Why aren’t more bankers in jail after the financial crisis?
Why aren’t more bankers in jail after the financial crisis?
It’s been almost 10 years since the start of the financial crisis that nearly tanked the global economy.
And since then, there have been relatively few prosecutions of those responsible for causing it. Instead, big banks deemed “too big to fail” got a taxpayer bailout.
How did this happen? Jesse Eisinger, an investigative reporter from ProPublica, has a new book out today called “The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives.” He joined us to talk about why the Department of Justice turns to settlements instead of indictments. Below are some excerpts from the conversation, which touches on taking risks as a federal prosecutor, Enron and the fact that the Federal Communications Commission does not allow us to say the book’s full title on air.
Amy Scott: So I can’t actually say the full title of your book on the air. So we’re going to call it the “Chicken Excrement Club” — but of course you use a more colorful word. That title comes from none other than James Comey, the former FBI director fired by President Trump. Can you tell us that story?
Jesse Eisinger: Sure, well before he was FBI director, he was the U.S. attorney for the Southern District of New York, which is really the most important job for policing corporate criminals in America. And he gathered all the young prosecutors together when he came into his job in 2002, and these guys are the best of the best. They’re hot shots. They’ve gone to the best schools and they all think of themselves as great. And if you have any doubts, you should just ask them — they’ll attest to it. And so he asked them, “How many of you guys have never lost a trial?” And a bunch of hands shoot up because they’re the best of the best. And he says, “Oh, me and my buddies have a name for you. You guys are the Chickens — expletive — club,” and hands go back down. And what was the point? What was he trying to say? Well, he was trying to say, “You guys are not about winning.” Being a prosecutor, a federal prosecutor, is not about trying to win at all costs. You need to be ambitious and take on righteous cases and do justice. And if that means losing on occasion, if you’re taking on powerful interests — the most powerful interests you can — then you’re still doing the right thing. You’re doing justice.
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Scott: So if they had taken more risks, they would have had more acquittals, more hung juries, but maybe some more meaningful convictions as well?
Eisinger: Exactly. They were taking the low-hanging fruit, the easy cases. And that’s not what we want the government to do. We want the government to take on the powerful when they need to and check wrongdoers at every level of society. And my argument in the book is that the Department of Justice has lost the will and ability to prosecute top corporate executives now.
Scott: And you start with the story of Enron, the energy trading company that filed for bankruptcy 16 years ago after a massive accounting fraud. How did the Enron case change the Justice Department’s approach to future cases?
Eisinger: Well, we used to know how to do this and it wasn’t that long ago after the Enron-era accounting fraud cases — not just Enron, but WorldCom, Adelphia, Tyco. We prosecuted almost all the top executives, and Enron was the most difficult. It was the most complex fraud and they dedicated prosecutors to it. And for years they studied that and they brought indictments slowly, and they finally got the top two executives: Ken Lay and Jeff Skilling. And today I argue the Department of Justice probably wouldn’t be able to win those cases. The problem is that, that high watermark of Enron started the downfall and the backlash and corporate lobbying and white-collar barred attacks on the prosecution apparatus in this country, and that led to a decade of fiascos and losses of tools and losses in court that deprived the Justice Department of this will and ability now.
Scott: And that’s because the success in prosecuting some high-ranking folks involved with the Enron fraud led to a backlash?
Eisinger: Yeah, the backlash came because there was this view that these guys had been cowboys — too aggressive, overly charging executives with things that weren’t crimes. And they also prosecuted the auditing firm that enabled the Enron fraud, Arthur Andersen. Arthur Andersen ends up being put out of business and because they do that prosecution of this company there’s this huge backlash against putting companies out of business and having these collateral consequences of putting tens of thousands of workers on the street. Because of that, the Department of Justice turns away from wanting to indict corporations. There’s not a policy in place, but they essentially take it off the table. And instead they turn to settlements rather than indictments.
Scott: Another issue you talk about is this revolving door between corporations and government, and the idea that some of the attorneys at the Department of Justice may eventually want to work for the very firms they’re supposed to be policing. How do you think that contributes to this lack of will to be tough on corporate wrongdoing?
Eisinger: So the Department of Justice has almost become this kind of post juris doctor-education-resume building opportunity to become a partner at a law firm and make more money there. That’s not what we want from our government law enforcement operations. And it of course leads to very pernicious effects where they want to seem tough and smart, but ultimately not unreasonable. So they negotiate settlements, but the settlements are actually not very punitive, not excessive. And they also don’t want to prosecute individuals because prosecuting individuals is very difficult and risky and you risk losing. And if you’ve lost a big marquee trial, that doesn’t do any good for your resume and then you can’t get that job in Corporate America or in Big Law.
Scott: Why is it important to prosecute individuals? I mean the financial crisis did lead to major regulatory reform like the Dodd-Frank Act. Is that not enough?
Eisinger: I think it’s unfair and undermines the sense of justice in this country. We have a class of people who can commit crimes with impunity. The wealthy and powerful at top corporations — they’re allowed to get away with it. Meanwhile, we have a different class — poor, many people of color who are disproportionately punished. I think people look at the system and see that it is unequal and unfair and it undermines the legitimacy of the government. I think that when we tried to reform the system politically and do regulatory reform, if we are letting the criminals get away with it, people don’t think that the reforms are good anyway. They think that the government is in the pocket of companies.
Scott: How do you see Donald Trump’s presidency and the leadership of Jeff Sessions at the Justice Department changing the current climate for white collar prosecutions?
Eisinger: I’ve been very critical of Eric Holder and I think Jeff Sessions will be an order of magnitude worse. I think we’re going to get an era of freedom for corporations to take all sorts of advantage of regulations. They’re going to be looking the other way. I think that any prosecutors at the Justice Department who want to do their job are going to be undermined. I am very pessimistic about what’s going to happen at the Sessions’ DOJ.
Scott: OK, so you must have some solutions to offer.
Eisinger: I do. I think that prosecutors need to be paid a lot more money so that the incentive to go to Big Law is reduced. And I think the Justice Department has to have a wholesale overhaul of its culture so that it creates the incentives to investigate and prosecute individuals. That’s the first thing. Second of all, they should draw from a different universe. They should have much more diversity — not just racial and gender diversity, but diversity of geographic experience so you’re drawing away from the elite law schools. And also professional experience, so you get older people — people who have soured on Big Law and want to go do public service, but don’t want to burnish their resumes. People who are consumer legal advocates or plaintiffs lawyers. Get a variety of people in there and have them really look at corporations in a different way, in a new light.
Click the above audio player to hear the full interview.
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