Yesterday I posted a book review of Jesse Eisinger’s book The Chickenshit Club. I also posted a podcast of an interview I did with Eisinger and Paul Pelletier, a partner at Pepper Hamilton, who was a source in the book. The both had some interesting takes on the underlying causes which led to the lack of Department of Justice (DOJ) prosecutions in the wake of the 2008 financial meltdown and ensuing scandal. Today, I want to highlight what I thought were some of the key points they raised in the interview. To listen to the full interview, check out the FCPA Compliance Report-Episode 349.
I began by asking Eisinger what led him to write the book. He said that as a financial reporter he had been writing about the growing subprime crisis as early as 2005. He also wrote about the looming financial crisis and leveraged the investment banks, which of course blew up leading to the 2008 financial meltdown. In 2009, Eisinger began work on a series of stories, “The Wall Street Money Machine,” which were co-authored with Jake Bernstein. This series revealed how Wall Street’s morally questionable practices had led to the worst financial crisis since the Great Depression and was awarded the Pulitzer Prize for National Reporting in 2011. It was the first Pulitzer Prize awarded to a group of stories published in a digital-only format. Based upon the prosecutions from the earlier financial crisis in the late 90s and early 00s around companies such as Enron, WorldCom and Adelphia, Eisinger had expected criminal charges to be brought. They never were so he sought out to explore what had changed.
One of the things that I found most interesting about the book was that it laid out the multiple steps which led the DOJ down the road where it did not prosecute any senior executive after the 2008. The steps were not planned out and in many ways were not dependent upon each other. Yet they led from the successful Enron prosecutions to something very different just a few years later.
Pelletier noted, that one of the important things was how slowly this happened and that this was not one decision. He made clear, “This wasn’t Timothy Geithner or calling up Eric Holder and saying don’t prosecute bankers.” But it was a process, “institutional imperatives and incentives that had been building up for a long time that resulted in this and this was building for a long time.”
One of the things Eisinger and Pelletier disagreed on was the role of Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs) in leading to fewer trials. Eisinger was unremitting in his criticism of these prosecutorial tools, saying “this is the new way that corporations are prosecuted in this country through settlements for money.” He was also very critical of the role of corporations and their counsel in performing internal investigations and turning them over to the government.
Pelletier feels that both DPAs and NPAs have a place in the prosecutorial arsenal and when “used appropriately are effective ways to both change corporate culture and to punish criminal corporate conduct.” Pelletier did agree with Eisinger in criticizing the role of corporations in turning over their internal investigations which largely form the basis of an enforcement action going forward. He feels that under such a scheme, “the department has moved away from the hard work of investigating and prosecuting and taking the easy way out.”
Also interesting was their differences in opinion on how to turn things around. Pelletier began by suggesting the DOJ take a deep dive retrospective look back and see what really happened that did not allow it to bring any significant cases. One might even say the DOJ should do a root cause analysis along the lines of the one laid out in the Evaluation of Corporate Compliance Programs and apply its findings going forward. His second suggestion was increased and enhanced training for DOJ prosecutors on how to try cases. He noted that he had previously taught at the National Trial Advocacy Center in South Carolina but the DOJ had dropped sending young prosecutors there for advanced trial advocacy training. Finally, he said there must be a change in the attitude about bringing cases at Main Justice. You simply cannot have even an information policy that if you lose a case it ends your career and have an effective trial team.
Eisinger also had some interesting ideas. First he suggested paying DOJ prosecutors quite a bit more so that the siren song of money in private practice is not always calling. He mentioned the figure of $400,000 for senior prosecutors who made careers with the Department. This would help keep down the number of prosecutors who leave after six years or so, going into private practice.
This Human Resource (HR) type initiative would extend to hiring lawyers from a wide variety of law schools, backgrounds and experiences to create greater diversity in the talent pool. Eisinger believes that there should be more geographic diversity but the pool of talent should have “more plaintiffs’ lawyers, more consumer protection lawyers, and more academics.” He advocated there should be older people who are what he termed “refugees from white collar defense practices” and who do not want to return to it or made their money and are satisfied with their careers.
He next turned to the issue of corporate versus individual prosecutions. Eisinger feels that prosecutors should focus on prosecuting individuals first and “the prosecution of corporations should be as a last resort. And the last resort should be a settlement with the corporation”, which should also be rare. He believes that by focusing on individuals, the DOJ can change corporate behavior in a more focused manner.
To my mind the most significant and important book that every Chief Compliance Officer (CCO), General Counsel (GC) and compliance practitioner needs to read is The Chickenshit Club. It should be on your ‘must read’ list.
[View source.]
