Matt Taibbi on Corporate Crime and American Injustice in the Age of the Wealth Gap

After ten years with Rolling Stone magazine, Matt Taibbi is leaving to join a new start up journalism venture called First Look Media. It’s funded by eBay billionaire Pierre Omidyar.

Taibbi is in charge of a new, yet to be named on-line magazine that he says will be similar to the old Spy magazine.

In the meantime, Taibbi is out with one of the best corporate crime books of recent times — The Divide: American Injustice in the Age of the Wealth Gap (Random House, 2014).

“This book is about why some people go to jail and why some people don’t,” Taibbi told Corporate Crime Reporter in an interview last week. “I’ve been covering Wall Street since the crash of 2008. I spent a lot of time covering these elaborate either criminal or unethical schemes. The punch line to all of them was always the same — no one was indicted, no one went to jail.”

“Around the time of the Occupy Wall Street protests, I decided to write a book about that. In order to do that, I had to learn more about who does go to jail and why. This book is a big compare and contrast exercise. There are case studies on both sides on how things work on the white collar side and how things work on the street level and undocumented immigrant side.”

And why is it that the major Wall Street banks are not criminally prosecuted for the 2008 collapse?

“Certainly there was criminal activity,” Taibbi says. “There were prosecutors in the Justice Department who were insisting that criminal prosecutions were necessary — maybe not of the companies, but certainly of individuals within those companies. I can’t say for sure whether there would have been guilty verdicts. But there would have been more swings of the bat.”

But you don’t name names of prosecutors who say this, do you?

“I talked to a lot of former prosecutors who are willing to go on the record — people like Neil Barofsky and Eliot Spitzer and Kevin Puvalowski,” Taibbi says. “You can guess why people now in the Justice Department don’t speak out — they don’t want to create problems for themselves.”

We hear over and over again from criminal defense lawyers that these are complex cases and when it comes down to it — not easy cases to prove. They say — we are not going to roll the dice, put it all out there and come out losers in public.

“And that’s what I heard over and over again,” Taibbi says. “The concern was more about losing than it was about a disbelief that crimes had taken place.”

“There was concern initially in the first year after the crash that criminal prosecutions might worsen the economic situation. You heard rumors about the Treasury Secretary trying to avoid market altering prosecutions. Then after that, it was this concern that you might devote an enormous amount of resources to go after one of these defendants or a series of defendants, and for a variety of reasons — complex cases, the quality of the lawyering is so good on the defense side, you have to fight motion after motion to press forward — for all of these reasons, there was a natural disinclination to prosecute these cases especially when it is so easy to make drug cases and other street crime cases. That’s part of the justification.”

“But it was necessary at least from a symbolic point of view to try some of these cases.”

What part of this had to do with meager enforcement budgets? If there were beefed up enforcement budgets with leadership, would it be different?

“Phil Angelides was head of the Financial Crimes Inquiry Commission,” Taibbi says. “That was the federal government’s main investigative response. Angelides bitterly noted that his budget was one-seventh the budget of Oliver Stone’s latest movie — Wall Street: Money Never Sleeps. In that same year, the budget for drug enforcement went up a significant amount — something on the order of $1.5 billion.”

“So, absolutely, if they had more lawyers, especially in the relevant districts like the Southern District of New York, then they would be less shy about taking a swing and a miss. But it also has a lot to do with the particular mentality of the people who came in at this time.”

“It just seems like they were more inclined to make the deal than to take a case to trial.”

The two key players in the book are Eric Holder and Lanny Breuer, both from Covington & Burling. What part of this had to do with the revolving door into the corporate law firm — coming from Covington, going back to Covington.

“Rudolph Giuliani believed that when you bring a case against a major American corporation, you had one of two outcomes,” Taibbi says. “You either got a guilty plea or you went to trial. Rudy, back in the day when he was a prosecutor, he had the mentality of the classic prosecutor. You go after the bad guy. You take your best shot. And you either win or lose.”

“This new group of people comes from the corporate defense community. You have to remember, they worked with all of these people. They are culturally the same people. They may even have advised some of these companies on some of the matters on the same matters or similar matters. They tend not to see this group of offenders as criminals. They tend to see them as people who may have listened to aggressive lawyering, or having colored outside the lines a little bit, or pushed the edge of the envelope. Pick your cliche. But they don’t see them as criminals. They are colleagues. And it’s a problem.”

“There is a reason why you want to keep a certain kind of distance between yourself and your targets. There is a reason why you don’t want to have your prosecutor hanging out with drug dealers on the weekend. And there is a reason why you don’t want to have your prosecutor having barbeques with bankers on the weekend.”

“It’s not a perfect analogy, but there is something to it.”

But the Justice Department doesn’t hesitate to go after big named defendants. Take baseball players like Roger Clemens or Barry Bonds.

“Those are not systemic cases,” Taibbi says. “If you were to go after Roger Clemens or Barry Bonds, you know what the parameters are. In the worst case scenario, it might lead to prosecutions of other baseball players.”

“You go after an HSBC, you may find out that the entire international banking system is rife with money laundering violations and it subsists upon those violations. We’ve already seen another big bank with similar problems pop up in the last month or so — that was involving Chase. There was Standard Chartered. There were a number of them.”

“Prosecutors are afraid that if they start puncturing the surface of these enormous cases, they will never find a bottom. They will just keep digging and digging and digging and there will be no end to it. They would rather almost not know how bad it is.”

“The excuse they give is probably accurate — if we go after HSBC, if the company goes out of business, who knows what the impact will be on the economy? We could have another Lehman Brothers situation where there are cascading losses and chain reactions of companies going out of business.”

“There is a huge difference between going after Roger Clemens and going after HSBC. The Clemens case involved two pieces of evidence and one single defendant. Going after HSBC is asking the Department of Justice to dig deeply into the entire economic system. They are fundamentally different.”

Taibbi juxtaposes the kid glove approach to corporate crime to the smash mouth approach to street crime. He gives example after example of innocent Americans arrested without just cause in New York City — including an African American bus driver arrested for standing in front of his house (obstructing pedestrian traffic) and a white kid from Kentucky arrested and beaten up by police because the police thought his roll your own cigarette was marijuana.

Is Taibbi suggesting that we reverse the approaches — smash mouth for corporate crime and kid glove for non violent street crime?

“I’d be happy starting with the same approach in both places,” Taibbi says. “Personally, I’m against criminalizing drug use. We have incredibly aggressive law enforcement against the essentially defenseless. And we have this timorous, apologizing, grovelling approach to law enforcement against people who are well defended. In those cases, yes, maybe we should reverse the tactics. You have to be especially clever, you have to be particularly relentless, and you have to not be afraid of defeat when you go up against a certain kind of corporate defendant. Against a homeless person spending too much time on a bench after hours, do you really have to bring that person in? Are you going to charge him with marijuana possession? You are going to bring the state into that case when that person is willing to get up and walk out of the park?”

If the prosecutor knew that Covington & Burling was representing that homeless person, the outcome might be different.

“If Covington & Burling was representing the homeless person in the park, the outcome would be a little bit different,” Taibbi says. “We could figure out the settlement of that case.”

[For the complete q/a transcript of the Interview with Matt Taibbi, see 28 Corporate Crime Reporter 19(12), May 14, 2014, print edition only.]

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