the bezzle
February 11, 2020 9:57 AM Subscribe
With few exceptions, the only rich people America prosecutes anymore are those who victimize their fellow elites. Pharma frat boy Martin Shkreli, to pick just one example, wasn’t prosecuted for hiking the price of a drug used to treat HIV from $13.50 to $750 per pill. He went to prison for scamming investors in a hedge fund scheme years before. Meanwhile, in 2016, the CEO [Don Blankenship] whose company [Massey Energy] experienced the deadliest mining disaster since 1970 served less than one year in prison and paid a fine of 1.4 percent of his salary and stock bonuses the previous year. Why? Because overseeing a company that ignores warnings and causes the deaths of workers, even 29 of them, is a misdemeanor.The Golden Age Of White Collar Crime
previously: The Chickenshit Club, on why United States criminal prosecutions of corporate CEOs have declined // How the IRS Was Gutted and Gutting the IRS, on the deliberate retargeting of IRS enforcement away from the wealthy and powerful.
Law Enforcement Losing War on White Collar Crime
Sideswiping the White-Collar Crime Wave
Of course the prosecutorial system was never perfect. Responsibility has long been scattered across multiple Federal agencies like the Department of Justice, the SEC, the Postal Service, and the IRS, and loosely divided among 50 publicity seeking U.S. Attorneys. For decades, prosecutors, FBI agents, and other investigators who specialize in corporate crimes have struggled to compete for resources with the latest crimes du jour—terrorism, cybercrime, drugs, and street gangs. The Federal judiciary’s support for prosecutorial tactics has also varied significantly over time. Moreover, corporations have long had relatively deep pockets, a full panoply of stalling tactics and creative defenses, and access to the best “white collar” criminal defense attorneys money can buy—much of it hand-trained by the Justice Department itself.[In the UK] White collar prosecutions plummet even as crime rises
However, it is now clear that in the past decade, even as all available evidence indicates that corporate financial chicanery was exploding, this system became weaker than ever. For example, as of 2017, the number of “white collar” criminal prosecutions and convictions is at the lowest level in 22 years. Indeed, during Trump’s first year, so far, there have only been about 6,000 Federal white-collar criminal prosecutions of all kinds—a 46 percent drop from their 1995 total (10,913), and just 6 percent of total Federal criminal prosecutions. Bank fraud cases will account for only 8 percent of all Federal white-collar crime prosecutions.
How America stopped prosecuting white-collar crime and public corruption, in charts
The U.S. Needs to Crack Down on White-Collar Crime - "What makes Michael Cohen different from other fraudsters? He got caught."
White Collar Prosecutions Fall to Lowest in 20 Years, 2018
White-collar crime prosecutions hit lowest level in 33 years, 2019
I'm picturing you shaking a wrought iron fence around the Frick, which is appropriate [johnstown flood, homstead strike]
posted by the man of twists and turns at 10:09 AM on February 11, 2020 [1 favorite]
posted by the man of twists and turns at 10:09 AM on February 11, 2020 [1 favorite]
The problem with "let's jail the white collar criminals!" is simply "under what law?" A large part of the problem is that white collar criminal law has been gutted - either explicitly through the legislature, or implicitly through the courts. A while back, I had said that the ruling that freed Conrad Black was one of the "lesser known atrocities of the Roberts Court" - this was because the ruling basically gutted fair dealing law, and made it near impossible to successfully bring about a bribery case.
posted by NoxAeternum at 10:15 AM on February 11, 2020 [10 favorites]
posted by NoxAeternum at 10:15 AM on February 11, 2020 [10 favorites]
i just feel like i really dropped the ball in not planning my life around Doing Crimes
I have had this thought, but on analysis it really does seem like you would have needed to be born into money/connections - none of the crimes that were available for me to commit would have actually ended up particularly more lucrative than getting an office job, although in hindsight dealing drugs would probably have been more profitable than most other career paths open to me in my late teens. But it wasn't like a rich nepotistic uncle was about to hand me management of a company, which is how you really get your bezzle on.
posted by aspersioncast at 11:05 AM on February 11, 2020 [22 favorites]
I have had this thought, but on analysis it really does seem like you would have needed to be born into money/connections - none of the crimes that were available for me to commit would have actually ended up particularly more lucrative than getting an office job, although in hindsight dealing drugs would probably have been more profitable than most other career paths open to me in my late teens. But it wasn't like a rich nepotistic uncle was about to hand me management of a company, which is how you really get your bezzle on.
posted by aspersioncast at 11:05 AM on February 11, 2020 [22 favorites]
I read this yesterday, and it pretty much ruined my day.
posted by kevinbelt at 11:15 AM on February 11, 2020 [1 favorite]
posted by kevinbelt at 11:15 AM on February 11, 2020 [1 favorite]
For some good historical background on this phenomenon, check out Katharina Pistor's The Code of Capital
posted by Harry Caul at 12:06 PM on February 11, 2020 [3 favorites]
posted by Harry Caul at 12:06 PM on February 11, 2020 [3 favorites]
Why Only One Top Banker Went to Jail for the Financial Crisis
Serageldin’s life was about to become more ascetic. Two months earlier, he sat in a Lower Manhattan courtroom adjusting and readjusting his tie as he waited for a judge to deliver his prison sentence. During the worst of the financial crisis, according to prosecutors, Serageldin had approved the concealment of hundreds of millions in losses in Credit Suisse’s mortgage-backed securities portfolio. But on that November morning, the judge seemed almost torn. Serageldin lied about the value of his bank’s securities — that was a crime, of course — but other bankers behaved far worse. Serageldin’s former employer, for one, had revised its past financial statements to account for $2.7 billion that should have been reported. Lehman Brothers, AIG, Citigroup, Countrywide and many others had also admitted that they were in much worse shape than they initially allowed. Merrill Lynch, in particular, announced a loss of nearly $8 billion three weeks after claiming it was $4.5 billion. Serageldin’s conduct was, in the judge’s words, “a small piece of an overall evil climate within the bank and with many other banks.” Nevertheless, after a brief pause, he eased down his gavel and sentenced Serageldin, an Egyptian-born trader who grew up in the barren pinelands of Michigan’s Upper Peninsula, to 30 months in jail. Serageldin would begin serving his time at Moshannon Valley Correctional Center, in Philipsburg, where he would earn the distinction of being the only Wall Street executive sent to jail for his part in the financial crisis.
posted by They sucked his brains out! at 1:19 PM on February 11, 2020 [9 favorites]
Serageldin’s life was about to become more ascetic. Two months earlier, he sat in a Lower Manhattan courtroom adjusting and readjusting his tie as he waited for a judge to deliver his prison sentence. During the worst of the financial crisis, according to prosecutors, Serageldin had approved the concealment of hundreds of millions in losses in Credit Suisse’s mortgage-backed securities portfolio. But on that November morning, the judge seemed almost torn. Serageldin lied about the value of his bank’s securities — that was a crime, of course — but other bankers behaved far worse. Serageldin’s former employer, for one, had revised its past financial statements to account for $2.7 billion that should have been reported. Lehman Brothers, AIG, Citigroup, Countrywide and many others had also admitted that they were in much worse shape than they initially allowed. Merrill Lynch, in particular, announced a loss of nearly $8 billion three weeks after claiming it was $4.5 billion. Serageldin’s conduct was, in the judge’s words, “a small piece of an overall evil climate within the bank and with many other banks.” Nevertheless, after a brief pause, he eased down his gavel and sentenced Serageldin, an Egyptian-born trader who grew up in the barren pinelands of Michigan’s Upper Peninsula, to 30 months in jail. Serageldin would begin serving his time at Moshannon Valley Correctional Center, in Philipsburg, where he would earn the distinction of being the only Wall Street executive sent to jail for his part in the financial crisis.
posted by They sucked his brains out! at 1:19 PM on February 11, 2020 [9 favorites]
That Credit Suisse chap seems to have been found guilty of massive financial fraud while not in possession of an Anglo-Saxon name. odinsdream has it …
posted by scruss at 2:11 PM on February 11, 2020 [6 favorites]
posted by scruss at 2:11 PM on February 11, 2020 [6 favorites]
Teenage gang members who argue that they committed crimes due to the culture of the Crips or the Latin Kings receive harsher sentences—stealing money for yourself is bad; stealing money for a criminal organization is worse. Corporate defendants who claim they committed crimes due to the internal culture of Goldman Sachs or HSBC, on the other hand, get lighter sentences—how could an individual possibly be held accountable for something everyone else was doing?posted by RobotHero at 2:13 PM on February 11, 2020 [11 favorites]
Recommended relevant reading: Eisinger's The Chickenshit Club
posted by MengerSponge at 3:05 PM on February 11, 2020 [1 favorite]
posted by MengerSponge at 3:05 PM on February 11, 2020 [1 favorite]
Honestly, I see the "chickenshit club" framing as counterproductive. (Not to mention that the guy who helped popularize the term (James Comey) wound up being pretty chickenshit himself.) The problem with the concept is that it inherently argues that the problem is due to bad actors that don't have the integrity to act in the right manner. But it really isn't - it's a societal problem built on perverse incentives, where moving forward as a prosecutor is all about winning, so prosecutors focus on winning, and thus don't take the tough cases where they could lose. You want to change that - you need to change the incentive structure.
posted by NoxAeternum at 4:44 PM on February 11, 2020 [4 favorites]
posted by NoxAeternum at 4:44 PM on February 11, 2020 [4 favorites]
I just did a ton of research on Massey Energy and the explosion at the Upper Big Branch mine. A huge thread here with not just Don Blankenship but other corporations is the loss of worker representation through unions. Unions don't just exert collective power on wages, but they also create an infrastructure through which workers have power to check corporate greed before it goes completely out of control into criminal behavior.
For example, Blankenship's practice was to buy up mines, close them so he could fire unionized workers, and then reopen them a few years later as a non-union mine. Miners have the right to have an employee representative walk through with a company rep during inspections, but non-unionized miners don't really have a way to meaningfully exercise that right without the leverage of union representation. Studies have shown that even though actual injury rates are higher at non-union mines, the levels of reporting are far higher at unionized mines - because unionized workers aren't as afraid to report their injuries as part of a workplace grievance. Without a union to represent workers' safety interests, this led to a workplace culture at Massey's mines in which the greed literally flourished in the absence of worker representation.
This is why if you want to check corporate greed, you need strong unions to act as a preventative check as much as willing prosecutors to prosecute corporate crimes after the fact. This is as true of coal mines in Appalachia as it is tech companies in Silicon Valley. Unions truly are, if you'll permit the phrase, the canary in the coal mine when it comes to predicting just how far CEOs will take their natural tendencies towards greed.
posted by mostly vowels at 6:08 PM on February 11, 2020 [22 favorites]
For example, Blankenship's practice was to buy up mines, close them so he could fire unionized workers, and then reopen them a few years later as a non-union mine. Miners have the right to have an employee representative walk through with a company rep during inspections, but non-unionized miners don't really have a way to meaningfully exercise that right without the leverage of union representation. Studies have shown that even though actual injury rates are higher at non-union mines, the levels of reporting are far higher at unionized mines - because unionized workers aren't as afraid to report their injuries as part of a workplace grievance. Without a union to represent workers' safety interests, this led to a workplace culture at Massey's mines in which the greed literally flourished in the absence of worker representation.
This is why if you want to check corporate greed, you need strong unions to act as a preventative check as much as willing prosecutors to prosecute corporate crimes after the fact. This is as true of coal mines in Appalachia as it is tech companies in Silicon Valley. Unions truly are, if you'll permit the phrase, the canary in the coal mine when it comes to predicting just how far CEOs will take their natural tendencies towards greed.
posted by mostly vowels at 6:08 PM on February 11, 2020 [22 favorites]
I have had this thought, but on analysis it really does seem like you would have needed to be born into money/connections
So I have some experience with this and it is basically like business in general. There is the in group of high level people that take basically no risk but make all the profit and then there is a bunch of people in the out group who want to get into the in grouo. They are totally expendable and generally take all the risks but reap basically none of the rewards.
More or less you have to be born into the in group, there is no real way to earn your way in.
posted by Literaryhero at 10:21 PM on February 11, 2020 [3 favorites]
So I have some experience with this and it is basically like business in general. There is the in group of high level people that take basically no risk but make all the profit and then there is a bunch of people in the out group who want to get into the in grouo. They are totally expendable and generally take all the risks but reap basically none of the rewards.
More or less you have to be born into the in group, there is no real way to earn your way in.
posted by Literaryhero at 10:21 PM on February 11, 2020 [3 favorites]
See also the You're Wrong About podcast episode Why Didn’t Anyone Go to Prison for the Financial Crisis?, in which the phrase "learned helplessness" features prominently. It basically argues that responsibilities for agencies that police "elite deviance" have increased faster than actual resources to do so, leaving the policing and oversight agencies in a spot where they've basically just given up.
Also, the episode makes a great point about how, when some investment banker or whatever claims his actions were in line with the standards and culture of the industry, courts just kinda shrug and say "good point." When or if some gang member makes the same argument, however, its seen as a tacit admission of deliberate participation in a criminal enterprise and thus worth lengthy jail time and associated punishments.
posted by Panjandrum at 12:08 AM on February 12, 2020 [11 favorites]
Also, the episode makes a great point about how, when some investment banker or whatever claims his actions were in line with the standards and culture of the industry, courts just kinda shrug and say "good point." When or if some gang member makes the same argument, however, its seen as a tacit admission of deliberate participation in a criminal enterprise and thus worth lengthy jail time and associated punishments.
posted by Panjandrum at 12:08 AM on February 12, 2020 [11 favorites]
"Serageldin would begin serving his time at Moshannon Valley Correctional Center, in Philipsburg, where he would earn the distinction of being the only Wall Street executive sent to jail for his part in the [2007 subprime mortgage] financial crisis."
I watched The Big Short for the first time on the weekend with friends, and when we got to the point in the movie where they highlight this delightful factoid a big groan of "Of Fucking Course!" went up 'round the room.
(The Big Short is a great movie, I recommend it, but it's very upsetting and stressful and I honestly had to go have a lie-down afterwards to calm down. It's deeply scary how little has been done to prevent those events repeating.)
posted by Secret Sparrow at 2:37 PM on February 12, 2020 [1 favorite]
I watched The Big Short for the first time on the weekend with friends, and when we got to the point in the movie where they highlight this delightful factoid a big groan of "Of Fucking Course!" went up 'round the room.
(The Big Short is a great movie, I recommend it, but it's very upsetting and stressful and I honestly had to go have a lie-down afterwards to calm down. It's deeply scary how little has been done to prevent those events repeating.)
posted by Secret Sparrow at 2:37 PM on February 12, 2020 [1 favorite]
Finished reading this article.
Went to look through some headlines and what do I see:
"A judge in the sprawling case against Theranos founder Elizabeth Holmes and former company president Ramesh Sunny Balwani has thrown out some of the charges after her defense team argued prosecutors’ case was too broad and too vague"
So, yeah. Here we go again.
posted by dnash at 1:55 PM on February 13, 2020
Went to look through some headlines and what do I see:
"A judge in the sprawling case against Theranos founder Elizabeth Holmes and former company president Ramesh Sunny Balwani has thrown out some of the charges after her defense team argued prosecutors’ case was too broad and too vague"
So, yeah. Here we go again.
posted by dnash at 1:55 PM on February 13, 2020
Today we all got a reminder of the rich white guy's last defense against suffering any of the consequences of their actions when Trump pardoned/commuted the sentences of a whole cast of grim characters from the last few decades of white-collar crime. I can't really imagine who the constituency for expunging Michael Milken's sentence 30 years after he served 22 months for insider trading might be beyond other rich guys who are currently committing similar crimes.
posted by Copronymus at 4:21 PM on February 18, 2020 [3 favorites]
posted by Copronymus at 4:21 PM on February 18, 2020 [3 favorites]
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