WEBVTT - Jesse Eisinger on Why White-Collar Criminals Get Off 0:00:00.120 --> 0:00:02.320 Masters in Business is brought to you by the American 0:00:02.400 --> 0:00:07.160 Arbitration Association. Business disputes are inevitable, resolve faster with the 0:00:07.200 --> 0:00:12.240 American Arbitration Association, the global leader in alternative dispute resolution 0:00:12.360 --> 0:00:15.800 for over ninety years. Learn more at a d R 0:00:16.160 --> 0:00:22.840 dot org. This is Masters in Business with Barry Ridholtz 0:00:22.960 --> 0:00:28.280 on Boomberg Radio. This week on the podcast, I bring 0:00:28.320 --> 0:00:31.600 an old friend into the studio. His name is Jesse Eisinger. 0:00:31.640 --> 0:00:35.279 He has worked pretty much everywhere in the world of 0:00:35.840 --> 0:00:40.760 financial journalism. If you are at all curious as to why, 0:00:41.120 --> 0:00:46.159 during the worst financial crisis since the Great Depression, effectively 0:00:46.320 --> 0:00:50.880 nobody was sent to jail, at least nobody of any importance. 0:00:50.920 --> 0:00:55.080 A couple of Burger flippers who were hired to fabricate 0:00:55.720 --> 0:01:01.440 mortgage documents were threatened with prosecution. Handful of mid level 0:01:02.320 --> 0:01:06.480 traders the fabulous fab got finger wagged at him and 0:01:06.520 --> 0:01:10.840 paid a fine. But all of the people responsible for 0:01:10.959 --> 0:01:15.360 an epic collapse in the financial markets and the credit 0:01:15.400 --> 0:01:19.759 markets escaped unscathed. If you're curious as to how that 0:01:19.840 --> 0:01:24.160 came about, then you need to hear Jesse Eisinger's story. 0:01:24.640 --> 0:01:30.120 He is a very thoughtful investigative journalist has won numerous prizes, 0:01:30.160 --> 0:01:34.039 including the Pulitzer. Uh I don't find a whole lot 0:01:34.080 --> 0:01:37.039 to disagree with in his new book, whose title I 0:01:37.040 --> 0:01:40.160 cannot say on the radio, but I can say in 0:01:40.160 --> 0:01:43.360 the podcast, So you get to hear me cuss there 0:01:43.440 --> 0:01:47.920 with no further ado. Here is my conversation with Jesse Eisener. 0:01:51.840 --> 0:01:55.080 My special guest this week is Jesse Eisinger. He is 0:01:55.200 --> 0:01:59.200 currently a reporter for Pro Publica. He began his career 0:01:59.320 --> 0:02:03.720 at the South Pacific Mail in Santiago, Chile. Spent years 0:02:03.720 --> 0:02:06.080 at the Wall Street Journal, where he helped to create 0:02:06.560 --> 0:02:09.000 the Ahead of the Tape column and the Long and 0:02:09.080 --> 0:02:12.280 Short column. I originally know him from his work at 0:02:12.320 --> 0:02:15.320 the Street dot com. He has written for The New 0:02:15.400 --> 0:02:18.200 York Times, Deal Book, The New Yorker, The Atlantic. He 0:02:18.360 --> 0:02:22.320 was the Wall Street editor at Conde nast In He 0:02:22.400 --> 0:02:25.960 won the Lobe Award and he in two thousand eleven 0:02:26.000 --> 0:02:30.079 he won the Pulitzer Prize for national reporting on Questionable 0:02:30.120 --> 0:02:33.200 Wall Street practices. It was notable because it was the 0:02:33.240 --> 0:02:39.000 first ever Pulitzer given for online journalism. He is also 0:02:39.120 --> 0:02:42.840 the author of a book whose name I actually can't say, 0:02:42.840 --> 0:02:45.560 on the air. But we'll give it a we'll give 0:02:45.560 --> 0:02:49.240 it a loose I'll leave one word out, and it's 0:02:49.280 --> 0:02:53.560 called the Chicken Club. Why the Justice Department fails to 0:02:53.680 --> 0:02:58.120 prosecute executives? Jesse Eisinger, Welcome to Bloomberg. Thank you so 0:02:58.200 --> 0:03:00.760 much for having me. I know Jesse for a long time. 0:03:00.800 --> 0:03:03.520 I'm a fan of his work. And there's so many 0:03:03.520 --> 0:03:07.040 fascinating things in this book, which is written pretty much 0:03:07.080 --> 0:03:11.359 in the sweet spot of the world. I inhabit finance, 0:03:11.760 --> 0:03:16.000 legal and bad behavior. Those three then diagrams overlap, and 0:03:16.080 --> 0:03:18.960 this is the book that's the result of it. Let's 0:03:19.040 --> 0:03:22.960 begin where the book pretty much starts out, uh with 0:03:23.360 --> 0:03:28.279 Enron and Arthur Anderson. How significant were those two companies 0:03:28.880 --> 0:03:33.040 to the future lack of prosecution by the SEC and 0:03:33.080 --> 0:03:36.680 the Justice Department? They were crucial, is what my argument is. 0:03:36.720 --> 0:03:39.040 And you know, so I started this book with this puzzle, 0:03:39.120 --> 0:03:42.680 why don't we prosecute top corporate executives anymore? And I 0:03:42.720 --> 0:03:45.119 think it goes beyond just the financial crisis. Of course, 0:03:45.160 --> 0:03:47.840 we all know that no top bankers were put in 0:03:47.880 --> 0:03:51.080 prison for the financial crisis, But I think it started beforehand. 0:03:51.120 --> 0:03:55.920 This problem at the Justice Department, and it persists to today, 0:03:55.960 --> 0:04:00.560 and it goes beyond the banks to industrial companies, retailers, company's, 0:04:00.600 --> 0:04:03.800 pharmaceuticals UM. And so I was trying to figure out 0:04:03.800 --> 0:04:08.080 this puzzle, and I started with Enron because if you remember, 0:04:08.120 --> 0:04:10.120 and of course you do, we were talking at the 0:04:10.160 --> 0:04:14.160 time UM and after the bubble burst, an Aztec bubble burst, 0:04:14.600 --> 0:04:17.160 there were a wave of prosecutions, not just Enron, but 0:04:17.279 --> 0:04:22.520 World Comma, Delphia, Tycho, Global Crossing. Lots of executives did 0:04:22.680 --> 0:04:26.280 some time in the Great Bar, hard exactly, hard time 0:04:26.760 --> 0:04:30.120 in the pokey and so what changed, and really I 0:04:30.200 --> 0:04:34.720 locate this is the beginning the backlash and the problem 0:04:35.160 --> 0:04:39.640 started then in the kind of lobbying effort, a corporate 0:04:39.640 --> 0:04:43.080 and white collar defense bar lobbying effort against what they 0:04:43.120 --> 0:04:47.800 saw as overly zealous prosecutions of Enron and particularly Arthur Anderson. 0:04:47.920 --> 0:04:51.800 They were lobbying Congress, they were lobbying the Bar Association, 0:04:51.839 --> 0:04:55.440 they were lobbying the Judges Association. They pretty much were 0:04:55.480 --> 0:04:58.600 pulling every lever of power the defense bar I'm refined 0:04:58.640 --> 0:05:02.160 to that was possible exactly. And what they were arguing 0:05:02.560 --> 0:05:06.320 was that the prosecutors were overly aggressive, that they had 0:05:06.960 --> 0:05:11.279 um overcharged the executives, particularly of Enron, and I focus 0:05:11.320 --> 0:05:14.680 on en Ron UM and then Arthur Anderson, which was 0:05:14.720 --> 0:05:18.200 the kind of seminal corporate prosecution. So let's talk about 0:05:18.400 --> 0:05:22.039 Anderson a little bit because I find people have consistently 0:05:22.120 --> 0:05:27.960 mischaracterized that period. Let me ask you what killed Arthur Anderson. 0:05:28.360 --> 0:05:31.000 Arthur Anderson killed Arthur Anderson, UM, and we should be 0:05:31.080 --> 0:05:34.440 very clear about that. And UM. One of the big 0:05:34.480 --> 0:05:36.760 goals that I have in the book is to rehabilitate 0:05:37.240 --> 0:05:41.520 the prosecution of Arthur Anderson, because occasionally you do have 0:05:41.640 --> 0:05:45.000 to prosecute companies and put them out of business when 0:05:45.040 --> 0:05:49.480 they are rife with UH fraud, when they are serial 0:05:50.440 --> 0:05:55.080 abusers of the laws, the corporate laws, as what Anderson was. UH. Now, 0:05:55.080 --> 0:05:59.880 what happened with Anderson is that they they destroyed doc 0:06:00.040 --> 0:06:03.360 ms in the Enron We'll back up before we get 0:06:03.400 --> 0:06:08.400 to that. They had gone through a series of snaffos 0:06:08.480 --> 0:06:11.919 where as auditors, they did a terrible job. Companies in 0:06:11.920 --> 0:06:15.360 their charge got away with lots of fraud, and they 0:06:15.440 --> 0:06:19.920 engaged in all these consent decrees where they said, okay, 0:06:19.960 --> 0:06:22.840 you caught us, we promised to do better this time. 0:06:22.839 --> 0:06:24.600 We mean it, We're really not going to do much 0:06:24.640 --> 0:06:29.000 more fraud. And then as soon as Enron went down, 0:06:29.640 --> 0:06:33.880 they began this aggressive policy of hey, we haven't been 0:06:33.920 --> 0:06:38.640 subpoenaed yet. Shread everything exactly. And as Michael Chertoff, who 0:06:38.680 --> 0:06:40.440 was the head of the criminal division at the time, 0:06:40.720 --> 0:06:43.599 says in my book, this wasn't an ice cream company 0:06:43.600 --> 0:06:45.919 that was destroying documents. This is a company that was 0:06:46.800 --> 0:06:51.080 part of its business was legal advice for investigations. Uh. 0:06:51.120 --> 0:06:55.040 And so arguably preserving doctor and right and that means 0:06:55.160 --> 0:06:59.040 not destroying documents and not destroying evidence. What um they 0:06:59.040 --> 0:07:01.120 went on an orgy. You have tons and tons of 0:07:01.160 --> 0:07:06.760 document destruction, but email destruction, and email multiple cities, not 0:07:06.920 --> 0:07:10.000 just one person. Um. So this was a kind of 0:07:10.000 --> 0:07:13.000 system wide thing. But two, in the lead up to 0:07:13.320 --> 0:07:17.520 the crash, the NASDAT crash, there was a pandemic of 0:07:17.720 --> 0:07:23.520 accounting mouthfeasance at in corporate America. And chances are all 0:07:23.640 --> 0:07:27.040 the all the big auditors at the time were guilty. 0:07:27.120 --> 0:07:30.160 But chances were, if you were one of the bigger 0:07:30.680 --> 0:07:33.760 accounting frauds of the era, you were being audited by 0:07:33.880 --> 0:07:36.320 Arthur Anderson. And and to put a little flesh on that, 0:07:36.440 --> 0:07:40.840 people always blame the indictment. But weeks before the indictment, 0:07:41.040 --> 0:07:45.600 lots of but post end Ron bankruptcy, lots of big 0:07:45.640 --> 0:07:49.400 clients were fleeing Arthur Anderson. And then two weeks after 0:07:49.480 --> 0:07:53.840 the indictment, World Calm goes belly up more accounting fraud 0:07:53.840 --> 0:07:56.880 and guess who their auditor was, Exactly just like Enron, 0:07:57.040 --> 0:08:00.880 Arthur Anderson was the auditor for world Com. And so 0:08:01.440 --> 0:08:04.920 I argue that Anderson was going down, and not only that, 0:08:05.040 --> 0:08:08.000 I argue that the partners wanted it to go down, 0:08:08.120 --> 0:08:10.560 wanted it to unwind. Now, this wasn't a corporation, it 0:08:10.600 --> 0:08:13.880 wasn't publicly traded. It was a partnership. And to avoid 0:08:14.000 --> 0:08:18.600 the liability from all the lawsuits, they literally had dozens 0:08:18.600 --> 0:08:21.680 and dozens, maybe over a hundred lawsuits that they were facing, 0:08:21.760 --> 0:08:23.960 and they were going to face more with Arthur with 0:08:24.040 --> 0:08:26.800 World Calm. Um, you know that was it was a 0:08:26.800 --> 0:08:31.720 convenient excuse to say that the indictment caused the uh 0:08:31.800 --> 0:08:34.840 failure of the company. Of course it didn't help um, 0:08:34.880 --> 0:08:38.960 but but you know what my argument is that sometimes 0:08:39.080 --> 0:08:43.240 prosecutors can't worry about that uh that their jobs are 0:08:43.240 --> 0:08:46.320 to do justice. Their jobs are not to cushion the 0:08:46.320 --> 0:08:51.160 blow for failing companies. You write in the book, Today's 0:08:51.280 --> 0:08:55.880 Justice Department has lost the will and indeed the ability 0:08:56.360 --> 0:09:02.559 to go after the highest ranking corporate wrongdoers. Discuss. So 0:09:02.679 --> 0:09:06.319 it has been building since the backlash to Arthur Anderson. 0:09:06.559 --> 0:09:09.839 And what I argue now is that after Anderson, they 0:09:09.960 --> 0:09:14.480 turned to corporate settlements. Uh, and in doing corporate settlements 0:09:14.520 --> 0:09:18.960 deferred prosecution agreements non prosecution agreements. Now, let me stop 0:09:18.960 --> 0:09:21.959 you right there. Deferred prosecution agreement is here's the deal. 0:09:22.120 --> 0:09:25.200 We're gonna have you signed these documentations, and we're not 0:09:25.200 --> 0:09:27.360 going to throw the case out, but we're gonna hold 0:09:27.360 --> 0:09:28.760 it in a byance and if you could be good 0:09:28.800 --> 0:09:31.480 little boys for a year, a year from now, we'll 0:09:31.679 --> 0:09:34.520 we'll toss this out exactly X number of years. We're 0:09:34.520 --> 0:09:37.679 gonna Uh, we we've indicted you, and we can prove 0:09:37.679 --> 0:09:40.000 it in a court of law, they say, but we're 0:09:40.040 --> 0:09:43.680 just gonna put this aside for now, and uh, try 0:09:43.760 --> 0:09:47.480 not to do anything again. Now. Um, there are many 0:09:47.520 --> 0:09:50.080 problems with this. One is that there's no enforcement mechanism. 0:09:50.160 --> 0:09:53.679 Nobody really looks at it. Sometimes they install corporate monitors. 0:09:53.720 --> 0:09:57.800 That's a problem. Problematic solution. Why is that problematic, Well, 0:09:58.120 --> 0:10:02.520 it's problematic because this has become a giant racket for 0:10:03.240 --> 0:10:09.000 big law. UM and big law both likes the settlements. 0:10:09.120 --> 0:10:12.160 They that provides a lot of work for them to 0:10:13.000 --> 0:10:19.880 investigate the corporations. The big law firms like Paul Wise, Deba, Boys, Covington, 0:10:19.960 --> 0:10:23.720 and Burling do these investigations for these companies for their 0:10:23.760 --> 0:10:27.520 corporate clients, um, and then they deliver the results to 0:10:27.600 --> 0:10:31.160 the Department of Justice. The Department of Justice essentially reviews 0:10:31.200 --> 0:10:36.559 it without really looking at um, the conducting the investigation 0:10:36.600 --> 0:10:39.560 in and of itself. You're saying, the d J outsources 0:10:39.600 --> 0:10:44.360 the investigation to the defendants lawyers. Dirty secret of American 0:10:44.480 --> 0:10:49.200 corporate jurisprudence is that we have privatized and outsourced in 0:10:49.400 --> 0:10:53.440 corporate criminal investigations. That's astonished. And not only have we 0:10:53.480 --> 0:10:56.360 done it, we have private privatized and outsourced it to 0:10:56.640 --> 0:11:01.560 the criminals themselves to conduct investigates of themselves, alleged criminal 0:11:01.640 --> 0:11:06.319 alleged criminals, they hire their own attorneys. Their own attorneys 0:11:06.360 --> 0:11:10.720 conduct their investigations. These private law firms then deliver the 0:11:10.800 --> 0:11:13.560 results to the Department of Justice, which reviews them and 0:11:13.600 --> 0:11:17.720 it gets worse because the prosecutors who are reviewing them 0:11:18.200 --> 0:11:23.120 are tend to be people who are job candidates for 0:11:23.160 --> 0:11:26.319 the very law firms that I was about. The investors 0:11:26.320 --> 0:11:29.400 have to ask you, didn't we see after you know, 0:11:29.440 --> 0:11:33.400 the early two thousands, these life for prosecutors who have 0:11:33.520 --> 0:11:36.959 been in d O J and sec and the second Circuit. 0:11:37.120 --> 0:11:41.400 They all end up going when when, to be fair, 0:11:41.840 --> 0:11:44.400 the departments are changing and it's no longer the job 0:11:44.480 --> 0:11:47.560 they loved, but they set a path and they end 0:11:47.640 --> 0:11:51.120 up working at these big firms are very well compensated, 0:11:51.679 --> 0:11:56.640 and that now that path is will trod from from 0:11:56.640 --> 0:11:59.960 the prosecution exactly. The most prestigious offices in the Department 0:12:00.080 --> 0:12:02.960 of Justice, the Southern District of New York, which does 0:12:03.360 --> 0:12:06.800 most of the Wall Street prosecutions and many corporate prosecutions, 0:12:06.840 --> 0:12:10.120 and main Justice down in d c UM those are 0:12:10.240 --> 0:12:18.319 now effectively like post uh juris doctoral um let me 0:12:18.320 --> 0:12:24.120 each other. Those are essentially post doc um. Employment for 0:12:24.960 --> 0:12:29.000 lawyers who are training to become white collar defense work 0:12:29.400 --> 0:12:31.800 wasn't always They're not it is never. It has not 0:12:31.920 --> 0:12:35.199 always been that way. In fact, in the nineteen sixties 0:12:35.760 --> 0:12:39.199 it wasn't that way at all, Uh, these prosecutors did 0:12:39.240 --> 0:12:41.800 not go to these white shoe firms. White shoe firms 0:12:41.800 --> 0:12:46.319 didn't really have this big corporate criminal litigation business. They 0:12:46.360 --> 0:12:51.040 looked down on criminal defense, even white collar criminal defense exactly, 0:12:51.200 --> 0:12:53.560 and so they some of them went into kind of 0:12:53.559 --> 0:12:57.439 transactional work um, which was very different. Um. White collar 0:12:57.480 --> 0:13:01.160 criminal defense was conducted by boutiques. The Department of Justice 0:13:01.160 --> 0:13:06.320 focused on individuals, not on corporate non incorporations, um. And 0:13:06.400 --> 0:13:09.920 so there's been a complete transformation. And what I argue 0:13:09.960 --> 0:13:14.640 in the book is that big Laws approach to how 0:13:15.160 --> 0:13:20.760 it defends corporations has developed alongside and in symbiosis with 0:13:20.880 --> 0:13:26.120 the Department of Justices way that it approaches corporate prosecutions, 0:13:26.200 --> 0:13:29.360 investigations and prosecutions, and they've all sort of influenced each other, 0:13:29.360 --> 0:13:31.880 and there's been this cross pollination. And then they go 0:13:31.960 --> 0:13:34.760 back and forth from the government to the private sector 0:13:34.800 --> 0:13:36.600 and back to the government and back to the private 0:13:36.640 --> 0:13:39.360 sector again. And now it's almost like you know that 0:13:39.440 --> 0:13:43.200 line at the end of Animal Farm where you could 0:13:43.200 --> 0:13:46.360 no longer tell who the government people are and who 0:13:46.400 --> 0:13:49.360 the defense people are, who the pigs are on the 0:13:49.360 --> 0:13:51.319 one side, and who the pigs are on the other side, 0:13:51.400 --> 0:13:54.959 and it's a it's a deeply profoundly troubling and corrupt 0:13:54.960 --> 0:13:59.360 system when it allows corporate malefactors individuals to get off. 0:13:59.679 --> 0:14:04.199 So you you describe in the book how the Department 0:14:04.200 --> 0:14:09.959 of Justice loses the ability to prosecute criminal litigation against 0:14:10.040 --> 0:14:14.720 corporate wrongdoers. Explain that, So what happens is they find 0:14:14.760 --> 0:14:17.720 that these settlements are much easier to reach because they 0:14:17.880 --> 0:14:20.200 the company has to come to the table and negotiate. 0:14:20.520 --> 0:14:23.440 The company says, well, we're just being extorted. We we 0:14:23.520 --> 0:14:26.280 have to pay a fine because, um, the cloud of 0:14:26.280 --> 0:14:29.080 a government investigation is so great, we must resolve this. 0:14:29.400 --> 0:14:32.200 The prosecutor that works and you know there's some validity 0:14:32.240 --> 0:14:37.000 to that, um, And the prosecutor uh then says, well, 0:14:37.040 --> 0:14:39.800 we're gonna find you an enormous amount of money. What 0:14:39.920 --> 0:14:44.720 the prosecutors don't really do anymore is and look at individuals. 0:14:44.720 --> 0:14:47.400 And the point of the Enron investigation, at the point 0:14:47.440 --> 0:14:49.880 of starting the book with the Enron narrative, is that 0:14:50.160 --> 0:14:53.720 they put enormous amount of resources. They devoted an entire 0:14:53.840 --> 0:14:57.920 team to do the that one prosecution individual the Enron 0:14:58.000 --> 0:15:00.920 Task Force, and they essentially lock them in a room 0:15:01.280 --> 0:15:04.120 and made them study the company from the bottom up 0:15:04.320 --> 0:15:07.720 and start indicting lower level people to get to the top, 0:15:07.800 --> 0:15:11.160 just the way you do with a mob family. Um, 0:15:11.200 --> 0:15:13.680 you have to roll the soldiers to get to the 0:15:13.720 --> 0:15:17.320 compos um. That art has really been lost over the 0:15:17.400 --> 0:15:20.320 last fifteen years, and the Department of Justice just does 0:15:20.400 --> 0:15:24.160 not do that anymore. They essentially stop at the middle 0:15:24.200 --> 0:15:27.080 when they prosecuted individuals, and occasionally they do at a 0:15:27.120 --> 0:15:32.320 big bank, they're essentially stopping at the trader who was responsible. 0:15:32.360 --> 0:15:34.760 Sometimes they do a low level trader, sometimes they do 0:15:35.120 --> 0:15:37.720 his or her boss, but they rarely get higher to 0:15:37.720 --> 0:15:40.200 the executive level. You're at the journal for a long time, 0:15:40.240 --> 0:15:43.160 weren't you? Almost seven years you and in fact you 0:15:43.280 --> 0:15:46.680 helped to create the Ahead of the Tape column, which 0:15:46.800 --> 0:15:50.560 just ended. What is that like, a fifteen year run? Yes, 0:15:50.720 --> 0:15:53.760 I was really sad to see a daily column that 0:15:53.800 --> 0:15:56.760 was You went from daily to the Long and Short 0:15:57.160 --> 0:16:01.400 was a weekly. I have written every column, uh known 0:16:01.520 --> 0:16:04.160 to man. I've written a daily, I've written a weekly 0:16:04.240 --> 0:16:06.200 times a week. I've read a weekly, and you went 0:16:06.240 --> 0:16:09.240 to monthly a portfolio. If I do one to decade, 0:16:09.320 --> 0:16:12.800 then then you moved to to pro publico where it's quarterly, 0:16:13.400 --> 0:16:15.520 and now the book is out after a year, so 0:16:15.600 --> 0:16:19.560 it's annual, and soon soon it will be a decile publication. 0:16:19.560 --> 0:16:24.760 I'm trying to convince my edit decade. So so I 0:16:24.760 --> 0:16:28.880 I often ask authors, Hey, what's the inspiration behind the book? 0:16:29.320 --> 0:16:32.280 But with you, I know what the inspiration is because 0:16:32.320 --> 0:16:36.440 the lack of prosecution has been infuriating to all of us, 0:16:36.480 --> 0:16:41.160 either on Wall Street, in finance, in journalism. What was 0:16:41.240 --> 0:16:44.840 the last straw that made you say I really have 0:16:44.960 --> 0:16:47.760 to write a book about this? Well, you know, Uh, 0:16:47.880 --> 0:16:50.960 we wrote about c d O s and the Magnetar 0:16:51.040 --> 0:16:57.080 trade betting against CDOs for your own account all received series. 0:16:57.760 --> 0:17:00.600 That's the series that won the Pultzer, which we were 0:17:00.640 --> 0:17:05.399 really grateful and lucky for. And um, after that, my 0:17:05.480 --> 0:17:09.080 colleagues and I sat around expecting to see some criminal 0:17:09.119 --> 0:17:13.280 investigation and nothing happened. And then we watched that nothing 0:17:13.320 --> 0:17:16.960 happened with Lehman Brothers or a I G Or Bank 0:17:17.000 --> 0:17:21.520 of America or city you know, um, and you know, 0:17:21.600 --> 0:17:26.640 countrywide and it was utterly baffling and an enormous scandal. 0:17:26.680 --> 0:17:29.800 And and this has been plaguing me since then. And 0:17:30.600 --> 0:17:33.600 the economy and our entire body politics, I think so, 0:17:33.720 --> 0:17:36.280 I think it contributed to Trump. It's certainly contributed to 0:17:36.320 --> 0:17:39.639 the rise of the two most potent movements on the 0:17:39.720 --> 0:17:42.080 left and the right, Occupy Wall Street and the Tea Party. 0:17:42.720 --> 0:17:45.159 I think it it undergirds the anger at Trump, and 0:17:45.160 --> 0:17:48.840 it undermined Hillary Clinton and Obama because I think people 0:17:48.960 --> 0:17:51.080 mistrusted them because they thought they were in the pocket 0:17:51.080 --> 0:17:56.240 of Wall Street. Uh for this reason as paramount. So, 0:17:56.680 --> 0:17:58.760 I thought it was one of the great scandals of 0:17:58.800 --> 0:18:02.320 our time, and I thought it really deserved some kind 0:18:02.320 --> 0:18:07.240 of serious accounting that tried to get at the deep, 0:18:07.680 --> 0:18:11.800 fundamental and corrosive aspects um in society. This is not 0:18:11.920 --> 0:18:15.320 an easy problem, and it's not an easy solution, and 0:18:15.359 --> 0:18:18.200 there's not It's not a conspiracy. You know, Tim Geitner 0:18:18.280 --> 0:18:21.439 did not call up Eric Holder and say lay off. 0:18:21.480 --> 0:18:25.959 It's something more troubling, because it's something more pernicious and 0:18:26.200 --> 0:18:32.119 more fundamental. So I have not not so much a conspiracy, 0:18:32.160 --> 0:18:39.320 but I have argued that the greatest innovation of Wall 0:18:39.359 --> 0:18:43.920 Street has not been the A T M or securitization, 0:18:44.000 --> 0:18:48.080 but that it's been convincing the Department of Justice in 0:18:48.119 --> 0:18:52.160 the sec that if you prosecute us, the entire economy 0:18:52.240 --> 0:18:56.160 is coming down, right, all right? So how First of all, 0:18:56.520 --> 0:18:59.240 I have yet to find anything that demonstrates that that's wrong. 0:18:59.600 --> 0:19:03.440 And second you're you're really saying that it's much more 0:19:03.600 --> 0:19:07.600 systemic than that moment. This is something that's taken place 0:19:07.960 --> 0:19:10.280 over a long arc of time. You know, we saw 0:19:10.320 --> 0:19:14.240 it in the financial crisis, most prominently UM. That's when 0:19:14.280 --> 0:19:17.480 it became clear that this was a big problem, but 0:19:17.520 --> 0:19:20.720 it really was building before then. There was no prosecution 0:19:20.800 --> 0:19:24.920 of the backstock option backdating scandal, which was which was huge, 0:19:24.960 --> 0:19:27.880 tremendous paper trail, should have been easy to process, should 0:19:27.920 --> 0:19:30.120 have been much easier to prosecute than it was, which 0:19:30.200 --> 0:19:32.640 raises a question of whether the skill set is there, 0:19:32.760 --> 0:19:36.600 whether the will is there, whether they devote enough resources 0:19:36.600 --> 0:19:38.879 to it. And I don't think that the answer is 0:19:39.160 --> 0:19:42.760 yes to any of those questions and the UM but 0:19:42.880 --> 0:19:45.000 you know it wasn't It's not just the banks. That 0:19:45.040 --> 0:19:47.040 was a wonderful innovation that the bank said were too 0:19:47.080 --> 0:19:49.760 big to jail, too big to fail, and too big 0:19:49.800 --> 0:19:53.440 to jail. But you're seeing this with recidivist pharmaceutical companies. 0:19:53.520 --> 0:19:58.320 Fiser has had has um subsidiary plead guilty to one 0:19:58.359 --> 0:20:01.399 problem and has ad uh A d p A as 0:20:01.440 --> 0:20:04.680 an NP NBA. They'd say, on and on and on. 0:20:04.960 --> 0:20:08.199 You see Walmart getting away with bribery in Mexico that 0:20:08.560 --> 0:20:10.280 the New York Times had them dead to rights with 0:20:10.280 --> 0:20:13.960 all the internal documents. UM we are seeing this across 0:20:14.080 --> 0:20:17.760 the economy and UM so this is impunity at the 0:20:17.840 --> 0:20:21.520 highest level of corporate America. What they do instead is 0:20:21.680 --> 0:20:27.080 prosecute CEOs of smaller companies or that head of a 0:20:27.160 --> 0:20:31.160 hedge fund, raj Rajer Rottenham can be prosecuted because he's 0:20:31.200 --> 0:20:35.800 committed a crime that the prosecutors are comfortable prosecuting, insider trading. 0:20:35.840 --> 0:20:38.159 It's an easy thing to sell to the jury. And 0:20:38.240 --> 0:20:41.639 when UM Galleon goes out of business, it only puts 0:20:42.080 --> 0:20:44.840 five or six or ten or twenty people out of business. 0:20:44.920 --> 0:20:48.760 It's not putting the entire UH thousands, tens of thousands 0:20:48.800 --> 0:20:51.919 of people out of work, and they're terrified. My special 0:20:51.960 --> 0:20:55.359 guest today is Jesse Eisener. He has written for such 0:20:55.400 --> 0:20:59.920 August publications as The Wall Street Journal, The Atlantic, New York, 0:21:00.119 --> 0:21:03.560 The New York Times, etcetera, etcetera. He is currently the 0:21:03.600 --> 0:21:07.080 author of a book whose title I cannot say, but 0:21:07.720 --> 0:21:11.680 we can at least talk about where the title came from. 0:21:11.760 --> 0:21:16.760 So the actual title is the Chicken Blank Club, the 0:21:16.880 --> 0:21:20.360 Justice Department and the failure to prosecute white collar criminal 0:21:20.880 --> 0:21:25.000 blank being a word that George Carlin would appreciate as 0:21:25.000 --> 0:21:26.800 one of the seven words you can't say on TV. 0:21:27.640 --> 0:21:30.520 Tell us about the derivation of the title. Sure, my 0:21:30.600 --> 0:21:33.119 children love the title, which makes my wife really not 0:21:33.240 --> 0:21:36.919 like the title. Um. But and I'm so glad that 0:21:36.960 --> 0:21:40.560 Simon and Schuster went with it. Um. I think they 0:21:40.560 --> 0:21:43.439 went with it because it is actually organic. It is 0:21:43.480 --> 0:21:48.320 a real statement that came from, of all people, Jim Comey, 0:21:48.640 --> 0:21:53.119 who you may remember from such things as the testifying 0:21:53.160 --> 0:21:55.240 in front of the Senate after being fired for being 0:21:55.359 --> 0:21:59.680 FBI director, But fifteen years ago he was the US 0:21:59.720 --> 0:22:02.320 at turn for the Southern District of New York and 0:22:02.400 --> 0:22:04.840 he had just replaced Mary Joe White, and Mary Joe 0:22:04.880 --> 0:22:07.960 White was a legend. Um. And he comes in and 0:22:08.040 --> 0:22:12.240 he gathers everybody together, and uh, they're a little trepidacious 0:22:12.240 --> 0:22:15.200 about him. Um. And they gathers all the criminal prosecutors 0:22:15.200 --> 0:22:17.440 and these guys you have to understand, are the best 0:22:17.480 --> 0:22:19.199 of the best of the best. They've gone to the 0:22:19.240 --> 0:22:21.679 best high schools, to go to the best colleges, to 0:22:21.720 --> 0:22:24.280 get into the best law schools, to perform the best, 0:22:24.320 --> 0:22:26.119 to get to the best clerkships, and then they go 0:22:26.400 --> 0:22:30.000 to the southern district. These are talented and brilliant people, um. 0:22:30.480 --> 0:22:33.359 And they all think of themselves as towns a billion 0:22:33.400 --> 0:22:37.240 people um. And so he gathers them all and he says, 0:22:37.320 --> 0:22:40.800 how many of you have never lost a case? And 0:22:41.119 --> 0:22:43.520 a bunch of hands shoot out very proudly there, you know, 0:22:43.640 --> 0:22:46.280 chest stuff out and he says, so, me and my 0:22:46.320 --> 0:22:49.080 buddies have a name for you. You guys are the 0:22:49.160 --> 0:22:53.600 Chicken expletive Club. And the hands go back down and 0:22:53.920 --> 0:22:58.159 they're sort of sheepish, meaning there's a point here, exactly. 0:22:58.240 --> 0:23:02.000 And the point was you aren't taking ambitious enough cases. 0:23:02.119 --> 0:23:06.040 If you never lose, it means you're only taking easy cases, exactly. 0:23:06.080 --> 0:23:09.400 You're taking the low hanging fruit. And that's not justice. 0:23:09.680 --> 0:23:12.439 You're trying to protect a record. But being a prosecutor 0:23:12.680 --> 0:23:15.720 for the government is not about protecting a record. It's 0:23:15.760 --> 0:23:20.280 not about going when um, you know, going under it. 0:23:20.280 --> 0:23:24.159 It is about doing justice and sometimes doing justice means 0:23:24.200 --> 0:23:28.440 that you take a hard case and present your evidence 0:23:28.440 --> 0:23:31.800 to a jury and then juries are unpredictable, and sometimes 0:23:32.000 --> 0:23:34.680 they go with you and sometimes they don't. But justice 0:23:34.680 --> 0:23:40.760 has been served. That's a really insightful position from someone 0:23:40.800 --> 0:23:44.480 who's the head of a department of prosecutors. Like, we 0:23:44.520 --> 0:23:47.480 don't really know a lot about come me, other than 0:23:47.560 --> 0:23:53.200 the recent news flow, which has been insane. In other words, 0:23:53.280 --> 0:23:56.440 he's a principled guy who's telling them, hey, the hell 0:23:56.520 --> 0:24:00.720 with your record, you have to do justice. Me is principal. 0:24:01.080 --> 0:24:03.879 I agree. I mean he's got um, he's imperfect. I 0:24:04.200 --> 0:24:06.639 have another episode where he really blinks on a corporate 0:24:06.640 --> 0:24:10.159 prosecution of the book about kpmg UM and you know, 0:24:10.280 --> 0:24:13.959 he is a guy who thinks a great deal of himself. Um. 0:24:14.000 --> 0:24:17.159 But it is very it's a very important concept. And 0:24:17.200 --> 0:24:21.520 you don't see leaders of these organizations, um without a 0:24:21.560 --> 0:24:24.560 fear of losing. They're terrified of losing, and they're terrified 0:24:24.600 --> 0:24:27.320 of the humiliation of losing a trial. And you saw 0:24:27.359 --> 0:24:30.920 that with Pre Barrara, who has a great reputation as 0:24:30.920 --> 0:24:34.240 a crusader, especially as the supposed Sheriff of Wall Street. 0:24:34.280 --> 0:24:38.480 But in fact, I think blinked on investigations and prosecutions 0:24:38.520 --> 0:24:40.600 of Wall Street banks and didn't want to take the 0:24:40.680 --> 0:24:43.040 chance he might lose and and damages. He didn't want 0:24:43.080 --> 0:24:46.240 to take the difficult course of doing the tough investigations 0:24:46.560 --> 0:24:50.199 and then didn't want to lose his pristine record and 0:24:50.280 --> 0:24:54.840 to take on, for instance, Stevie Cohene at S A C. Capital, didn't, 0:24:54.880 --> 0:24:57.320 you know, didn't want to take him to trial because 0:24:57.560 --> 0:25:00.679 he was worried he might lose, and that which was tough. Also, 0:25:00.840 --> 0:25:02.639 it was a tough case. But at some point I 0:25:03.560 --> 0:25:08.280