When he took his job as U.S. Attorney in Manhattan in 2002, James Comey gathered together all of the line attorneys in a meeting and said to them — we have a name for prosecutors who have never lost a case — The Chickenshit Club.
And now ProPublica reporter Jesse Eisinger is writing a book about the failure of the Justice Department to criminally prosecute major corporate crime cases.
The working title of the book? The Chickenshit Club (Simon & Schuster, 2016).
“What Comey meant by that was — I want you guys to go out to work on the hardest, most important cases, the most righteous cases and not worry about whether you are going to lose them,” Eisinger told Corporate Crime Reporter in an interview last week. “Our job is to do justice. It’s not to worry about winning or losing.”
“In the book, my argument is that over the course of the decade of losses – like the Bear Stearns trial and the KPMG debacle and problems with the stock options backdating prosecutions and the Ted Stevens fiasco – the Justice Department became overly worried about losing cases. And they raised the bar on prosecutions, particularly of individuals, so high that it couldn’t be surmounted. And they always found excuses not to bring the big cases.”
Why are you writing this book?
“I’ve been pretty obsessed with the financial crisis and its aftermath and why there were no prosecutions of top corporate officers from any of the financial institutions in the wake of the crisis,” Eisinger said. “It strains credulity that there wasn’t criminal fraud during the crisis and at the height of the crisis. And its strains the credulity of lawyers and prosecutors who I have talked with. This has become a commonplace observation.”
“I don’t think fraud was necessarily at the heart of the financial crisis. But that doesn’t mean the crisis didn’t involve an enormous amount of fraud. I think it did.”
“I wrote a series of stories on the collateralized debt obligation (CDO) crisis with a colleague at ProPublica. The CDO business was at the heart of the financial crisis. Those were the instruments that took down AIG, took down Merrill Lynch and Citigroup, took down the Bear Stearns hedge funds, which ended up taking down Bear Stearns. Without CDOs, you wouldn’t have had the financial crisis. And the CDO business was deeply, profoundly corrupt. And no top, key important executives went to prison for activities related to the CDO business, or anything to the financial crisis. And no big bank was criminally charged.”
What is your explanation for it?
“It’s a complex confluence of events over the last decade. Part of my explanation was in a New York Times Magazine piece that ran last April. (“Why Only One Top Banker Went to Jail for the Financial Crisis,” New York Times Magazine, April 30, 2014.)”
“It was, in part, about the highest level executive who actually did go to prison for the financial crisis. His name is Kareem Serageldin. He was an executive at Credit Suisse who oversaw some traders who mismarked their portfolio. And he knew about it. There was an investigation. He admitted it and he went to prison. No one else admitted anything. And no one else went to prison. He was the schmuck. And the joke was — yeah, they caught the guy who caused the financial crisis.”
“In that article, I tried to explore the history of the Department of Justice and how we got to this place. The idea is that there was a decade of fiascos at the Department of Justice — lost trials, adverse rulings from higher courts, and an intense lobbying effort against the prosecution of corporate crime in the early 2000s — the Enron, WorldCom era. And that eroded the ability of the Department of Justice to investigate individuals at the highest levels of corporate America. They no longer have the skill set or the will to do this.”
Everybody knew Eric Holder and Lanny Breuer were going back to Covington & Burling.
What part of the answer is the revolving door?
“I don’t think it was inevitable that Holder was going back to Covington,” Eisinger said. “There were a lot of opportunities. Covington wanted to entice him.”
“And one of the ways you entice someone is you say — look, we will leave your office empty for you. You have an office here waiting for you.”
“But the revolving door is a profound problem when it comes to corporate prosecutions. And it has changed dramatically in a relatively short period of time.”
“Something like 15 years ago, a partner would make three or four times what a prosecutor would make. And a prosecutor could live in New York City or Washington, D.C. and make a decent living and have a decent life. Now, if you are a partner in a law firm, you are making ten times what you make as a prosecutor. And you can’t live in one of these major cities on a prosecutor’s salary as comfortably and make a living. That’s a dramatic change.”
Are there any good solutions to the revolving door problem?
“I find this to be one of the most intractable problems in American governance,” Eisinger said. “You don’t want to limit government employees to just lifers. You need to raise the pay. The Department of Justice raises an enormous amount of money — much more money than it actually costs to run the Department. It’s not a cost center. And some of the fines should be diverted in an appropriate and careful way to running the Department so that they have adequate resources to do the job. Raise the salaries.”
“Then you need to recruit older people with a desire to do public service later in their careers, rather than younger people who are trying to bolster their resumes. There shouldn’t be just the elite students from the best law schools in the country. There should be older, wiser people from a variety of geographic areas and backgrounds. That would help the situation greatly.”
“You need big cultural shifts. Two or three decades ago, the senior people at the law firms were public intellectuals and statesmen. Now, they are money men and women. They are rainmakers. There has been a shift in the practice of the — the rise of commercial incentives that have distorted the law and made it a morally and civilly smaller place. That’s damaging for the law and damaging for society.”
The Koch Brothers and the ACLU have teamed up in a right left alliance to tackle the issue of overcrowding in federal prisons. How does that interact with this issue of the failure to prosecute corporate crime?
“It’s interesting that these two lines of concerns have risen at the same time,” Eisinger. “There is an argument that we are putting in prison too many of one kind of criminal and not enough of another kind of criminal. And I basically subscribe to that idea. It’s a national scandal that we have mass incarceration, especially for many non-violent criminals, disproportionately African American males. This is a terrible problem in American society. Another problem is that corporate officers can act with impunity.”
There have been a lot of good books on corporate crime recently — by Matt Taibbi, Rena Steinzor, Brandon Garrett, Sam Buell. What made you say — I have something special to say that these people haven’t said?
“Those are really good books,” Eisinger said. “I have a narrative history of the last decade that no one else has written about. My approach to journalism is that human beings make decisions. I want to write about the people who are making the decisions. And try to write in a kind of nuanced way about a complex series of events that are not well understood and don’t have clear answers. My book isn’t going to be simple. It’s going to be a narrative journalist book. It’s not an academic book. And it’s not going to be a polemic. But I hope it will have an undercurrent of outrage because I feel outraged by it. But I also feel it will be fair and careful and nuanced.”
[For the complete q/a transcript of the Interview with Jesse Eisinger, see 29 Corporate Crime Reporter 30(12), July 27, 2015, print edition only.]