Larry Ribstein from the blogosphere and Holman Jenkins from the financial media have been leaders over the past several years in exposing the Department of Justice’s disingenuous campaign to criminalize the corporate compensation technique commonly known as backdating stock options.
Now, with Judge Wright’s sentencing decision last week in the criminal case of former KB Home executive Bruce E. Karatz, Ribstein and Jenkins’ insight has finally been judicially adopted. The real crime in the backdating scandal was that prosecutors and the mainstream media once again jumped to create a witch hunt targeting wealthy businesspeople even though it was far from clear that backdating was actionable from a civil standpoint, much less a criminal one.
So, what drives this damaging syndrome? We use myths – such as that wealthy businesspeople must have cheated to make so much money — to distract us from our innate vulnerability. We rationalize that a wealthy and powerful person did bad things that we would never do if placed in the same position even though we really have no idea how we would react to the incentives that the object of scorn faced. As a result, we ridicule the rich and powerful as we attempt to purge collectively that which is too shameful for us to confront individually.
Beyond the shattered careers, lives and families that lay in the wake of this syndrome, it is incredibly damaging to our society in other important respects.
For example, business prosecutions over merely questionable business judgment obscure the true nature of risk and fuel the myth that investment loss results primarily from criminal misconduct rather than market forces. In reality, business risk is what leads to valuable innovation and wealth creation. Throwing creative and productive business executives such as Michael Milken and Jeff Skilling in prison does nothing to educate investors about the true nature of risk and the importance of such investment strategies as diversification.
Moreover, ignorance about business risk has led in part to the criminalization of business lottery that is arguably best reflected in the selective prosecutions of the backdating cases. That lottery simply breeds even more cynicism for the rule of law.
So, isn’t it about time that we put such an obviously damaging syndrome to rest for good?
“That lottery simply breeds even more cynicism for the rule of law.”
Where do you draw the line?
And, isn’t it true that
most criminal prosecutions are selective?
I agree that the DOJ needs to quit criminalizing business activities, but I don’t share your passion for protecting only the wealthy and powerful. As one fo the great unwashed masses, I have no faith that the federal courts will give me a fair hearing if and when I have a dispute with a large, wealthy corporation. I tried it once and learned that the average person cannot expect fair and impartial justice. If the average person gets screwed by our federal courts, why should we feel any sympathy that wealthy businessmen get screwed from time to time? We don’t just need judicial reform for the wealthy, we need judicial reform for all the people. Maybe if enough wealthy people get shafted there will be some interest in enacting judicial reform, because it isn’t going to happen when the little guy complains.