This is a first for The Securities Edge – a book review. The book in question is The Chickenshit Club – Why the Justice Department Fails to Prosecute Executives by Jesse Eisinger. Mr. Eisinger is a writer for Pro Publica. He’s a very smart man and a good (even great) reporter; among other things, he’s won the Pulitzer Prize. I met him once and was impressed by his intellect and commitment.
However, the book bothers me greatly, and that’s why I’ve decided to post this review. As indicated by his title, he is concerned with the failure to prosecute executives, both generally and in connection with the financial collapse. That concern is legitimate; many people – including people in business – share it, and some hold the failure at least partially responsible for our political situation today. The problem with the book is that in Mr. Eisinger’s view there are heroes and villains and nothing in between; those who prosecute are good, and those who don’t (or who do so halfheartedly) are bad – and the businessmen themselves are the worst of all.
For example, among the people he idolizes is Stanley Sporkin, a retired USDC judge who previously served as the SEC’s Director of Enforcement. Mr. Sporkin’s integrity may be beyond question, but in Mr. Eisinger’s view, his judgment is (and was) as well. Those of us who practiced during Mr. Sporkin’s tenure at Enforcement may have a different view. Among other things, Mr. Sporkin was responsible for pursuing insider trading cases against Vincent Chiarella and Ray Dirks. Mr. Eisinger lauds Mr. Sporkin for going after Mr. Chiarella – a typesetter for a financial printer who saw some juicy (nonpublic) information and traded on it. Did he trade on the basis of inside information? Yes, but at the end of the day he was a schnook who should have gotten a slap on the wrist rather than being subjected to a (literal) full court press by the federal government. The courts apparently felt the same way, and, as courts often do, they found a way to let him off the hook by developing a strained approach to insider trading law that continues to haunt us today. (Mr. Eisinger doesn’t mention the equally ill-advised insider trading prosecution of Ray Dirks, which also contributed to the current garbled state of affairs in insider trading law.)
Mr. Eisinger has the same binomial view of substantive issues; anything that facilitates white collar prosecutions is good, and anything that doesn’t is bad. He notes that when prosecutors used to do their jobs, they would demand not only that corporate defendants refuse to advance legal expenses to individual defendants, but also that the defendants waive privilege. He mourns the end of that era, focusing on the wrong-headedness (in his view) of advancing expenses to executives, but he fails to distinguish between the two issues (expense advancement and waiving privilege) or to acknowledge that there could be a problem in forcing defendants to waive attorney-client privilege. I’d be the first to admit that expense advancement has its problems, but demanding that someone waive privilege has always troubled me.
Similarly, anything that gets in the way of white collar prosecutions is bad. He gives no credence to concerns that, given what happened to Arthur Anderson in the wake of the Enron debacle, it might not be a good idea to prosecute another big four accounting firm. He seems to fume at the fact that foreign policy considerations should be taken into account in deciding whether to prosecute UBS. He refuses to accept that it may be better not to initiate a prosecution that doesn’t stand much of a chance of success. And so on.
In addition to his black and white view of white collar prosecutions, he is insufferably cranky. Despite his praise for Stanley Sporkin’s vigilance in pursuing insider trading violations, he dumps all over Preet Bharara and other prosecutors for focusing on similar violations; in his view, they should have gone after different issues and bigger fish.
As noted above, many people share Mr. Eisinger’s concerns about the government’s failure to prosecute executives or white collar crime in general. Depending on the facts and circumstances, I sometimes share those concerns myself. And I am troubled that the huge fines paid by corporate recidivists seem no longer to carry any moral opprobrium and are viewed as a cost of doing business – in some cases a badge of honor – and penalize the shareholders rather than the miscreants. But Mr. Eisinger’s take-no-prisoners approach to white collar criminal prosecutions does not advance his cause; in fact, in my opinion, it hurts his cause, and seriously.
PS: With reference to my comments above about the damage done to our insider trading law by overzealous prosecutors, here’s what the New York Times had to say on September 26 about trading on the basis of information acquired through the 2016 hacking of EDGAR: “The use of stolen information from the Edgar system has been likened to insider trading, but there is a crucial difference when hacking is involved. Insider trading requires showing a violation of a fiduciary duty in misusing the information for personal gain, but hackers are thieves who are bound by no such fiduciary duty.” In other words, they could be prosecuted for stealing the information, but not for insider trading. Does that make sense to you?