state was permitted to have complete access to the company for an entire year before the injunction even happened. Five years later assets are still tied, not that there are assets left anyway, so there is still no money for a private defense attorney so a public defender will be appointed. A federal public defender. Yes, after the state and Receiver got to take the ‘spoils’, the Federal government gets to prosecute the case. It is not just the huge corporations, it is the small businessman who has built his business from the ground up and made it successful.
Mandle on Conason on Spitzer
At CT, Joe Mandle praises Joe Conason’s review of Brooke Master’s new bio of NY AG Eliot Spitzer:[Spitzer] exposed widespread corruption, cronyism and immorality at the commanding heights of the American economy, exploding the myth of the self-regulati…