Speaker 1: Pushkin. Hey, there, Against the Rules listeners, I appreciate you
Speaker 1: indulging me while I record some background interviews from my
Speaker 1: next book, which is mostly about Sam Bankman Free, the
Speaker 1: founder of the cryptocurrency exchange FTX. Last year, while I
Speaker 1: was on the scene, FTX collapsed dramatically. As I record this,
Speaker 1: Sam Bankman Freed is under house arrest and awaiting what
Speaker 1: looks like a very complicated trial. The whole thing feels
Speaker 1: like it could become the white collar criminal event of
Speaker 1: our age. But if you took the long view, the
Speaker 1: historical view, maybe this whole affair would look a little different.
Speaker 1: Welcome back to on background from Against the Rules. I'm
Speaker 1: Michael Lewis. As i've been writing about Sam backman Fried's case,
Speaker 1: I've also been wondering about how this would all have
Speaker 1: gone down fifty or a hundred years ago. Of course,
Speaker 1: there wasn't any crypto back in the day. But I
Speaker 1: find myself curious to hear an historical perspective on white
Speaker 1: collar crime in America. I've been wondering, have we gotten
Speaker 1: more lenient about it tougher? And what is prison like
Speaker 1: for white collar criminals these days compared to what it
Speaker 1: used to be. Fortunately I found someone who could answer
Speaker 1: these questions and more. Eugene Saltis. He's a professor at
Speaker 1: the Harvard Business School, or HBS as it's also known.
Speaker 1: A lot of his students have gone on to populate
Speaker 1: boardrooms and c suites superachievers. But at some point Saltis
Speaker 1: got interested in the type of superachiever who achieves bad things.
Speaker 1: He sought them out, usually in prison, an interview them,
Speaker 1: and he published their accounts and his analysis in an
Speaker 1: excellent book called Why They Do It Inside the Mind
Speaker 1: of the White Collar Criminal. I kind of just want
Speaker 1: to start by asking you how you business school professor
Speaker 1: got interested in white collar crime? So I began quite accidentally,
Speaker 1: I think, probably like anyone that gets involved in I
Speaker 1: heard thinking about white collar crime. Who was up at
Speaker 1: three in the morning watching actually a show called lock
Speaker 1: Up on MSNBC, And I was imagining, if I had
Speaker 1: half an hour with the white collar criminals, these former
Speaker 1: executives who were in the news, what would they say
Speaker 1: what led them there to their current predicament, which is
Speaker 1: generally a medium security prison. And so that night I
Speaker 1: actually wrote some letters to individuals who I had been
Speaker 1: following the news then loan behold. A couple of months later,
Speaker 1: some volunteered that I could come visit them in prison.
Speaker 1: One thing led to the next. A couple of years later,
Speaker 1: writing a book, and now my entire world is immersed
Speaker 1: there and it's found at home. In the Harvard Business School,
Speaker 1: you actually teach a course I do. I teach a
Speaker 1: second year of course called Borderline that titles very descriptive.
Speaker 1: It's on conduct that somewhere between legal, illegal, moral, immoral.
Speaker 1: It's all the things in business that fall in between
Speaker 1: the cracks of business. What we spent a lot of
Speaker 1: time focusing on are actually entrepreneurs. And I think that
Speaker 1: in the best case, entrepreneurs who for a while you
Speaker 1: might engage in something like puffery, you don't actually put
Speaker 1: in a lot of internal controls. I mean, this is
Speaker 1: what we do see in a case like FTX, and
Speaker 1: then you go from this little working out of your
Speaker 1: garage the next thing running a multibillion dollar enterprise, and
Speaker 1: then bad things happening and you look back and say,
Speaker 1: how did that occur? Could that have been prevented? And
Speaker 1: so that's in the best case what we look at.
Speaker 1: We look at other instances of people's circumventing rules thinking
Speaker 1: it's very clever. This is very enron esque. You see
Speaker 1: a law and you think of a way of going
Speaker 1: around it because the law doesn't say you can't, and
Speaker 1: you have the mentality show me where it says I can't.
Speaker 1: Sometimes it works and people come very wealthy because of that.
Speaker 1: Other times you get a lot of trouble. So the
Speaker 1: students when they're coming to the class, they sort of
Speaker 1: in a frame of mind of what do I do
Speaker 1: to prevent this happening to me? Everyone starts in what
Speaker 1: I call them more moral mode, almost like an ethics class.
Speaker 1: How ought you behave in these situations? That's not how
Speaker 1: these decisions are made. No one spends half an hour
Speaker 1: pondering them. You don't have all the information. You're not
Speaker 1: bringing diverse viewpoints, and that's why a lot of times
Speaker 1: smart people make, with the benefit of hindsight, poor decisions.
Speaker 1: As your class paid any attention to FTX, We're absolutely
Speaker 1: going to get there because FS is fascinating. Would interest
Speaker 1: you about it? So I will say two dimensions. The
Speaker 1: first is again and I'm relying on the publicly available
Speaker 1: information is separating on the two narratives. The one that
Speaker 1: the prosecutors and sec and other agencies are describing, which
Speaker 1: is this is a fraud since its inception, which is
Speaker 1: story one. In story two is these are these are
Speaker 1: are set of very very smart kids effectively who built
Speaker 1: actually in a pretty remarkable business that frankly would have
Speaker 1: benefited from a couple of weeks at HBS about internal
Speaker 1: controls and compliance systems, and never set any of that up.
Speaker 1: So it wasn't someone overnight decided to take ten billion
Speaker 1: dollars in transfer from one entity to another. But it's
Speaker 1: the fact that they never actually spent the time to
Speaker 1: put together ways of not coal mingling funds. So it's
Speaker 1: not this egregious, deliberate fraud. It's just a matter of
Speaker 1: really incredible sloppiness, which still has the extraordinary detrimental consequences
Speaker 1: that we've seen. I'm surprised that you've been able to
Speaker 1: discern that much that the first narrative is so powerful
Speaker 1: in the media right now, that you've even heard the
Speaker 1: second narrative. I spent a lot of time thinking, probably
Speaker 1: always about what these other narratives are, because I think
Speaker 1: there's this simple story that we like to tell, and
Speaker 1: it's also the same story that enforcements and prosecutors they
Speaker 1: need to tell. But I will say, having spent a
Speaker 1: lot of time with a lot of very smart people
Speaker 1: that have found themselves, you know, facing these circumstances, I
Speaker 1: think it's much more complicated when it starts digging down.
Speaker 1: Why do you think people don't like to see that?
Speaker 1: I bet you when you when you find yourself at
Speaker 1: a dinner party and you start to explain that Bernie
Speaker 1: Madoff was much more complicated than you know. I bet
Speaker 1: people bridle at that it was fraud. You're welcome to
Speaker 1: being my like wingman at any dinner party when this
Speaker 1: pops up. Yes, when you get to know any particular
Speaker 1: messy situation where maybe some illegal stuff was done, and
Speaker 1: and you start to really understand it, and then you
Speaker 1: try to explain it as in as complicated a way
Speaker 1: as it actually happened. People who are watching it from
Speaker 1: the distance that most people watch these things, reading, reading
Speaker 1: the newspaper, you know, whatever, whatever news, whenever it gets
Speaker 1: to them, they're not they're not they don't really want
Speaker 1: to enter into that conversation. I'm empathetic because there are
Speaker 1: a lot of victims. I mean, FPX, there's a million
Speaker 1: people roughly that are wondering, am I going to get
Speaker 1: my money back? It? Did I just lose everything? As
Speaker 1: it down to zero and anything? But I will say
Speaker 1: the kind of strong, vilified argument I understand, and if
Speaker 1: I was in their position, I wouldn't want to hear
Speaker 1: any other explanation. But but simultaneously, it doesn't go a
Speaker 1: long way to explain underlying root causes, the psychology about
Speaker 1: what happened and how can we stop this from happening again. Yes,
Speaker 1: it's not very helpful. It's not it's not very helpful
Speaker 1: at improving us. So the ANLJA I've often thought of
Speaker 1: is when there's an airplane crash, yep, immediately what happened?
Speaker 1: You call, oh, you call the airlines in, you call
Speaker 1: you know, FA, you call a pile of agencies. They
Speaker 1: come in and a manufacture and their first and foremost
Speaker 1: goal is let's get to the bottom of this. Is
Speaker 1: it whether is it air traffic controllers? Is it the pilot?
Speaker 1: And they really want to know what happened here? That's
Speaker 1: not true with white collar crime. Everyone has what I
Speaker 1: call an agenda. You know, the people that prosecutors, their
Speaker 1: job is to get people, send people to jail, the
Speaker 1: people working on you know, the claimants in bankruptcy, they're
Speaker 1: trying to get money back, the defense counsels, trying to
Speaker 1: explain why this is not the story that you hear
Speaker 1: in the news, the promise there's no independent third party
Speaker 1: that's sitting there. Interesting. I want to know why this
Speaker 1: happened and what can we do to make this not
Speaker 1: happen again. That's what I'm supposed to do. That's what
Speaker 1: your book is. I mean, there is a there are
Speaker 1: players in the society who have an incentive to play
Speaker 1: this role, right, and that's that's it's sort of what
Speaker 1: a writer is supposed to do. Who walks into this situation.
Speaker 1: One of the things I've noticed is that when someone
Speaker 1: gets into this kind of trouble, whether it's Dan Ryan
Speaker 1: People or Bernie made Off or Sam Bankman Freed, their
Speaker 1: point of view becomes kind of taboo that they're not
Speaker 1: actually allowed to offer their point of view. They try,
Speaker 1: but people don't want to hear their point of view anymore.
Speaker 1: And so I think that part of the problem is
Speaker 1: just like who's allowed to speak once one of these
Speaker 1: things blows up, and who's allowed to have any kind
Speaker 1: of credibility, and the cases got me wondering a little
Speaker 1: bit about just the history of white collar crime, like
Speaker 1: when even the term was invented and why, and sort
Speaker 1: of like who's the original white collar criminal? What's the
Speaker 1: history of the subject. So the term white collar crime
Speaker 1: is actually comparatively new. We can actually point to a
Speaker 1: sphysific person sociologist named Edward Sutherland, and this is back
Speaker 1: in the nineteen thirties. He literally created a book white
Speaker 1: Collar Crime that coined the term and raise the idea
Speaker 1: at the time that there were a lot of things
Speaker 1: that companies were doing that ought to be criminal, but
Speaker 1: simply because there were no laws on the book, we're
Speaker 1: not criminal. What were the kind of things? Was he
Speaker 1: talking about? A lot of basic fraud, A lot of
Speaker 1: stuff that we look pretty conventionally it's pretty criminal today.
Speaker 1: Anti competition was a big area, but there were i'll
Speaker 1: say massive gaps that you could do some pretty awful things.
Speaker 1: I mean, at this point we were pre sec This
Speaker 1: is pre to a lot of our modern securities laws.
Speaker 1: We've come a long way since. I mean I was
Speaker 1: looking back at like Occupy Wall Street where people were saying,
Speaker 1: you know, no one's held accountable, and I appreciate where
Speaker 1: people were coming from. I take a long window. Let's
Speaker 1: go back decades in fifty and seventy five years. We've
Speaker 1: come a long way and people are held to account,
Speaker 1: maybe not perfectly by any means, but we're not another
Speaker 1: Southerland's time. And why did this problem exist? Explain why
Speaker 1: there was room for someone to come in and write
Speaker 1: a book that said, look, there's all this bad stuff
Speaker 1: going on and it should be illegal. It's not illegal.
Speaker 1: We need this whole category called white collar crime. When
Speaker 1: you say crime, people thought it meant a street offense.
Speaker 1: It's a violent offense of someone you know, hurting you
Speaker 1: or taking your pocketbook. White color crime bides very nature,
Speaker 1: much more amorphous. If there's a murder, you have a
Speaker 1: body and the question is who did it, it's unquestionable
Speaker 1: that had happened. If you think of white collar crime,
Speaker 1: in almost all the instances, it's the prosecution not only
Speaker 1: has to show that X did it, but they're trying
Speaker 1: to show that it was a crime in the first place.
Speaker 1: Because how do you separate sloppiness or a mistake or
Speaker 1: an adverse market change from someone deliberately tried to take
Speaker 1: a company under for their own benefit gain. White color
Speaker 1: crime is messy and harder to dramatize the victims. So
Speaker 1: this book gets published. Does it have an effect? No, no,
Speaker 1: it didn't get a lot of press outside of more
Speaker 1: obscure academic circles, and a lot of people said, whoa, whoa,
Speaker 1: this guy is saying all these people are doing things
Speaker 1: that are criminal. Let's look at the law. The law
Speaker 1: says these are not crimes. And so it kind of
Speaker 1: looked like, in some kind of ultra progressive argument that
Speaker 1: I'm going to call people a criminal who are not.
Speaker 1: But they missed the broader point which he was making
Speaker 1: is that maybe we need to think about all the
Speaker 1: institutions that protect these entities and powerful individuals. Let's take
Speaker 1: a quick break. I'm back with Eugene Saltis on background.
Speaker 1: Before the break, we heard how the term white collar
Speaker 1: crime didn't really get much traction when it was first
Speaker 1: introduced in the nineteen thirties, but in the nineteen sixties,
Speaker 1: during the Kennedy administration that started to change. There was
Speaker 1: a massive case of price fixing in the electrical space
Speaker 1: ge and Westinghouse. This is the first time you had
Speaker 1: senior level executives at major companies being criminally prosecuted. Actually
Speaker 1: front page of Life magazine. It was an executive, a
Speaker 1: well known an executive literally going into jail. So the
Speaker 1: main arguments that the lawyers were making in defense of
Speaker 1: their their their clients were this is a fine gentleman.
Speaker 1: You should not send this fine gentleman in a prison
Speaker 1: with I believe they actually used the word pimps and prostitutes,
Speaker 1: and so it wasn't they didn't do it, but like,
Speaker 1: why would you send this fine gentleman? That's not where
Speaker 1: gentlemen go? So class class distinctions were being made. Yeah,
Speaker 1: and was there a place to send them other than
Speaker 1: the places where pimps and prostitutes were were their white
Speaker 1: collar prisons? I don't believe there were. Since they weren't
Speaker 1: bringing these people to book, that wasn't really a special
Speaker 1: place to put them. No, no, not at all. But
Speaker 1: I mean these senses were shut. I mean we're talking
Speaker 1: like a couple of months. Because what happened immediately when
Speaker 1: the Westinghouse executives got out, the president of Westinghouse actually
Speaker 1: noted again about these fine gentlemen, and they were rehired
Speaker 1: back in their exact same positions. I mean, it's really
Speaker 1: it's interesting how the ulture is moved, right, I mean,
Speaker 1: it really is different. It is really different. I'll give
Speaker 1: one other spin that's interesting. I will say the person
Speaker 1: who probably had the greatest impact, Actually we go to
Speaker 1: the eighties. We have to jump all the way to
Speaker 1: the eighties. Yeah, we gotta go all the way to
Speaker 1: the eighties. But the person who led it is the
Speaker 1: part that's interesting is Rudy Giuliani. When he was a
Speaker 1: US Attorney of the Southern District of New York, he
Speaker 1: did over fifty prosecutions. He's the one that we now
Speaker 1: think of the purp walk is like that's standard affair now.
Speaker 1: That was Giuliani's innovation. And so you know, Giuianni's had
Speaker 1: a really a storied career and he's the one that
Speaker 1: created that. I'll say, the modern senior prosecutor who holds
Speaker 1: senior executives and and doesn't mess around, you know, prais
Speaker 1: them through the office and handcuffs and uh, you know,
Speaker 1: puts them in the back of the car. You know,
Speaker 1: it's interesting about that. I mean, there's a lot that
Speaker 1: is interesting about that, but that that first, it doesn't
Speaker 1: happen till then. So the question is like why then,
Speaker 1: I mean, if that approach becomes the standard approach afterwards,
Speaker 1: it is because it worked. I mean that it worked
Speaker 1: for Giuliani, it made it more popular, people liked it.
Speaker 1: But what is it about that period that leaves it
Speaker 1: open to this innovation. I mean, I think because a
Speaker 1: prosecutor him or herself makes a name, and I think
Speaker 1: there is an element of the personality in building up
Speaker 1: you know, the career of the individuals who are holding
Speaker 1: people to account. Is it a uniquely American phenomenon. Yeah,
Speaker 1: there's no country that that that is even close. It's
Speaker 1: challenging to hold individuals accountable. You indict an individual, they
Speaker 1: fight for their life because there's nothing left other than
Speaker 1: trying to protect their reputation. So they will go to court.
Speaker 1: They will spend every penny they have. The white color criminels.
Speaker 1: Many of the ones that you interacted with had long sentences,
Speaker 1: and we're not in minimum security prisons. They were in
Speaker 1: what looked like a real jail. Yeah. Yeah, you have
Speaker 1: a year plus sentence, which means you're you're not getting
Speaker 1: lighter touch facility, You're getting the real deal. I mean,
Speaker 1: they're dangerous and so this is where we hear them
Speaker 1: hiring consultants and other people to kind of inform them
Speaker 1: about what their experiences like and how to quote, you know,
Speaker 1: survive during their their sentence. So once you're up and
Speaker 1: you have a couple of years sentence, you're you're not
Speaker 1: going to a prison camp, which would be I think
Speaker 1: what most people think of as the white collar prison. Yea.
Speaker 1: I mean you're you're in oftentimes a medium security prison.
Speaker 1: You know, it's it's not a pleasant place, I will say.
Speaker 1: I mean, they're loud, noisy, dirty, They're they're exactly what
Speaker 1: people think. Who did you? Who did you? Who did
Speaker 1: you visit? By the way, anybody I would have heard
Speaker 1: of My first visit probably was one of the more
Speaker 1: prominent Dennis Kolswalski, the former CEO of Tycho. I remember him, yep,
Speaker 1: one of the most highest paid executives in the country.
Speaker 1: A rock star by any account. I mean, he was
Speaker 1: the next up and coming Jack Welch and uh yeah,
Speaker 1: he was the first person that went from you know,
Speaker 1: flying in a Gulf stream to you know, being in
Speaker 1: actually a prison in upstate New York. Described visiting him.
Speaker 1: What was it like? I was really nervous coming in.
Speaker 1: I will say, it was this pretty off place and
Speaker 1: there's you know, downs Koswalski there wearing a polo shirt.
Speaker 1: The warden was kind enough to give us effectively a
Speaker 1: lawyer visiting room, which sounds like it was nice. But
Speaker 1: it had like a one of those flashing lights that
Speaker 1: was like half flashing and it and it felt very
Speaker 1: very small and again kind of dirty and cold. But
Speaker 1: what was amazing is immediately I remember, you know, kind
Speaker 1: of the I would say, almost the grace that mister
Speaker 1: Kolzwalski had when we started the conversation. And I appreciate
Speaker 1: how quickly people can evolve. You can go from flying
Speaker 1: into G six to prison and it's not immediate, but
Speaker 1: you learn how to evolve and adapt, and we're surprisingly
Speaker 1: adaptable creatures. Did you go visit Bernie made Off? I
Speaker 1: was never actually permitted by the prison. Every Wednesday night,
Speaker 1: actually I would speak to him at seven pm in
Speaker 1: my office. You would call collect my Harvard office and
Speaker 1: we would speak and hundreds of pages of correspondence. What
Speaker 1: did he want to talk about? Did he acknowledge that
Speaker 1: he had done something wrong? Yes, he absolutely did admit
Speaker 1: that he did something wrong, But he did have the
Speaker 1: ability to rationalize and justify why the adverse impact that
Speaker 1: that had on on so many victims was not what
Speaker 1: people were making it out to be. I call he
Speaker 1: had they put all their eggs in one basket. That's
Speaker 1: like investing one on one failure. He had these interesting
Speaker 1: ability to kind of explain or provide a different way
Speaker 1: of seeing the world. Did he feel wronged? He would
Speaker 1: have preferred obviously to not have been in prison. But
Speaker 1: I think for a long time he thought that was
Speaker 1: the end of the road. I mean, at some point
Speaker 1: by its very nature, whether you know, he admitted it,
Speaker 1: which is what he did, or he died and those
Speaker 1: pieces would have been exposed, it was inevitable in some way,
Speaker 1: and I think he knew that getting to know these people,
Speaker 1: did you find the more you got to know them,
Speaker 1: more sympathetic you were with their plight. I'm empathetic and
Speaker 1: the basis of you know, this is not what they
Speaker 1: wanted to have their career. And as I became a
Speaker 1: husband and had some kids during the course of the project,
Speaker 1: so you know, missing your kids growing up, that would matter.
Speaker 1: But at the same time, what they did deserve the
Speaker 1: sanction that they're getting and it's harsh and it's difficult,
Speaker 1: but that's what we demand. Did you have the sense
Speaker 1: that in most cases these were not people who were
Speaker 1: kind of born criminals, that they circumstances and their personality
Speaker 1: had interacted in such a way they kind of found
Speaker 1: themselves at the top of a slippery slope and slid down.
Speaker 1: It exactly made off. I don't think he was a
Speaker 1: born criminal. I think he had a lower ability to
Speaker 1: empathize with others. So it's the extent that he found
Speaker 1: himself in a position engaging in behavior that ultimately was
Speaker 1: taking advantage of people. He didn't have the compunction to
Speaker 1: stop in a way that maybe other people might may have.
Speaker 1: But he was not destined to create a massive pyramid
Speaker 1: scheme or Ponzi scheme. It just made a series of mistakes,
Speaker 1: and rather than pulling back from those mistakes, he I
Speaker 1: would say double down and triple down, and you know,
Speaker 1: it starts as something much smaller and grows to something
Speaker 1: much more significant, and often starts as something very legitimate.
Speaker 1: I mean, a lot of great entrepreneurs start with creative
Speaker 1: ideas that do push the bounds of law. We can
Speaker 1: think of uber and airbeing b You know, they looked
Speaker 1: at zoning laws, they looked at taxicab laws and thought
Speaker 1: they're outdated, or they're antiquated, or they don't fit the
Speaker 1: modern world. Just kind of ignoring them for a while
Speaker 1: until quote the law catches up or you're able to
Speaker 1: lobby and change them. Sometimes that works very well, and
Speaker 1: sometimes it ends very badly. If you to get your
Speaker 1: students in a room and say here's what you need
Speaker 1: to watch for to prevent you becoming the next Bernie
Speaker 1: made Off or whoever, what tips would you give them?
Speaker 1: I've had sinstead of run into two issues and problems
Speaker 1: later on. Who are savvy and smart and I think
Speaker 1: thoughtful people by by all accounts from all my interactions.
Speaker 1: We go through all the exercises, all do the training,
Speaker 1: we all talk about how we're high integrity, moral people,
Speaker 1: but we never really are able to step back and
Speaker 1: look at our organizations and look at ourselves at what
Speaker 1: I call it an unbiased way. Something that I always
Speaker 1: struggled with is while I'm talking to people that are
Speaker 1: literally sitting in prison, people were still reflecting how they
Speaker 1: were high integrity. You know, businessmen or attorneys are entrepreneurs,
Speaker 1: who made a mistake, but otherwise they're high integrity people.
Speaker 1: And I always reflected, well, that's the same thing we
Speaker 1: all do, you know if we you know, when we
Speaker 1: make mistakes, it's not like we change our view of ourselves.
Speaker 1: Why should we expect someone that does it one hundred
Speaker 1: times more and would view it differently. And so humility,
Speaker 1: I guess the characteristic that I'm most fearful of when
Speaker 1: people are so confident in themselves that they can't see others.
Speaker 1: They don't want to surround themselves by people who may
Speaker 1: have different views and opinion because that isolation is what
Speaker 1: leads to poor decision making. So it's interesting you're identifying
Speaker 1: the condition in the person in the environment that might
Speaker 1: lead to this sort of thing, lack of humility being
Speaker 1: one of them. What else are there other signs that
Speaker 1: this is like fertile ground for white collar crime. Individuals
Speaker 1: can engage in almost a degree of mindlessness. They are
Speaker 1: not internalizing the broader ramifications, the lack of a feeling
Speaker 1: of harmfulness. And that's because most of the victims and
Speaker 1: white color crimes are they're distant, they're morphous. I mean,
Speaker 1: some crimes like insider training, we can't even identify the victim.
Speaker 1: We say it's the interior the market. That's not something
Speaker 1: that resonates in our gut, and so you can go
Speaker 1: ahead with the decision without feeling it. Have you ever
Speaker 1: had one of your students end up in jail? I
Speaker 1: have had, I have had. It's one of the last
Speaker 1: slides I actually show in my last last lecture. It's
Speaker 1: a picture of the class cards of former Harvard Business
Speaker 1: School students that are either currently or recently been in prison.
Speaker 1: Roger cooped out, the former head of McKinsey, just skilling
Speaker 1: the former CEO of Venron. But I make the point
Speaker 1: that no one on their last day at HBS is
Speaker 1: thinking of doing anything else but going out doing something productive.
Speaker 1: Maybe it's, you know, to change the world in some way.
Speaker 1: Maybe they just want to make a lot of money.
Speaker 1: But no one is ever thinking, you know what, I'm
Speaker 1: gonna go out make a pile of money, change the world,
Speaker 1: get on the cover of a magazine. You know what,
Speaker 1: Then I'm going to try that. You know that wire
Speaker 1: fraud that I heard about her engaging insider trading. No
Speaker 1: one's ever thought that, right, But we look at the
Speaker 1: data and we see people like Roger Coop. I mean,
Speaker 1: he's as celebrated as you can get. I mean, you
Speaker 1: don't become the managing director of McKinsey and Company by
Speaker 1: being anything but a incredibly thoughtful, strategic, respected leader for
Speaker 1: literally decades. And so to see someone of that position,
Speaker 1: you know, literally twenty seconds after a Goldman sex board
Speaker 1: meeting divulging information to a hedge fund. Some people think
Speaker 1: of that as damning and just kind of indictment on business.
Speaker 1: I actually look at the other way. That's humbling. To
Speaker 1: see someone that we could rightfully respect in so many
Speaker 1: ways do something that is so incredibly myoptic. Should make
Speaker 1: us all sit down and think about ourselves and how
Speaker 1: what limitations and capacity that we might make these simple
Speaker 1: myopic decisions that have these extraordinary ramifications. Do you get
Speaker 1: a sense that your students internalize this and are terrify
Speaker 1: that it might happen to them. You see at the
Speaker 1: wheels turning. And I've had a lot of i'll say, deep,
Speaker 1: like heartheart conversations with students sometimes of facing difficult decisions
Speaker 1: and trade offs. I've seen many instances. Now I don't
Speaker 1: want to call it crime in progress, but people getting
Speaker 1: into situations that, depending on how it goes, are going
Speaker 1: to go from a tough business decision to potentially books
Speaker 1: and records kind of like called regulatory violation too. If
Speaker 1: that continues down the same slippery slope, it's going to
Speaker 1: turn to something that a prosecutor would become interested in.
Speaker 1: What do you think it is about American culture that
Speaker 1: has encouraged the prosecution of white color crime. I think
Speaker 1: there is something as people become more and more powerful
Speaker 1: in companies, become more and more powerful, the desire to
Speaker 1: hold those an account, which I believe is only appropriate.
Speaker 1: I mean that's a byproduct of inequality. Yeah, I'm playing
Speaker 1: by the rules and you're not, and you're getting something
Speaker 1: because of that. This is probably like wild West justice too.
Speaker 1: It's like cheating at cards. We might all be equal
Speaker 1: at the card table, but if you see someone cheating
Speaker 1: and you take you know, they take your chips from you,
Speaker 1: you know you're gonna you know, this is like you
Speaker 1: take them out back. This is the more civilized professional
Speaker 1: form with our institutions. We want to hold people to
Speaker 1: account that cheat and deceive us, because in the end,
Speaker 1: what is what color or crime about? It's about deception.
Speaker 1: I mean, that's at the heart of everything you deceive me,
Speaker 1: and because of that you should be held to account.
Speaker 1: After a break, Eugene Soltis and I talk about the
Speaker 1: worst or of any white color convicts life, and it's
Speaker 1: not the year they get convicted and go to prison.
Speaker 1: I'm back with Eugene Saltis, the author of Why They
Speaker 1: Do It Inside the Mind of the White Collar Criminal.
Speaker 1: Do you have any sense of what happens to white
Speaker 1: collar criminals once they get out of jail? Like, how
Speaker 1: do they get on with their lives? It's hard having
Speaker 1: a felony conviction, a criminal conviction on your record changes
Speaker 1: your life. One thing I've observed is they're married, they
Speaker 1: have kids. While they're going through the trial, everything is
Speaker 1: held together. Failing this family grows stronger. I actually came
Speaker 1: to admire many of their relationships I saw with their
Speaker 1: family while they're in prison. And then what happens they
Speaker 1: leave prison in a year later, it all falls apart.
Speaker 1: Almost everyone I see getting divorced. It's not because the
Speaker 1: spouse is not supportive. But you're frustrated because you say,
Speaker 1: I did my time, I paid the cost that I
Speaker 1: was supposed to. Why can't I move on with my life,
Speaker 1: and you realize your friends don't want to associate with you.
Speaker 1: You can't get a job, you can't do a lot
Speaker 1: of things actually, once you have a criminal conviction, and
Speaker 1: that's incredibly frustrating to especially type A people who want
Speaker 1: to go forward and if you're you know, you're forty
Speaker 1: and you're right and move on forty five right and
Speaker 1: move on, you can't. So there's two groups. There's the
Speaker 1: one group that has a lot of money still left
Speaker 1: even after they paid all the lawyer bills and all.
Speaker 1: You become an entrepreneur because you're not beholding anyone, so
Speaker 1: you can reinvent yourself. There's a second group that if
Speaker 1: sometimes will find I will say the Middle East, sometimes
Speaker 1: Southeast Asia, but I've seen quite a few people going
Speaker 1: to the Middle East or other jurisdictions in Asia where,
Speaker 1: if anything, you had a criminal conviction. But then you
Speaker 1: describe the improper American justice system, people say, yes, you know,
Speaker 1: they kind of agree that that's you know, those crazy Americans,
Speaker 1: and you you kind of reinvent yourself overseas where you
Speaker 1: don't have those same limitations. So the pattern is their
Speaker 1: marriages and families stick together while they're in jail and
Speaker 1: they get out, they fall apart, moved asia. Yeah, but
Speaker 1: that's a that's a good, good way of putting it.
Speaker 1: The hardest people actually are people that are younger like FTX,
Speaker 1: like Sam Bankman freed, He's thirty years old and faces
Speaker 1: jail time. Can you think of analogies to him? I mean,
Speaker 1: Elizabeth Holmes. A lot of the cases you don't hear
Speaker 1: about when you see the article. I'll say of the
Speaker 1: trader that is at a you know, the Goldman sachs
Speaker 1: Or or JP Morgan who's a vice president who had
Speaker 1: a cousin play some trades, and you have an insider
Speaker 1: training charge, I mean you're making a couple hundred thousand
Speaker 1: dollars a year. I mean these are lower key cases
Speaker 1: than than than SPF. But you know, what do you
Speaker 1: do even to plead guilty with a reasonable lawyer, you're
Speaker 1: going to spend a million dollars or more. What do
Speaker 1: you do after, you know, and you go to prison
Speaker 1: for you know, six months or a year. No one
Speaker 1: will hire you. You don't have enough money to create
Speaker 1: your own business. That's hard. What you're saying is our
Speaker 1: society judges you by the worst thing you did once
Speaker 1: you have a criminal record. I mean, this is the
Speaker 1: same thing if you have a low level drug offense
Speaker 1: when you were you know, nineteen, or we're talking you know,
Speaker 1: a trade or a bank. You don't get to participate
Speaker 1: in insociety in the same way anymore, which is brutal.
Speaker 1: So Sam Bankman freed, play out various futures for him.
Speaker 1: You said, there are two narratives, the two narratives that
Speaker 1: will be spun basically in the courtroom, one by the
Speaker 1: prosecutors and one by the defense. One of the narratives
Speaker 1: is that it's is a criminal conspiracy from the start,
Speaker 1: and this is a born criminal. And the other narrative
Speaker 1: is this is something that it was an accident. Some
Speaker 1: kids got sloppy and they kind of should be forgiven
Speaker 1: and understood. If you want to create like White called
Speaker 1: the perfect white collar crime, and this is I should
Speaker 1: be very clear, not what we teach in class. But
Speaker 1: you don't create any written records. This is what prosecutors use.
Speaker 1: You look at emails, you look at you know, transcripts
Speaker 1: of phone calls. There's actual evidence there. And so the
Speaker 1: perfect white collar criminal the prosecutors have to rely on.
Speaker 1: He said, she said, where you get other people to
Speaker 1: turn and they try to recall conversation, and then the
Speaker 1: defense cast out about the quality of those witnesses, those
Speaker 1: cooperating witnesses. I think what's really difficult in the case
Speaker 1: of you know, FTX is I mean there's lengthy in
Speaker 1: well documented pieces of information. I mean this has also
Speaker 1: look at the speed of the indictment which it came down.
Speaker 1: I think prosecutors feel very confident and you know, I
Speaker 1: don't think there's one council in the entire world that
Speaker 1: would suggest defending yourself and I'll say the public court
Speaker 1: while you're going through will help your case. You're talking
Speaker 1: about Sam Bankman Freed actually talking to journalists while he's
Speaker 1: going through this. Ye talking, yes, you know, well well
Speaker 1: respected writers. Yes, But unfortunately, I think this is what
Speaker 1: happens when you're criminally indicted. You get your time in
Speaker 1: court to explain why that's wrong, and then if you're
Speaker 1: not convicted, you get to then you know, write a
Speaker 1: book and like some people, then explain why prosecutors are
Speaker 1: wrong too. But doing it in real time that's just dangerous. Yeah,
Speaker 1: So my view, if prosecutors are not able to make
Speaker 1: at least one count. I would be pretty shocked actually,
Speaker 1: just given with the volume misinformation and frankly they you
Speaker 1: can see prosecutors Off have been very vocal and there's
Speaker 1: already well known that there are other prominent individuals that
Speaker 1: were around him that are cooperating, even with the best counsel.
Speaker 1: That's a high bar to surmount as a defense. So
Speaker 1: you go to prison. I mean, I think the question
Speaker 1: is how long. We're talking like, you know, not six
Speaker 1: months in prisoner or a year. I mean, you're looking
Speaker 1: like a life sentence. That's scary. The reason why most
Speaker 1: people don't go to court and put this in front
Speaker 1: of a jury is you're literally looking at, you know,
Speaker 1: theoretically one hundred years in prison. What kind of deal
Speaker 1: do you imagine a prosecutor might offer him? I will say,
Speaker 1: what makes this case so extraordinary is I mean again,
Speaker 1: and this is the simplification, but you have one entity
Speaker 1: that's independent from another entity in ten billion dollars of
Speaker 1: customer money transferred. That's extraordinary. I mean I will say
Speaker 1: that that pales in comparison anything made Off did. If
Speaker 1: you take that simple story, I mean, that would be
Speaker 1: an equivalent of you know, an owner of fidelity, like
Speaker 1: the Johnson family transferring it to some other company they own,
Speaker 1: like ten billion dollars. I mean, you don't that doesn't happen,
Speaker 1: But it did. There's a million individual claimates. And so
Speaker 1: I think in the case for prosecutors, they think about victims.
Speaker 1: You have literally a million victims. You make, you know,
Speaker 1: eighty thousand hours a year, you lost thirty in FTX.
Speaker 1: You kind of want blood, so to speak. Yep, And
Speaker 1: so I think even the deal that they would offer
Speaker 1: would be something that would have looked so unpalallable. You
Speaker 1: know we're gonna offer you. I'll just say ten to twenty.
Speaker 1: He's thirty, thirty thirty, Yeah, I mean you're gonna be
Speaker 1: in your mid forties. You think some reason that you
Speaker 1: can avoid that. I will say, I don't see that
Speaker 1: being possible here. So, if you're a betting man, you're
Speaker 1: betting he's going to jail for a long time. I'm
Speaker 1: betting he's going to be in prison for a while.
Speaker 1: If you had had Sam Bankman freed as a student,
Speaker 1: and you had a time machine, so you had a
Speaker 1: sense that he was going to be facing these temptations
Speaker 1: or difficulties, what would you have told him, what advice
Speaker 1: would you have given him that would have kept him
Speaker 1: out of trouble? So I wish the entire team would
Speaker 1: have spent a month with us, let's say our first
Speaker 1: month of HBS, let's say, doing some basic business internal controls, governance,
Speaker 1: risk management, the kind of things that clearly lacked. If
Speaker 1: I gave them a month of what I called the
Speaker 1: basics and then they went ahead and did what's alleged,
Speaker 1: then I know which story it is. They ignored that
Speaker 1: and they went ahead, but to the extent that they
Speaker 1: were genuinely so ignorant, there's a cost associate with that,
Speaker 1: and I think there's a an appropriate set of sanctions,
Speaker 1: but it's a very different set of root causes and
Speaker 1: how I would think about their actions and their shortcomings
Speaker 1: as business leaders. Can you think of another white collar
Speaker 1: case like this? One of the questions I look at
Speaker 1: this case and I really struggle with is that, you know,
Speaker 1: there's a million individual claimants that lost money and and
Speaker 1: feel that they've been defrauded. The question so why did
Speaker 1: they trust to put their money into FDx given how
Speaker 1: little governance there was? And we go, well, let's look back.
Speaker 1: FTX was extraordinarily well funded. It was funded by i'll
Speaker 1: say many of our former students that work at well
Speaker 1: known venture capital shops and endowments and other organizations who
Speaker 1: put money in. And this came out very much in
Speaker 1: theanois as well. Put in hundreds of millions of dollars
Speaker 1: with limited to oftentimes summonance, is no due diligence. It's
Speaker 1: kind of the FOMO. They didn't want to miss out
Speaker 1: those homes. Literally, it was well known was turning down
Speaker 1: money if people ask questions. So you throw a one
Speaker 1: hundred million dollars in or two hundred million in for
Speaker 1: a venture capital company to write off two hundred million,
Speaker 1: which is what they've all done. Frankly, isn't that big
Speaker 1: of a deal. I mean, that's part of the risk
Speaker 1: business they're in. But the challenge we face right now
Speaker 1: is by all those venture capital companies and endowments and
Speaker 1: other organizations putting in hundreds of millions of dollars each
Speaker 1: into enterprises with little due diligence, what do they do?
Speaker 1: They actively create credibility for an organization like FTX, and
Speaker 1: then a million people rush and put money in and
Speaker 1: really no one's watching the shop and actually helping a
Speaker 1: company like FTX grow up, which is what could have
Speaker 1: prevented this. We have money throwed young entrepreneurs that may
Speaker 1: not have experience or knowledge, and then what happens at
Speaker 1: the end the investors, institutional investors can write that off
Speaker 1: and it's not that big of a deal, and then
Speaker 1: you have a million individual investors that feel deceived by
Speaker 1: the system. And this is why I think people are
Speaker 1: critical about business. Why they're critical about places like Harvard
Speaker 1: Business School is because they don't think business is looking
Speaker 1: out for them. And this is exactly what makes people,
Speaker 1: I think a purporately cynical of kind of business is
Speaker 1: it looks like people are just making money and kind
Speaker 1: of gambling when it has real consequences on unreal people. Eugene,
Speaker 1: this was great. Absolutely. Eugene salt Us is a professor
Speaker 1: of business administration at Harvard Business School and the author
Speaker 1: of Why They Do It Inside the Mind of the
Speaker 1: White Collar Criminal. Let's end today by answering a question
Speaker 1: from one of our listeners, or maybe more than one.
Speaker 1: Here's the first, Jake, who asks, how do you think
Speaker 1: of the informative aspects of your books? Do you view
Speaker 1: it as a dual purpose along with your broader goal
Speaker 1: of building a large, broader narrative. Is it an ends
Speaker 1: to the means to be able to have the reader
Speaker 1: understand the story or do you see it as the
Speaker 1: core of your works? First off, I don't break it
Speaker 1: down quite like that. I don't think, oh, I'm going
Speaker 1: to inform the reader about credit default swaps or baseball
Speaker 1: statistics or cryptocurrency. What happens is there's an idea, or
Speaker 1: there's a character, or there's both that I become really
Speaker 1: interested in, and I realize that I can't get the
Speaker 1: character or the idea cross without informing the reader more
Speaker 1: about this or that. So the characters in The Big Short,
Speaker 1: they were obsessed with the rigging of Wall Street and
Speaker 1: the crashing of the American financial system, and that involve
Speaker 1: some really technical financial instruments that they got very obsessed with.
Speaker 1: So the reader had to understand them in order to
Speaker 1: understand the character. The same is true of you know,
Speaker 1: if I'm writing about Sam Bankman Freed, It's very hard
Speaker 1: to do that and engage the reader in the way
Speaker 1: I need to engage the reader unless they understand, at
Speaker 1: least with Sam Bankman Freed understands crypto to be and
Speaker 1: some other things. So you know, it's just sort of
Speaker 1: like when you're entering into the world of another person.
Speaker 1: There's sometimes some complicated things about that world that need
Speaker 1: to be explained, and I try to explain them in
Speaker 1: a way that doesn't disrupt the reader's pleasure in the narrative.
Speaker 1: It's funny when I'm thinking about how to do that,
Speaker 1: I think my mother needs to understand this. And the
Speaker 1: funny thing about that my mother doesn't read my books,
Speaker 1: but I still have that thought in my head. So anyway,
Speaker 1: I hope that answer your questions and happy to take
Speaker 1: more down the road. Thank you. If you have a question,
Speaker 1: let me know, just write me by clicking the link
Speaker 1: in our show notes or visiting ATR podcast dot com.
Speaker 1: That's atr podcast dot com. On Background is hosted by
Speaker 1: me Michael Lewis and produced by Katherine Girardot and Lydia
Speaker 1: Jane Cott. Our editor is Julia Barton. Our engineer is
Speaker 1: Sarah Brugere. Our show is recorded by Tofa Ruth at
Speaker 1: Berkeley Advanced Media Studios. Our music was composed by Matthias
Speaker 1: Bossy and John Evans of Stellwagon Symphonette. My old friend
Speaker 1: Nick Brittell composed our theme song. On Background is a
Speaker 1: production of Pushkin Industries. Define more Pushkin podcasts, listen on
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