Speaker 1: Masters in Business is brought to you by the American
Speaker 1: Arbitration Association. Business disputes are inevitable, resolve faster with the
Speaker 1: American Arbitration Association, the global leader in alternative dispute resolution
Speaker 1: for over ninety years. Learn more at a d R
Speaker 1: dot org. This is Masters in Business with Barry Ridholtz
Speaker 1: on Boomberg Radio. This week on the podcast, I bring
Speaker 1: an old friend into the studio. His name is Jesse Eisinger.
Speaker 1: He has worked pretty much everywhere in the world of
Speaker 1: financial journalism. If you are at all curious as to why,
Speaker 1: during the worst financial crisis since the Great Depression, effectively
Speaker 1: nobody was sent to jail, at least nobody of any importance.
Speaker 1: A couple of Burger flippers who were hired to fabricate
Speaker 1: mortgage documents were threatened with prosecution. Handful of mid level
Speaker 1: traders the fabulous fab got finger wagged at him and
Speaker 1: paid a fine. But all of the people responsible for
Speaker 1: an epic collapse in the financial markets and the credit
Speaker 1: markets escaped unscathed. If you're curious as to how that
Speaker 1: came about, then you need to hear Jesse Eisinger's story.
Speaker 1: He is a very thoughtful investigative journalist has won numerous prizes,
Speaker 1: including the Pulitzer. Uh I don't find a whole lot
Speaker 1: to disagree with in his new book, whose title I
Speaker 1: cannot say on the radio, but I can say in
Speaker 1: the podcast, So you get to hear me cuss there
Speaker 1: with no further ado. Here is my conversation with Jesse Eisener.
Speaker 1: My special guest this week is Jesse Eisinger. He is
Speaker 1: currently a reporter for Pro Publica. He began his career
Speaker 1: at the South Pacific Mail in Santiago, Chile. Spent years
Speaker 1: at the Wall Street Journal, where he helped to create
Speaker 1: the Ahead of the Tape column and the Long and
Speaker 1: Short column. I originally know him from his work at
Speaker 1: the Street dot com. He has written for The New
Speaker 1: York Times, Deal Book, The New Yorker, The Atlantic. He
Speaker 1: was the Wall Street editor at Conde nast In He
Speaker 1: won the Lobe Award and he in two thousand eleven
Speaker 1: he won the Pulitzer Prize for national reporting on Questionable
Speaker 1: Wall Street practices. It was notable because it was the
Speaker 1: first ever Pulitzer given for online journalism. He is also
Speaker 1: the author of a book whose name I actually can't say,
Speaker 1: on the air. But we'll give it a we'll give
Speaker 1: it a loose I'll leave one word out, and it's
Speaker 1: called the Chicken Club. Why the Justice Department fails to
Speaker 1: prosecute executives? Jesse Eisinger, Welcome to Bloomberg. Thank you so
Speaker 1: much for having me. I know Jesse for a long time.
Speaker 1: I'm a fan of his work. And there's so many
Speaker 1: fascinating things in this book, which is written pretty much
Speaker 1: in the sweet spot of the world. I inhabit finance,
Speaker 1: legal and bad behavior. Those three then diagrams overlap, and
Speaker 1: this is the book that's the result of it. Let's
Speaker 1: begin where the book pretty much starts out, uh with
Speaker 1: Enron and Arthur Anderson. How significant were those two companies
Speaker 1: to the future lack of prosecution by the SEC and
Speaker 1: the Justice Department? They were crucial, is what my argument is.
Speaker 1: And you know, so I started this book with this puzzle,
Speaker 1: why don't we prosecute top corporate executives anymore? And I
Speaker 1: think it goes beyond just the financial crisis. Of course,
Speaker 1: we all know that no top bankers were put in
Speaker 1: prison for the financial crisis, But I think it started beforehand.
Speaker 1: This problem at the Justice Department, and it persists to today,
Speaker 1: and it goes beyond the banks to industrial companies, retailers, company's,
Speaker 1: pharmaceuticals UM. And so I was trying to figure out
Speaker 1: this puzzle, and I started with Enron because if you remember,
Speaker 1: and of course you do, we were talking at the
Speaker 1: time UM and after the bubble burst, an Aztec bubble burst,
Speaker 1: there were a wave of prosecutions, not just Enron, but
Speaker 1: World Comma, Delphia, Tycho, Global Crossing. Lots of executives did
Speaker 1: some time in the Great Bar, hard exactly, hard time
Speaker 1: in the pokey and so what changed, and really I
Speaker 1: locate this is the beginning the backlash and the problem
Speaker 1: started then in the kind of lobbying effort, a corporate
Speaker 1: and white collar defense bar lobbying effort against what they
Speaker 1: saw as overly zealous prosecutions of Enron and particularly Arthur Anderson.
Speaker 1: They were lobbying Congress, they were lobbying the Bar Association,
Speaker 1: they were lobbying the Judges Association. They pretty much were
Speaker 1: pulling every lever of power the defense bar I'm refined
Speaker 1: to that was possible exactly. And what they were arguing
Speaker 1: was that the prosecutors were overly aggressive, that they had
Speaker 1: um overcharged the executives, particularly of Enron, and I focus
Speaker 1: on en Ron UM and then Arthur Anderson, which was
Speaker 1: the kind of seminal corporate prosecution. So let's talk about
Speaker 1: Anderson a little bit because I find people have consistently
Speaker 1: mischaracterized that period. Let me ask you what killed Arthur Anderson.
Speaker 1: Arthur Anderson killed Arthur Anderson, UM, and we should be
Speaker 1: very clear about that. And UM. One of the big
Speaker 1: goals that I have in the book is to rehabilitate
Speaker 1: the prosecution of Arthur Anderson, because occasionally you do have
Speaker 1: to prosecute companies and put them out of business when
Speaker 1: they are rife with UH fraud, when they are serial
Speaker 1: abusers of the laws, the corporate laws, as what Anderson was. UH. Now,
Speaker 1: what happened with Anderson is that they they destroyed doc
Speaker 1: ms in the Enron We'll back up before we get
Speaker 1: to that. They had gone through a series of snaffos
Speaker 1: where as auditors, they did a terrible job. Companies in
Speaker 1: their charge got away with lots of fraud, and they
Speaker 1: engaged in all these consent decrees where they said, okay,
Speaker 1: you caught us, we promised to do better this time.
Speaker 1: We mean it, We're really not going to do much
Speaker 1: more fraud. And then as soon as Enron went down,
Speaker 1: they began this aggressive policy of hey, we haven't been
Speaker 1: subpoenaed yet. Shread everything exactly. And as Michael Chertoff, who
Speaker 1: was the head of the criminal division at the time,
Speaker 1: says in my book, this wasn't an ice cream company
Speaker 1: that was destroying documents. This is a company that was
Speaker 1: part of its business was legal advice for investigations. Uh.
Speaker 1: And so arguably preserving doctor and right and that means
Speaker 1: not destroying documents and not destroying evidence. What um they
Speaker 1: went on an orgy. You have tons and tons of
Speaker 1: document destruction, but email destruction, and email multiple cities, not
Speaker 1: just one person. Um. So this was a kind of
Speaker 1: system wide thing. But two, in the lead up to
Speaker 1: the crash, the NASDAT crash, there was a pandemic of
Speaker 1: accounting mouthfeasance at in corporate America. And chances are all
Speaker 1: the all the big auditors at the time were guilty.
Speaker 1: But chances were, if you were one of the bigger
Speaker 1: accounting frauds of the era, you were being audited by
Speaker 1: Arthur Anderson. And and to put a little flesh on that,
Speaker 1: people always blame the indictment. But weeks before the indictment,
Speaker 1: lots of but post end Ron bankruptcy, lots of big
Speaker 1: clients were fleeing Arthur Anderson. And then two weeks after
Speaker 1: the indictment, World Calm goes belly up more accounting fraud
Speaker 1: and guess who their auditor was, Exactly just like Enron,
Speaker 1: Arthur Anderson was the auditor for world Com. And so
Speaker 1: I argue that Anderson was going down, and not only that,
Speaker 1: I argue that the partners wanted it to go down,
Speaker 1: wanted it to unwind. Now, this wasn't a corporation, it
Speaker 1: wasn't publicly traded. It was a partnership. And to avoid
Speaker 1: the liability from all the lawsuits, they literally had dozens
Speaker 1: and dozens, maybe over a hundred lawsuits that they were facing,
Speaker 1: and they were going to face more with Arthur with
Speaker 1: World Calm. Um, you know that was it was a
Speaker 1: convenient excuse to say that the indictment caused the uh
Speaker 1: failure of the company. Of course it didn't help um,
Speaker 1: but but you know what my argument is that sometimes
Speaker 1: prosecutors can't worry about that uh that their jobs are
Speaker 1: to do justice. Their jobs are not to cushion the
Speaker 1: blow for failing companies. You write in the book, Today's
Speaker 1: Justice Department has lost the will and indeed the ability
Speaker 1: to go after the highest ranking corporate wrongdoers. Discuss. So
Speaker 1: it has been building since the backlash to Arthur Anderson.
Speaker 1: And what I argue now is that after Anderson, they
Speaker 1: turned to corporate settlements. Uh, and in doing corporate settlements
Speaker 1: deferred prosecution agreements non prosecution agreements. Now, let me stop
Speaker 1: you right there. Deferred prosecution agreement is here's the deal.
Speaker 1: We're gonna have you signed these documentations, and we're not
Speaker 1: going to throw the case out, but we're gonna hold
Speaker 1: it in a byance and if you could be good
Speaker 1: little boys for a year, a year from now, we'll
Speaker 1: we'll toss this out exactly X number of years. We're
Speaker 1: gonna Uh, we we've indicted you, and we can prove
Speaker 1: it in a court of law, they say, but we're
Speaker 1: just gonna put this aside for now, and uh, try
Speaker 1: not to do anything again. Now. Um, there are many
Speaker 1: problems with this. One is that there's no enforcement mechanism.
Speaker 1: Nobody really looks at it. Sometimes they install corporate monitors.
Speaker 1: That's a problem. Problematic solution. Why is that problematic, Well,
Speaker 1: it's problematic because this has become a giant racket for
Speaker 1: big law. UM and big law both likes the settlements.
Speaker 1: They that provides a lot of work for them to
Speaker 1: investigate the corporations. The big law firms like Paul Wise, Deba, Boys, Covington,
Speaker 1: and Burling do these investigations for these companies for their
Speaker 1: corporate clients, um, and then they deliver the results to
Speaker 1: the Department of Justice. The Department of Justice essentially reviews
Speaker 1: it without really looking at um, the conducting the investigation
Speaker 1: in and of itself. You're saying, the d J outsources
Speaker 1: the investigation to the defendants lawyers. Dirty secret of American
Speaker 1: corporate jurisprudence is that we have privatized and outsourced in
Speaker 1: corporate criminal investigations. That's astonished. And not only have we
Speaker 1: done it, we have private privatized and outsourced it to
Speaker 1: the criminals themselves to conduct investigates of themselves, alleged criminal
Speaker 1: alleged criminals, they hire their own attorneys. Their own attorneys
Speaker 1: conduct their investigations. These private law firms then deliver the
Speaker 1: results to the Department of Justice, which reviews them and
Speaker 1: it gets worse because the prosecutors who are reviewing them
Speaker 1: are tend to be people who are job candidates for
Speaker 1: the very law firms that I was about. The investors
Speaker 1: have to ask you, didn't we see after you know,
Speaker 1: the early two thousands, these life for prosecutors who have
Speaker 1: been in d O J and sec and the second Circuit.
Speaker 1: They all end up going when when, to be fair,
Speaker 1: the departments are changing and it's no longer the job
Speaker 1: they loved, but they set a path and they end
Speaker 1: up working at these big firms are very well compensated,
Speaker 1: and that now that path is will trod from from
Speaker 1: the prosecution exactly. The most prestigious offices in the Department
Speaker 1: of Justice, the Southern District of New York, which does
Speaker 1: most of the Wall Street prosecutions and many corporate prosecutions,
Speaker 1: and main Justice down in d c UM those are
Speaker 1: now effectively like post uh juris doctoral um let me
Speaker 1: each other. Those are essentially post doc um. Employment for
Speaker 1: lawyers who are training to become white collar defense work
Speaker 1: wasn't always They're not it is never. It has not
Speaker 1: always been that way. In fact, in the nineteen sixties
Speaker 1: it wasn't that way at all, Uh, these prosecutors did
Speaker 1: not go to these white shoe firms. White shoe firms
Speaker 1: didn't really have this big corporate criminal litigation business. They
Speaker 1: looked down on criminal defense, even white collar criminal defense exactly,
Speaker 1: and so they some of them went into kind of
Speaker 1: transactional work um, which was very different. Um. White collar
Speaker 1: criminal defense was conducted by boutiques. The Department of Justice
Speaker 1: focused on individuals, not on corporate non incorporations, um. And
Speaker 1: so there's been a complete transformation. And what I argue
Speaker 1: in the book is that big Laws approach to how
Speaker 1: it defends corporations has developed alongside and in symbiosis with
Speaker 1: the Department of Justices way that it approaches corporate prosecutions,
Speaker 1: investigations and prosecutions, and they've all sort of influenced each other,
Speaker 1: and there's been this cross pollination. And then they go
Speaker 1: back and forth from the government to the private sector
Speaker 1: and back to the government and back to the private
Speaker 1: sector again. And now it's almost like you know that
Speaker 1: line at the end of Animal Farm where you could
Speaker 1: no longer tell who the government people are and who
Speaker 1: the defense people are, who the pigs are on the
Speaker 1: one side, and who the pigs are on the other side,
Speaker 1: and it's a it's a deeply profoundly troubling and corrupt
Speaker 1: system when it allows corporate malefactors individuals to get off.
Speaker 1: So you you describe in the book how the Department
Speaker 1: of Justice loses the ability to prosecute criminal litigation against
Speaker 1: corporate wrongdoers. Explain that, So what happens is they find
Speaker 1: that these settlements are much easier to reach because they
Speaker 1: the company has to come to the table and negotiate.
Speaker 1: The company says, well, we're just being extorted. We we
Speaker 1: have to pay a fine because, um, the cloud of
Speaker 1: a government investigation is so great, we must resolve this.
Speaker 1: The prosecutor that works and you know there's some validity
Speaker 1: to that, um, And the prosecutor uh then says, well,
Speaker 1: we're gonna find you an enormous amount of money. What
Speaker 1: the prosecutors don't really do anymore is and look at individuals.
Speaker 1: And the point of the Enron investigation, at the point
Speaker 1: of starting the book with the Enron narrative, is that
Speaker 1: they put enormous amount of resources. They devoted an entire
Speaker 1: team to do the that one prosecution individual the Enron
Speaker 1: Task Force, and they essentially lock them in a room
Speaker 1: and made them study the company from the bottom up
Speaker 1: and start indicting lower level people to get to the top,
Speaker 1: just the way you do with a mob family. Um,
Speaker 1: you have to roll the soldiers to get to the
Speaker 1: compos um. That art has really been lost over the
Speaker 1: last fifteen years, and the Department of Justice just does
Speaker 1: not do that anymore. They essentially stop at the middle
Speaker 1: when they prosecuted individuals, and occasionally they do at a
Speaker 1: big bank, they're essentially stopping at the trader who was responsible.
Speaker 1: Sometimes they do a low level trader, sometimes they do
Speaker 1: his or her boss, but they rarely get higher to
Speaker 1: the executive level. You're at the journal for a long time,
Speaker 1: weren't you? Almost seven years you and in fact you
Speaker 1: helped to create the Ahead of the Tape column, which
Speaker 1: just ended. What is that like, a fifteen year run? Yes,
Speaker 1: I was really sad to see a daily column that
Speaker 1: was You went from daily to the Long and Short
Speaker 1: was a weekly. I have written every column, uh known
Speaker 1: to man. I've written a daily, I've written a weekly
Speaker 1: times a week. I've read a weekly, and you went
Speaker 1: to monthly a portfolio. If I do one to decade,
Speaker 1: then then you moved to to pro publico where it's quarterly,
Speaker 1: and now the book is out after a year, so
Speaker 1: it's annual, and soon soon it will be a decile publication.
Speaker 1: I'm trying to convince my edit decade. So so I
Speaker 1: I often ask authors, Hey, what's the inspiration behind the book?
Speaker 1: But with you, I know what the inspiration is because
Speaker 1: the lack of prosecution has been infuriating to all of us,
Speaker 1: either on Wall Street, in finance, in journalism. What was
Speaker 1: the last straw that made you say I really have
Speaker 1: to write a book about this? Well, you know, Uh,
Speaker 1: we wrote about c d O s and the Magnetar
Speaker 1: trade betting against CDOs for your own account all received series.
Speaker 1: That's the series that won the Pultzer, which we were
Speaker 1: really grateful and lucky for. And um, after that, my
Speaker 1: colleagues and I sat around expecting to see some criminal
Speaker 1: investigation and nothing happened. And then we watched that nothing
Speaker 1: happened with Lehman Brothers or a I G Or Bank
Speaker 1: of America or city you know, um, and you know,
Speaker 1: countrywide and it was utterly baffling and an enormous scandal.
Speaker 1: And and this has been plaguing me since then. And
Speaker 1: the economy and our entire body politics, I think so,
Speaker 1: I think it contributed to Trump. It's certainly contributed to
Speaker 1: the rise of the two most potent movements on the
Speaker 1: left and the right, Occupy Wall Street and the Tea Party.
Speaker 1: I think it it undergirds the anger at Trump, and
Speaker 1: it undermined Hillary Clinton and Obama because I think people
Speaker 1: mistrusted them because they thought they were in the pocket
Speaker 1: of Wall Street. Uh for this reason as paramount. So,
Speaker 1: I thought it was one of the great scandals of
Speaker 1: our time, and I thought it really deserved some kind
Speaker 1: of serious accounting that tried to get at the deep,
Speaker 1: fundamental and corrosive aspects um in society. This is not
Speaker 1: an easy problem, and it's not an easy solution, and
Speaker 1: there's not It's not a conspiracy. You know, Tim Geitner
Speaker 1: did not call up Eric Holder and say lay off.
Speaker 1: It's something more troubling, because it's something more pernicious and
Speaker 1: more fundamental. So I have not not so much a conspiracy,
Speaker 1: but I have argued that the greatest innovation of Wall
Speaker 1: Street has not been the A T M or securitization,
Speaker 1: but that it's been convincing the Department of Justice in
Speaker 1: the sec that if you prosecute us, the entire economy
Speaker 1: is coming down, right, all right? So how First of all,
Speaker 1: I have yet to find anything that demonstrates that that's wrong.
Speaker 1: And second you're you're really saying that it's much more
Speaker 1: systemic than that moment. This is something that's taken place
Speaker 1: over a long arc of time. You know, we saw
Speaker 1: it in the financial crisis, most prominently UM. That's when
Speaker 1: it became clear that this was a big problem, but
Speaker 1: it really was building before then. There was no prosecution
Speaker 1: of the backstock option backdating scandal, which was which was huge,
Speaker 1: tremendous paper trail, should have been easy to process, should
Speaker 1: have been much easier to prosecute than it was, which
Speaker 1: raises a question of whether the skill set is there,
Speaker 1: whether the will is there, whether they devote enough resources
Speaker 1: to it. And I don't think that the answer is
Speaker 1: yes to any of those questions and the UM but
Speaker 1: you know it wasn't It's not just the banks. That
Speaker 1: was a wonderful innovation that the bank said were too
Speaker 1: big to jail, too big to fail, and too big
Speaker 1: to jail. But you're seeing this with recidivist pharmaceutical companies.
Speaker 1: Fiser has had has um subsidiary plead guilty to one
Speaker 1: problem and has ad uh A d p A as
Speaker 1: an NP NBA. They'd say, on and on and on.
Speaker 1: You see Walmart getting away with bribery in Mexico that
Speaker 1: the New York Times had them dead to rights with
Speaker 1: all the internal documents. UM we are seeing this across
Speaker 1: the economy and UM so this is impunity at the
Speaker 1: highest level of corporate America. What they do instead is
Speaker 1: prosecute CEOs of smaller companies or that head of a
Speaker 1: hedge fund, raj Rajer Rottenham can be prosecuted because he's
Speaker 1: committed a crime that the prosecutors are comfortable prosecuting, insider trading.
Speaker 1: It's an easy thing to sell to the jury. And
Speaker 1: when UM Galleon goes out of business, it only puts
Speaker 1: five or six or ten or twenty people out of business.
Speaker 1: It's not putting the entire UH thousands, tens of thousands
Speaker 1: of people out of work, and they're terrified. My special
Speaker 1: guest today is Jesse Eisener. He has written for such
Speaker 1: August publications as The Wall Street Journal, The Atlantic, New York,
Speaker 1: The New York Times, etcetera, etcetera. He is currently the
Speaker 1: author of a book whose title I cannot say, but
Speaker 1: we can at least talk about where the title came from.
Speaker 1: So the actual title is the Chicken Blank Club, the
Speaker 1: Justice Department and the failure to prosecute white collar criminal
Speaker 1: blank being a word that George Carlin would appreciate as
Speaker 1: one of the seven words you can't say on TV.
Speaker 1: Tell us about the derivation of the title. Sure, my
Speaker 1: children love the title, which makes my wife really not
Speaker 1: like the title. Um. But and I'm so glad that
Speaker 1: Simon and Schuster went with it. Um. I think they
Speaker 1: went with it because it is actually organic. It is
Speaker 1: a real statement that came from, of all people, Jim Comey,
Speaker 1: who you may remember from such things as the testifying
Speaker 1: in front of the Senate after being fired for being
Speaker 1: FBI director, But fifteen years ago he was the US
Speaker 1: at turn for the Southern District of New York and
Speaker 1: he had just replaced Mary Joe White, and Mary Joe
Speaker 1: White was a legend. Um. And he comes in and
Speaker 1: he gathers everybody together, and uh, they're a little trepidacious
Speaker 1: about him. Um. And they gathers all the criminal prosecutors
Speaker 1: and these guys you have to understand, are the best
Speaker 1: of the best of the best. They've gone to the
Speaker 1: best high schools, to go to the best colleges, to
Speaker 1: get into the best law schools, to perform the best,
Speaker 1: to get to the best clerkships, and then they go
Speaker 1: to the southern district. These are talented and brilliant people, um.
Speaker 1: And they all think of themselves as towns a billion
Speaker 1: people um. And so he gathers them all and he says,
Speaker 1: how many of you have never lost a case? And
Speaker 1: a bunch of hands shoot out very proudly there, you know,
Speaker 1: chest stuff out and he says, so, me and my
Speaker 1: buddies have a name for you. You guys are the
Speaker 1: Chicken expletive Club. And the hands go back down and
Speaker 1: they're sort of sheepish, meaning there's a point here, exactly.
Speaker 1: And the point was you aren't taking ambitious enough cases.
Speaker 1: If you never lose, it means you're only taking easy cases, exactly.
Speaker 1: You're taking the low hanging fruit. And that's not justice.
Speaker 1: You're trying to protect a record. But being a prosecutor
Speaker 1: for the government is not about protecting a record. It's
Speaker 1: not about going when um, you know, going under it.
Speaker 1: It is about doing justice and sometimes doing justice means
Speaker 1: that you take a hard case and present your evidence
Speaker 1: to a jury and then juries are unpredictable, and sometimes
Speaker 1: they go with you and sometimes they don't. But justice
Speaker 1: has been served. That's a really insightful position from someone
Speaker 1: who's the head of a department of prosecutors. Like, we
Speaker 1: don't really know a lot about come me, other than
Speaker 1: the recent news flow, which has been insane. In other words,
Speaker 1: he's a principled guy who's telling them, hey, the hell
Speaker 1: with your record, you have to do justice. Me is principal.
Speaker 1: I agree. I mean he's got um, he's imperfect. I
Speaker 1: have another episode where he really blinks on a corporate
Speaker 1: prosecution of the book about kpmg UM and you know,
Speaker 1: he is a guy who thinks a great deal of himself. Um.
Speaker 1: But it is very it's a very important concept. And
Speaker 1: you don't see leaders of these organizations, um without a
Speaker 1: fear of losing. They're terrified of losing, and they're terrified
Speaker 1: of the humiliation of losing a trial. And you saw
Speaker 1: that with Pre Barrara, who has a great reputation as
Speaker 1: a crusader, especially as the supposed Sheriff of Wall Street.
Speaker 1: But in fact, I think blinked on investigations and prosecutions
Speaker 1: of Wall Street banks and didn't want to take the
Speaker 1: chance he might lose and and damages. He didn't want
Speaker 1: to take the difficult course of doing the tough investigations
Speaker 1: and then didn't want to lose his pristine record and
Speaker 1: to take on, for instance, Stevie Cohene at S A C. Capital, didn't,
Speaker 1: you know, didn't want to take him to trial because
Speaker 1: he was worried he might lose, and that which was tough. Also,
Speaker 1: it was a tough case. But at some point I
Speaker 1: do anything, I think justice requires that you take Stevie
Speaker 1: Cone to trial, and the hard cases, you know, you
Speaker 1: take somebody like Stevie Cone to trial, You present the
Speaker 1: evidence in public, you present the evidence of the jury,
Speaker 1: and if the jury disagrees with you, it's not necessarily humiliation.
Speaker 1: You have been exonerated. And um that is that is
Speaker 1: a bad day at the office. But it should not
Speaker 1: be the overarching goal of the government should not beat
Speaker 1: to win the At the very least, there's a failure
Speaker 1: to supervise case. Although that's more civil than criminal if
Speaker 1: you're talking about capital or just look at what's happened now,
Speaker 1: is they pay a big fine and Stevie Cone continues
Speaker 1: to operate and then you know he's soon going to
Speaker 1: be back in the hedge fund business. Called kind of
Speaker 1: message does this send to him, to any of his employees,
Speaker 1: to any other wrongdo or anybody contemplating a life of
Speaker 1: crime on Wall Street of which there are way too many. Um,
Speaker 1: you know, it sends a terribleness. So you reference KPMG.
Speaker 1: Let's talk about that, because I find that to be
Speaker 1: a fascinating judicial decision, a fascinating case. First tell us
Speaker 1: a little bit about what was going on with KPMG
Speaker 1: that it led to a prosecution. So soon after this
Speaker 1: Arthur Anderson case, as we were talking about, uh, there's
Speaker 1: an investigation at the Southern District of New York into
Speaker 1: KPMG and this was another major auditor and they were
Speaker 1: selling illegal tax shelters to wealthy individuals to help them
Speaker 1: avoid taxes. I R S is the people who refer
Speaker 1: this to arrest, refers to reverse it. There's red um. Yeah,
Speaker 1: there's a big Senate investigation from Carl Levin's group by
Speaker 1: partisan exposing enormous amount of um deeply questionable dealings. This
Speaker 1: should have been there, should have been a relatively easy prosecuted,
Speaker 1: well complicated, but complicated tax stuff but um really serious
Speaker 1: amount billions and billions of dollars in alleged fraud here
Speaker 1: um and lots and lots of paper trail and named partners,
Speaker 1: named individuals, and the Southern District names over a dozen individuals,
Speaker 1: mostly KPMG executives, um. And then what happens is KPMG
Speaker 1: cuts off there um paying for their defense. Now that
Speaker 1: wasn't sue sponsor that was at the urging, Well, it's
Speaker 1: incredibly controversial and um. What later happens, to cut a
Speaker 1: long story short, is that the federal judge and the
Speaker 1: overseeing the case determines that the prosecutors the government has
Speaker 1: forced KPMG to cut off the funding for their these
Speaker 1: executives defense, and he throws out the cases against all
Speaker 1: the individual executives. And he essentially creates out of whole
Speaker 1: cloth a new constitutional right, the right to have the
Speaker 1: best attorney money can buy. If you can afford it,
Speaker 1: or rather, if your company can afford it, then you
Speaker 1: are allowed to have, um, the most expensive attorney in
Speaker 1: the land. Now, I just goes without saying that street
Speaker 1: criminals and public defenders don't have this. Well, hold hold
Speaker 1: that thought a second. So this is Judge Kaplan in
Speaker 1: the Eastern district or the Southern district. Is the Southern
Speaker 1: district still sitting? Yeah, still sitting, as is Raykoff and
Speaker 1: a couple of other judges who are referenced in the
Speaker 1: book giants of of securities litigation and all sorts of Rakoff.
Speaker 1: Certainly right, and and Kaplan himself is well regarded a
Speaker 1: democratic appointee. Um, but came from the world of corporate law.
Speaker 1: But but here's the thing that's so fascinating. And you
Speaker 1: were alleging that there is no right to a near
Speaker 1: infinite set of resources to hire the most expensive attorneys
Speaker 1: in the land, even if you're a corporate executive, even
Speaker 1: though if you've been paid millions of dollars in salary
Speaker 1: and stock options. Why wouldd anyone imagine that you have
Speaker 1: the right to the most expensive council in the world.
Speaker 1: In the book, you show examples that are insane, how criminals,
Speaker 1: how blue collar criminals are routinely denied the right to counsel,
Speaker 1: including a lawyer arrested for dee we on the way
Speaker 1: to trial and the court said no, he's he's fine,
Speaker 1: there was no ineffective assistance counsel just because he's arrested.
Speaker 1: But that was just the most agreed just But there
Speaker 1: are hundreds of examples of non white collar criminals who
Speaker 1: are really prevented the right to UH lawyer, and the
Speaker 1: Supreme Court seems okay with it. Yeah, this is an undercurrent.
Speaker 1: Is just the terrible double standard here between street criminals
Speaker 1: and white collar criminals in in the American jurisprudence. UM.
Speaker 1: But you know, even if you argue you that it
Speaker 1: is UH, it does not sit well with us for
Speaker 1: an employer to cut off the legal defense for wrongdoing,
Speaker 1: especially in the course of doing your job as a journalist.
Speaker 1: I want Pro Publica to pay for my legal defense
Speaker 1: if I'm accused of libel um. Even if we think
Speaker 1: that that was UM questionable and debatable. And I go
Speaker 1: back and forth on the the actual merits of the case.
Speaker 1: One thing is I don't think that the cases needed
Speaker 1: to be thrown out. I think the prosecutions could have
Speaker 1: gone forward against the executives. The second thing is that
Speaker 1: it had had an enormous effect on these guys. The
Speaker 1: prosecutors reluctance to charge individuals So you have Anderson where
Speaker 1: they don't want to indict um any companies. Then you
Speaker 1: have KPMG where after that they're very reluctant to prosecute
Speaker 1: top executives. So what are they left with its settlements
Speaker 1: and these companies get away with paying, writing a check
Speaker 1: and um wiping the slate. To be fair, you can't
Speaker 1: really expect to sitting judge to understand the concept of
Speaker 1: judicial precedent when decision. I mean, he would actually have
Speaker 1: to be oh eight, he was a sitting judge. Isn't
Speaker 1: that what he Isn't that what case law? He was
Speaker 1: very proud. He had his wife come to that to
Speaker 1: watch when he read the ruling. I mean, this is
Speaker 1: one of what he viewsed as one of his crowning achievements.
Speaker 1: We have been speaking with Jesse Eiinger. He is the
Speaker 1: author of the new book The Let's Call It the
Speaker 1: Chicken Club, about the Justice Department's failue to prosecute white
Speaker 1: collar criminals. Check out my daily column. You can find
Speaker 1: that on Bloomberg view dot com. Follow me on Twitter
Speaker 1: at rid Halts. We love your comments, feedback and suggestions
Speaker 1: right to us at m IB podcast at Bloomberg dot net.
Speaker 1: I'm Barry rid Halts. You've been listening to Masters in
Speaker 1: Business on Bloomberg Radio. If you're having a business dispute,
Speaker 1: the process can be slow and drawn out, especially if
Speaker 1: you rely on litigation in the courts. You can wait
Speaker 1: for years before your case is resolved, and the longer
Speaker 1: your case proceeds, the more your case can cost. Not
Speaker 1: with the American Arbitration Association. Arbitration or mediation with the
Speaker 1: American Arbitration Association is faster. In fact, nearly fifty of
Speaker 1: our cases settled prior to hearings. A d r dot
Speaker 1: org resolve faster. Welcome to the podcast, Jesse. Thank you
Speaker 1: so much for doing this. I've been looking forward to this,
Speaker 1: I have to This has been great. Like eighty pages
Speaker 1: left in the book. I was plowing through it the
Speaker 1: past week and there are there are things in it
Speaker 1: that are just infuriating. Good. You're good. I don't know
Speaker 1: if that was your Absolutely indeed, is to make people
Speaker 1: outread the The assistance of council stuff is just insane.
Speaker 1: That it's more than a double standard. It's if you're
Speaker 1: poor and probably of color or lower income, lower economic strata. Hey,
Speaker 1: you should have thought about that. Before you committed the crime.
Speaker 1: You know the lawyer got a plan ahead. But if
Speaker 1: you're wealthy, if you're a white collar criminal, well you
Speaker 1: planned ahead and you worked for a big company, and
Speaker 1: they could certainly pay for your your lawyer no matter
Speaker 1: what it costs. That's what the constitution guarantees. Not only that,
Speaker 1: but the courtesy afforded these lawyers. So what happens is
Speaker 1: you get Um, if you're the subject of an investigation,
Speaker 1: the target of an investigation, you never see a prosecutor.
Speaker 1: You They bring your lawyer in for a light series
Speaker 1: of conversations about what their evidence is, what your defense
Speaker 1: might be. Um, there's an enormous number of uh fights
Speaker 1: over what you have to produce in discovery. The public
Speaker 1: never sees any of this. Uh. You are treated with
Speaker 1: the utmost grace and respect and polly tests. UM. Suffice
Speaker 1: it to say, street criminals don't quite get now. Didn't
Speaker 1: people like Spitzer and Giuliani start the frog march? They
Speaker 1: would walk into a place, blue jackets with the windbreakers
Speaker 1: with FBI or d e A or whatever on the back,
Speaker 1: and they would grab whoever, put him in handcuffs and
Speaker 1: march him out with what a coincidence. There's all the
Speaker 1: media waiting with TV and and so occasionally you get
Speaker 1: a prosecutor with UM ambitions not to go into big
Speaker 1: white whoo firms UM, and so they you know, they
Speaker 1: rea havoc UM and they kind of do their jobs.
Speaker 1: I think Giuliani, after before being a kind of UM
Speaker 1: overly uh cruel and not particularly competent mayor was UM
Speaker 1: was an aggressive prosecutor, but there was an enormous backlash
Speaker 1: after him. UM. The courts then, odd enough, kind of
Speaker 1: take it on themselves. They see their role as to
Speaker 1: correct overly zealous prosecutors. UM. Not in street criminals, where
Speaker 1: they're often affirming them, but in corporate arena and white
Speaker 1: college criminals they can get their backs up exactly. You know.
Speaker 1: It's it's you don't relate to the crackhead, you don't
Speaker 1: relate to the guy stealing whatever ten bucks. If you're
Speaker 1: a judge who's gone to college law school and you
Speaker 1: live in suburban I mean there is a lot of
Speaker 1: elite affinity. I think, UM that kind of undergirds both
Speaker 1: the prosecutions. The prosecutors are from the same schools, and
Speaker 1: they when they're prosecuting these people they're either prosecuting their
Speaker 1: um their peers or their parents and their peers, and
Speaker 1: they're the parents of their peers are being defended by
Speaker 1: their boss's former boss. Um. This is just this whole
Speaker 1: milieu that they're in. The judges come from it. If
Speaker 1: we talked about Louis Kaplan in the Southern District earlier,
Speaker 1: he was a Paul Weiss partner UM. And so you
Speaker 1: know when he says he's looking at um the prosecutors
Speaker 1: cutting off the defense funding from top law firms and
Speaker 1: top lawyers, yea, he thinks, like, you guys, this is
Speaker 1: just not done or I don't know what he's thinking,
Speaker 1: but you know this, it's you can read into that
Speaker 1: this is improper. He says, we do not do this
Speaker 1: in this country. You use the example of Bill Bennett,
Speaker 1: who was came out of was it the Bush or
Speaker 1: the Reagan White House? Bob Bennett, Yeah, yeah, Bob Bennett,
Speaker 1: the who brother William Bennett, who was the he is um. Uh.
Speaker 1: You know, he's President Clinton's personal lawyer, UM, and he
Speaker 1: negotiates on behalf of KPMG. They get a power lawyer
Speaker 1: and he's incredibly savvage and he's not just a courtroom litigator.
Speaker 1: He's a guy in the holes of power in the
Speaker 1: White House. In Congress, he is they're mixing it up
Speaker 1: with oh, with the head of the Appropriations Committee who
Speaker 1: calls the Justice Department and says, we're having a little
Speaker 1: bit of problem funding your agents exactly. And what he
Speaker 1: what he does Southern District. Well, when the Southern District
Speaker 1: is prosecuting KPMG, they keep issuing ultimatums to him, and
Speaker 1: he keeps saying, okay, okay. What what he's really doing
Speaker 1: is he's gone right to the top of the Bush
Speaker 1: administration Department of Justice, right to the Attorney General, and
Speaker 1: right to the Deputy Attorney General, who by this time
Speaker 1: is none other than Jim Comey. And Jim Comey calls
Speaker 1: down to the calls up to the Southern District U S.
Speaker 1: Attorney at the time and says, you guys have to
Speaker 1: you can indict KPMG. You have to post try to
Speaker 1: post Arthur Anderson, um, you know. And it's unsaid that
Speaker 1: we don't want this. It's unsaid that we are worried
Speaker 1: about what having another Anderson on our did he say
Speaker 1: you have to lay off this Russia investigation effectively what
Speaker 1: he says the cloud. Um, no, he's found a spine
Speaker 1: uh in this administration. Exactly. When it comes to that
Speaker 1: kind of thing, they do better than corporate press ecusions.
Speaker 1: I gotta say, Um, well, you know, I think that
Speaker 1: this elite affinity does not plague them when it comes
Speaker 1: to corrupt politicians. They look at somebody like look at Preparara.
Speaker 1: When he looks at Sheldon Silver or Dean Skelos, these
Speaker 1: top New York State politicians, he sees them as scummy.
Speaker 1: And I weren't afraid to go and I didn't go,
Speaker 1: you know, And I think it helps that you know
Speaker 1: that it outrages them. I think that these people are moral. Um,
Speaker 1: but you know that they didn't go to the same schools,
Speaker 1: and they didn't aren't at the same law firms. You know,
Speaker 1: Sheldon Silver was a kind of two bit plaintiff's lawyer
Speaker 1: and so Um. They have a very different attitude to
Speaker 1: those people than they do to a Lloyd Blankfind or
Speaker 1: a Jamie Diamond. Um, they treat them with much greater respect.
Speaker 1: And to be fair, Lad Blankfind and Jamie Diamond have
Speaker 1: not been accused of any undoing, any wrongdoing. Yeah, exactly,
Speaker 1: I'm just saying that they in this kind treat get
Speaker 1: the kind of respectful treatment Steve Jobs got enormously respectful.
Speaker 1: Do you despite the stock option back dating, but despite
Speaker 1: being dead to rights on a collusion over engineer salaries?
Speaker 1: Do you remember that Google things that people have gone
Speaker 1: to prison for UM And that's a recent development, only
Speaker 1: in the past. Well, so there's never been a golden
Speaker 1: age where the rich and powerful really had to fear
Speaker 1: for the liberty if they stepped over the line. But
Speaker 1: as I say in the book, there have been silver ages.
Speaker 1: There have been better period. So we had Mortgage in
Speaker 1: the sixties UM and Bob Fisk in the seventies DO
Speaker 1: focusing on individuals taking on high level corporations UM. And
Speaker 1: then we had Juliani, we had the end round world,
Speaker 1: come a Delphia prosecutions. Now we are in a terrible crisis.
Speaker 1: So if you if you want to commit widespread fraud,
Speaker 1: don't be a Bernie Maid. Don't open a small hedge fund,
Speaker 1: run a big bank, Run a big, big corporation, and
Speaker 1: you're pretty much bulletproof. UM. Wann't run a big corporation.
Speaker 1: Surround yourself with UM compliance officers, lawyers, UM, don't ask
Speaker 1: too many questions about a division that is making too
Speaker 1: much money. UM, be studiously incurious, UM studiously incurious. That's
Speaker 1: a that's a title to the book that we can
Speaker 1: actually say on the radio. There you go, studily studiously
Speaker 1: incurious when you want to investigate, UM, the wrongdoing at
Speaker 1: your company. Higher a firm that is also a law
Speaker 1: firm that is also incurious enough not to ask questions
Speaker 1: of things that will lead them the investigation to the
Speaker 1: c suite or the board. So you reference in the
Speaker 1: book the ability of accountant firms and law firms to
Speaker 1: provide cover for what's pretty obvious frauds and pretty obvious
Speaker 1: UM studious in curiosity. How significant are those organizations to
Speaker 1: the institutionalization of fraud. Well, we talked about it earlier
Speaker 1: that UM. The law firms are key to this now
Speaker 1: because they conduct the internal investigations and the prosecutors don't
Speaker 1: do it, especially if it's something like oversees wrongdoing. UM.
Speaker 1: The Department of Justice thinks that it cannot prosecute UM
Speaker 1: Foreign Corrupt Practices Act bribery UH, because they can't what
Speaker 1: it's a lot that they It's not that they can't
Speaker 1: prosecute it's that they can't investigate it um and so
Speaker 1: they outsource the investigations to companies and they say, what,
Speaker 1: you know, just think of the resources that we would
Speaker 1: need to do that. And my answer is, if you
Speaker 1: don't have the resources to sufficiently prosecute something, focus on
Speaker 1: things that you can prosecute or get the resources. It's
Speaker 1: not an excuse to just say our jobs are hard
Speaker 1: or we don't have the money. We don't. I mean,
Speaker 1: what do we gotta what do we gotta o J for? Right?
Speaker 1: That's exactly right. It's you know, one of the things
Speaker 1: that I was thinking about when I was reading the
Speaker 1: book was it wasn't just the lawyers, it was the accountants.
Speaker 1: And one of the parallel developments over the lack of
Speaker 1: accountability for corporate executives including accountants, lawyers, orders, etcetera. I
Speaker 1: don't think it's a coincidence that as there's been less
Speaker 1: prosecutions of wrongdoing and the accounting rules have gotten squish
Speaker 1: year and squish ear with who can really rely on
Speaker 1: on corporate statements anymore, simultaneous to the huge rise of indexing,
Speaker 1: that people have kind of reached the conclusion, hey listen,
Speaker 1: I can't tell what earnings legitimately are. How can I
Speaker 1: be a value investor if these are all nonsense? So
Speaker 1: I might as well just buy the whole market and
Speaker 1: hope for the best. Yeah, I think that's true. And
Speaker 1: I UM, if you look at the ai G investigation,
Speaker 1: and I go through a series of A I G
Speaker 1: doings and investigations in the book, um, the last one
Speaker 1: where they blew up on the CDs market and the
Speaker 1: mortgage market. Um, sort of pivots on a very arcane,
Speaker 1: little handwritten note in the margins from the auditors at
Speaker 1: p WC and the higher ups that the Department of
Speaker 1: Justice are so shaken by the existence of this note
Speaker 1: that seems to suggest that PwC partners had some knowledge
Speaker 1: of this, that they put the kai bosh on the
Speaker 1: whole indictment, the whole investigation, so that it's so. In
Speaker 1: other words, we found in this year that senior people
Speaker 1: knew about this. We better not yeah exactly, instead of saying,
Speaker 1: my god, if the PwC people knew about this, maybe uh,
Speaker 1: maybe things were worse. Maybe we need to go higher up,
Speaker 1: Maybe we need to prosecute more. Maybe we need to
Speaker 1: put a lot of pressure on the auditors what the
Speaker 1: innovation in the seventies from the Southern District and from
Speaker 1: the SEC. UM. And I cover this in the book
Speaker 1: Stanley Sporkin sort of the father of an enforcement UM.
Speaker 1: At the SEC they put pressure on the auditors and
Speaker 1: the lawyers. They put pressure on the enablers UM. He
Speaker 1: calls them the gatekeepers UM. And the problem is that
Speaker 1: we don't do that anymore. We don't put pressure on
Speaker 1: the lawyers, and we don't put pressure on the lawyers
Speaker 1: and the auditors to lesser extent, but the lawyers especially UM.
Speaker 1: One of the big problems is that these guys want
Speaker 1: to go become corporate lawyers and make two five eight
Speaker 1: million dollars a year. So the revolving door is this
Speaker 1: perennially corrosive um aspect of this whole thing. Before I
Speaker 1: get to my favorite questions, I have to at least
Speaker 1: during the podcast make reference to the actual title of
Speaker 1: the book, and hopefully, hopefully this will make through one bleeped.
Speaker 1: This is, by the way, published by Shimon Simon and
Speaker 1: Schuster coming out the Chicken Ship Club, the Justice Department
Speaker 1: and failure to prosecute white collar criminals, and the phrase
Speaker 1: chicken ship club comes from the speech by Jim Comey.
Speaker 1: That's pretty much how you managed to get Simon and
Speaker 1: Schuster say that. That's astonishing. What was that? What was
Speaker 1: by the way, I have this fantasy about The Big Short.
Speaker 1: There's a line in it from I forgot who uh
Speaker 1: in the book says the line um, but the line
Speaker 1: is the poor And I just have this picture of
Speaker 1: Michael Lewis arguing, no, no, no, the Big Short is
Speaker 1: a subtitle. The Poor is the name of the book,
Speaker 1: and it's a quote because this guy said it. And
Speaker 1: obviously that doesn't happen. But the S word seems less
Speaker 1: offensive than the F word these days, for sure. So
Speaker 1: what was the pushback like? And by the way, everything
Speaker 1: I just said, I'm sure we'll get But what was
Speaker 1: the pushback like to the name? Even though there was
Speaker 1: I kept waiting for it and it never materialized. I
Speaker 1: think Simon and Schuster, you know, I think the book
Speaker 1: their adults also the book business and stuff these days,
Speaker 1: and you gotta get people's den and somehow it's it's clickworthy.
Speaker 1: It's a little buzz buzz. Yeah. So you know, my
Speaker 1: wife sort of feels like it's a little crude. She's
Speaker 1: like something a little bit more refined. Um, I felt like, look,
Speaker 1: this is this is really encapsulates it and it also
Speaker 1: is you know, I couldn't come up with it on
Speaker 1: my own. It came from Jim Comey. He really said it,
Speaker 1: and you get suddenly he's in the news and talk
Speaker 1: about you know, I really I was worried when his
Speaker 1: reputation sank in the election with the Hillary intervention of
Speaker 1: the campaign, and everybody thought were so, you know, on
Speaker 1: the left, we're so angry about Hillary. Now he's revived.
Speaker 1: That's all good for the So so let's jump over
Speaker 1: to my favorite ten questions, and this is sort of,
Speaker 1: um tell us. One important thing people don't know about
Speaker 1: your background? Oh man, Um well, uh, I have no
Speaker 1: education beyond college. I didn't study law, I didn't study
Speaker 1: any finance. I didn't study accounting. I'm faking everything. Okay.
Speaker 1: That's the reason that James Glick said something very similar.
Speaker 1: Every time he picks up a new subject. Um, it's
Speaker 1: that's his education. He becomes educated enough to be able
Speaker 1: to ask questions. You must do something similar. Yeah, I'm
Speaker 1: very curious. By the way, the best thing about this
Speaker 1: show is I'd become an inveterate name dropper, not on
Speaker 1: person on purpose, but it's like, well, when I was
Speaker 1: speaking to Jim Click, he said, and I love his
Speaker 1: his If you haven't read the information, oh I should, Yeah, astonishment. UM,
Speaker 1: tell us about some of your early mentors who influenced
Speaker 1: your approach to research and writing. Huh that's a good question.
Speaker 1: I UM, you know, I read the big books, big
Speaker 1: journalism books like UM Den of Thieves and Barbarians at
Speaker 1: the gate Um that was Uh, those were big influential books.
Speaker 1: I had, UM a bunch of great uh colleagues at
Speaker 1: the street dot com where we really kind of learned
Speaker 1: finance and investing and UM investigations. Uh. Dave Kansas was
Speaker 1: the editor there. My colleagues like Colin Barrows, an editor
Speaker 1: at the Wall Street Journal, and Alex Barrenson who went
Speaker 1: on to the New York Times. And John Edwards was
Speaker 1: another editor at the Wall Street Journal. UM, a bunch
Speaker 1: of really talented people there. Uh. So that those were
Speaker 1: probably the early influences. And then Larry and Garcia hired
Speaker 1: me at the Wall Street Journal. Um, he's one of
Speaker 1: the best editors of our era. So those guys all
Speaker 1: sort of helped my colleague. My colleague, Josh Brown calls
Speaker 1: The Street dot Com the unknown Motown of financial journalism.
Speaker 1: I'm so glad that he appreciates it, because, um, we
Speaker 1: really it's all been lost to history. Um, but half
Speaker 1: my columns from there are are gone. And I'm playing
Speaker 1: and put him on the blog, you know. Uh. And
Speaker 1: Jim Cramer, Um, to his credit, really kind of invented
Speaker 1: this whole kind of way vernacular of speaking about doing
Speaker 1: financial journalism. But back then it was serious financial journalism.
Speaker 1: We did an enormous number of real investigations, deep reporting. Um.
Speaker 1: It was innovative, it was online, we weren't nobody had
Speaker 1: seen anything like it before. It was totally snarky. It
Speaker 1: was really unique. It's a lot of fun. That's how
Speaker 1: I know Jesse long enough that we go back to
Speaker 1: that period. And full disclosure if I have to mention this,
Speaker 1: because if I don't, someone's gonna send a nasty email.
Speaker 1: When Bailout Nation, UM was in the fourth editling and
Speaker 1: I'm arguing with mcgrow hill over their SMP five D division.
Speaker 1: I'm sorry they're standard and poor credit rating division and
Speaker 1: they're not happy with the chapter that's critical of them. Um,
Speaker 1: Jesse wrote a delightful column for Portfolio that pretty much
Speaker 1: set the tone for or all the other coverage on
Speaker 1: the book, which was um Simon and Schuster. I'm sorry
Speaker 1: mcgroy Hill drops book critical of SMPH credit division and
Speaker 1: that really colored all of the subsequent coverage and it
Speaker 1: ended up going wildly and that transition just brought more
Speaker 1: attention to it. But glad to help. Well, I I
Speaker 1: have to say thank you, and I also I think
Speaker 1: I am obligated to disclose that otherwise otherwise his Trouble
Speaker 1: Spy magazine called this log rolling and yes, exactly by
Speaker 1: the way, Denna Thieves written by James Stewart, Who's Who's
Speaker 1: a legend? And then Barbarians at the Gate was was
Speaker 1: that co authored Brian Burrow and John Hellier yep. And
Speaker 1: and also to to rockstar um journalists out there for
Speaker 1: doing doing God's work. UM talk about so so you
Speaker 1: mentioned a handful of mentors, primarily UM, LARRYN. Grassi is
Speaker 1: legendary and lots of those folks at the Street dot Com.
Speaker 1: I went to the Four Winds and they're all running major.
Speaker 1: I think, uh, who is the c the head of
Speaker 1: USA today? There's like a whole. You could find people everywhere. Yeah,
Speaker 1: Dave Callaway. Dave Callaway, No, he wasn't there, but there
Speaker 1: was a guy. Uh, Dave Kansas was editor. Uh he is.
Speaker 1: He's no longer in journalism or I don't know where David.
Speaker 1: I haven't. I've lost touch of them, but I'm sure
Speaker 1: I'm going to forget that million mentors. Of course, of
Speaker 1: course when you do a list like this, but uh um,
Speaker 1: he was one. Um. Let's talk about investors. What investors?
Speaker 1: Um influenced your thinking about markets? Um? Well, uh, you
Speaker 1: know it was interesting. The what happened to me was
Speaker 1: that I was working for this obscure operation in the
Speaker 1: street dot com. You know, nobody's really talking to me, um,
Speaker 1: and so I kind of naturally gravitated the people would
Speaker 1: talk to me. Um, the kind of desperate weirdos and quirks,
Speaker 1: you know, cranks and uh um and outsiders, and most
Speaker 1: of them were short sellers. Um. And so you know,
Speaker 1: and in context, this is the nineties, right, and the
Speaker 1: big bulls they have access to the New York Times,
Speaker 1: Wall Street Journal, c NBC, they have access to all
Speaker 1: the regular media, right, and and the business journalism was
Speaker 1: I would argue even worse than it is today. And
Speaker 1: I don't think I don't have a great today. If
Speaker 1: you're a selective you can find great journalism. But you know,
Speaker 1: overall it's still too generous and too uh. There's too
Speaker 1: much happy talk, and there's it's too addulatory. But then
Speaker 1: it was even worse. Sturgeons law applies to everything. Yes,
Speaker 1: that's true, but but so um, so you know so uh.
Speaker 1: And I always thought, you know, if a company is
Speaker 1: making money, if a company develops this product, I was
Speaker 1: doing pharmaceuticals and biotech, then you know, if the company
Speaker 1: companies the science works and exact covering exactly, um, and
Speaker 1: the science works and the drug works and um, they
Speaker 1: tested and they get it approved by the FDA, and
Speaker 1: they sell it and they make money on it. All
Speaker 1: those things. They're supposed to do those things, so that's
Speaker 1: not news. It's only news when those things they don't
Speaker 1: do it. So I gravitated to when the drug was
Speaker 1: killing people, when they were lying about the drugs results,
Speaker 1: when they couldn't sell it, when they couldn't make money
Speaker 1: on it, and those were all stories to me. And
Speaker 1: the short sellers were the people I talked to, and
Speaker 1: so I learned from the best short sellers in the game.
Speaker 1: Some examples, Well, Jim Chenos was one of them, although
Speaker 1: he didn't do as much biotech. Um, but there you know,
Speaker 1: a lot of them were, well a lot of them.
Speaker 1: These guys are sort out of the game. So like
Speaker 1: Dave Shally, um is probably one of the best short
Speaker 1: sellers ever in the And I hope that he forgives
Speaker 1: me for outing him. Um, but now he's retired. Um
Speaker 1: and uh he worked for a shop on um in California.
Speaker 1: Uh and um he's one of the guys who did
Speaker 1: the most work that he would have been He probably
Speaker 1: would have been the best prosecutor in the Department of Justice.
Speaker 1: Drop him into the Department of Justice today and he
Speaker 1: would see, hands down the best prosecutor. He was one
Speaker 1: of the most brilliant guys. No, no, he was just
Speaker 1: a sort of finance guy, but just a nose for frauds.
Speaker 1: And uh, um he knows Marcojodas, who was a big
Speaker 1: short seller. You guys know, you had a partner I
Speaker 1: won't name because he's still in the business. Um. Uh.
Speaker 1: These guys were, Uh, these guys were the most influential.
Speaker 1: They taught me how to read a balance sheet, which
Speaker 1: I can do in a rudimentary fashion. They taught me
Speaker 1: how to look for frauds, um identify them and UM
Speaker 1: really that was that was an incredible learning experience. And
Speaker 1: you know, the only reason they were talking to me
Speaker 1: is no one else would talk to them. I love that.
Speaker 1: Let's talk about books. You mentioned Danna, Thieves and Barbarians
Speaker 1: at the Gates. What are what are some of the
Speaker 1: books that are amongst your favorites or that you found
Speaker 1: influential by the way, fiction, nonfiction, finance, it doesn't matter. Yeah,
Speaker 1: I was trying to think about that earlier today. You know,
Speaker 1: I think that the UM one of the biggest influences
Speaker 1: that had me on a path to journalism that I
Speaker 1: read in college was a Bright Shining Lie from Neil Sheen,
Speaker 1: which really exposed the government's lies during Vietnam. UM and Uh,
Speaker 1: I didn't have any idea I wanted to be a journalist.
Speaker 1: But that's a piece of nonfiction journalism. It's brilliant and
Speaker 1: it really captures the Vietnam era almost better than any
Speaker 1: other book, although um, there are a lot of classics
Speaker 1: from there. But I was I that I liked I
Speaker 1: loved Dispatches. I loved the journalism of Michael hair. I
Speaker 1: love the journalism of the Vietnam era. So that was great.
Speaker 1: And then you know, I gravitated to the great um
Speaker 1: uh essay s s polemicists like George Orwell and um
Speaker 1: h L Menkin, those are the people that I read.
Speaker 1: I read Joan Didion, So I was sort of gravitating
Speaker 1: to this kind of nonfiction reportage. Um those were so
Speaker 1: so we all know Orwell wrote four an Animal Farm.
Speaker 1: What Menkin Pieza influenced you? Oh? Well, Menkin really does
Speaker 1: a lot of essays. Um. And so he's he's doing
Speaker 1: he's a critic. Really, he's doing essays, his collection of
Speaker 1: essays or there's no one sort of novel or one
Speaker 1: big book that that he writes. But he's really kind
Speaker 1: of brilliant and lacerating and hilarious. Um yeah, and coins
Speaker 1: a million words like the boom was he Um. So
Speaker 1: he's he's very entertaining. And Joan Didion, Joan Didion Slatching
Speaker 1: to Bethlehem, Um is the White album. Um, those are
Speaker 1: collections of essays. She's a beautiful writer. Lucid um Uh
Speaker 1: extraordinary observer of um of humanity, just the kind of UM,
Speaker 1: the perfect, the best, probably the best writer of in
Speaker 1: any journalism. And you know, I liked a lot of
Speaker 1: new journalisms. I read a lot of wolf Tom Wolfe
Speaker 1: and that kind of stuff. So but I think she's
Speaker 1: probably the best of that era. So since you've joined
Speaker 1: the industry, what do you think has changed? What's the
Speaker 1: most significant outside of the obvious business is the biggest
Speaker 1: transformation in the business is the discipline, UM and fear
Speaker 1: that executives have when they talked to journalists. So when
Speaker 1: I broke into the business in the early ninety nineties,
Speaker 1: I could call up a desk and talk to anybody
Speaker 1: on Wall Street UM. And I got a great education
Speaker 1: and found out a lot of what was going on
Speaker 1: by t I covered I p O s and I talked,
Speaker 1: just called all the desks and talked to all the
Speaker 1: heads of the I p O operation. There was no
Speaker 1: pr involved. UM. And now if you call any cell
Speaker 1: side analyst which was desperate to talk UM. Now, if
Speaker 1: you call anyone, they understand that they could be fired
Speaker 1: for talking to you as a journey UM. And they're
Speaker 1: so fearful for their jobs and they're just they they're
Speaker 1: so loyal to their companies. I think it's it's fear,
Speaker 1: but also this kind of loyalty that they um, they
Speaker 1: and disdain for the press. The press has really fallen
Speaker 1: in estimation um. And that the combination of that has
Speaker 1: resulted in this kind of pr grip on businesses that
Speaker 1: makes it so much more difficult. It's so much harder
Speaker 1: now to report on corporate America. That that's shocking and fascinating. Um.
Speaker 1: What's the next positive shift do you see common um
Speaker 1: in the business? Y? Um? Well, I mean well, I
Speaker 1: would say two things. One is what pro Public is
Speaker 1: proving is that the nonprofit model for investigative journalism works. Um.
Speaker 1: When we started out, that was a question mark whether
Speaker 1: there was going to be enough or enough money and
Speaker 1: foundations and wealthy individuals to port this nonprofit And I
Speaker 1: think nonprofit investigative journalism is not the solution to the
Speaker 1: journalism crisis where we don't hold the powerful accountable enough,
Speaker 1: but it is part of the solution. So I think
Speaker 1: that is the most powerful development that's happened over the
Speaker 1: last decade. And I just point it's sort of pulled
Speaker 1: a lot of people to realize that investigative journalism is
Speaker 1: incredibly important, and that's central to the mission of journalism.
Speaker 1: Journalism is not about selling clicks. So BuzzFeed is um
Speaker 1: invested in investigative journalism, and Washington Post has done more
Speaker 1: in investigative journalism in New York Times, that's in part
Speaker 1: um because they're waking up to their reawakening to their mission.
Speaker 1: And I think pro public has contributed to that. What
Speaker 1: do you do outside of the office to relax? What
Speaker 1: do you do, uh, to keep mentally and or physically fit? Oh,
Speaker 1: you know, I do a lot my um My work
Speaker 1: is not particularly all consuming. Um, So I cook, I
Speaker 1: hang out with my children. I um, I listened to music.
Speaker 1: I'm trying to I don't know a lot about classical music,
Speaker 1: but I'm starting to listen to it. I'd always sort
Speaker 1: of learning. I like teaching myself the trees now, you know,
Speaker 1: trying to figure out what they are. So I walk
Speaker 1: around with a book. I'm I'm that guy in the
Speaker 1: park walking around with a little tree book. I'm like,
Speaker 1: I'm the most embarrassing dad. You can imagine. That sounds
Speaker 1: pretty pretty amusing. Um, a millennial, someone just coming out
Speaker 1: of college comes up to you and said, hey, I'm
Speaker 1: interested in the career in journalism. What sort of advice
Speaker 1: would you give them? Go abroad? Which is what I did. Um,
Speaker 1: it's easier to find stories, and they're more desperate for
Speaker 1: copy from there. Um because there aren't aren't that many.
Speaker 1: So uh, and do what you like, don't do what
Speaker 1: you think you can make a living it. UM. Gravitate
Speaker 1: to something you like and really understand it and develop it,
Speaker 1: and the livelihood will follow. And our final question, what
Speaker 1: is it you know about wool Street and journalism today
Speaker 1: that you wish you knew twenty years ago? That is
Speaker 1: a good question. UM. I think I wish that I
Speaker 1: had been even more jaded about the systemic corruption. Um
Speaker 1: that it exists in the system and they in the
Speaker 1: malign incentives. UM I would I was too. I thought
Speaker 1: that the corruption happened at the smaller companies or was
Speaker 1: an unusual thing. I think that the system is quite
Speaker 1: troubled and needs, um needs more vigilant oversight. We have
Speaker 1: been speaking to author and journalist Jesse Eisinger. If you
Speaker 1: enjoy this conversation, be sure and look Up an Inch
Speaker 1: or Down an Inch on iTunes, SoundCloud, overcast, Bloomberg dot
Speaker 1: Com or the Bloomberg terminal, and you can see any
Speaker 1: of the other hundred and forty somethings. Uch uh previous podcasts.
Speaker 1: I would be remiss if I did not think my
Speaker 1: technical producer Medina Parwana, recording engineer par Excellence Taylor Riggs
Speaker 1: is our booker producer Michael bat Nick is my head
Speaker 1: of research. If you enjoy this conversation, we love your comments,
Speaker 1: feedback and suggestions right to us at m IB podcast
Speaker 1: at Bloomberg dot net. I'm Barry Ridholtz. You've been listening
Speaker 1: to Masters in Business on Bloomberg Radio. Masters in Business
Speaker 1: is brought to you by the American Arbitration Association. Business
Speaker 1: disputes are inevitable, Resolve faster with the American Arbitration Association,
Speaker 1: the global leader in alternative dispute resolution for over ninety years.
Speaker 1: Learn more at a d R dot org. Masters in
Speaker 1: businesses brought to you by the American Arbitration Association. Business
Speaker 1: disputes are inevitable, Resolve faster with the American Arbitration Association,
Speaker 1: the global leader in alternative dispute resolution for over ninety years.
Speaker 1: Learn more at a d R dot org.