Book Review: The Chickenshit Club

by Thomas Fox
Contact

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 by Pulitzer Prize winning journalist Jesse Eisinger. It puts together, for the first time, the story and timeline of how the Department of Justice (DOJ) devolved from the group of prosecutors who convicted felons from the late 90s and early 00s in financial scandal such as Enron, Adelphia and WorldCom, to the group which did not even bother to attempt to prosecute high ranking executives after the 2008 financial meltdown.

Eisinger is a long time financial reporter. He began writing about the subprime crisis as far back as 2005. During the middle of last decade, he wrote about the looming financial crisis, culminating in the crash of 2008. Having followed the Enron case from the early to mid-part of the decade, Eisinger was familiar with the DOJ’s success in prosecuting financial crimes and wondered why there were not similar prosecutions after 2008. Such was the genesis of the book.

Eisinger obviously did his homework by reading court documents, decisions, transcripts and accounts of the relevant events. Through interviews with literally hundreds of former and current DOJ prosecutors, other government officials and regulators, defense attorneys, corporate executives and a host of others, Eisenger demonstrates how a series of seemingly unrelated events from 2002 led to the scandal which saw no top executives prosecuted over the 2008 financial meltdown, since that time, continuing up to today.

The thing that struck me about Eisinger’s story was the process the DOJ went through after the Enron prosecutions. There was pushback from the business community, the legal community, the US Chamber of Commerce and a host of others who saw the successful white collar prosecutions as government over-reach. There were three parts of the story which were new to me and very much resonated with me as well. The first was the demise of Arthur Anderson, which I had attributed to, in large part, the guilty verdict. While this guilty conviction may have been a death knell, it turns out the accounting firm was on its last legs, from a series of professional and business miss-steps. I had also forgotten that the conviction of the firm, eventually overturned by the Supreme Court, was but a near thing at trial, with the trial judge’s erroneous instruction which led to the reversal the decisive factor to the jury.

Moreover, it was a PR firm hired by Arthur Anderson before its trial, which came up with the narrative that it was the conviction which put the venerable firm out of business. The book shows this was very far from the truth. Yet the fallout was the “Arthur Anderson” effect, where company execs, defense lawyers and others would point to the dismantled firm and say that is what happens when the government prosecutes. From my own personal experience, Arthur Anderson was always on the mind of DOJ prosecutors as well.

The second insight was the pushback against the Thompson Memo, particularly around two areas (1) waiver of the attorney-client privilege and (2) paying for the defenses of employees who were charged with crimes. These two disparate yet related strands came together in the district court’s opinion in US v. Stein, which involved prosecutions against members of KPMG for promoting certain tax shelters. The government had pressured KPMG into not paying or indemnifying the defendants for their legal expenses. The trial judge found this action violated the defendants Sixth Amendment rights and eventually dismissed the case against 13 of 16 defendants finding prosecutorial misconduct in preventing the defendants from having funds made available for their defense. The court’s decision in US v. Stein led to the release of the McNulty Memo which revised the Thompson Memo to decidedly less favorable for the government.

The final nail for the DOJ was the Ted Stevens prosecution where conviction was thrown out by the trial judge for prosecutorial misconduct. The fallout was palpable in the DOJ around the misconduct but the effect on trial lawyers at Main Justice was even greater. It now seemed that if you went to trial and lost for any reason, it would be a career killer inside the DOJ. This made prosecutors largely afraid to take cases to trial. As I learned many years ago, if you call yourself a trial lawyer but are afraid to go to trial, you are very far from a trial lawyer. The collateral impact has been to largely stop providing top level trial training for DOJ prosecutors at Main Justice. It also takes away the very large threat against companies that the DOJ will successfully take them to trial, no matter how bad the facts might appear.

There was one other factor which, when coupled with the first three, would seem to insulate any criticism of DOJ by the judiciary. Judge Jed S. Rakoff has lodged objections to the Securities and Exchange Commission (SEC) no-admit settlement with Citigroup for its role in the 2008 financial crisis, refusing to accept the agreed resolution with the SEC. However, Judge Rakoff was rebuked by the 2nd Circuit Court of Appeals, which sided with both Citigroup and the SEC in staying the trial court and requiring the trial court to enter the agreed upon settlement without any changes. As Judge Rakoff was quoted in the book, the court of appeals “obviously decided I was a dumbbell and wrote the opinion accordingly.” All of this meant that in addition to the wounds the DOJ inflicted upon itself, there was no judicial oversight for the outcome; which are the settlements entered into by the DOJ and SEC.

Eisinger details the reasons which led to the DOJ failures to prosecute after 2008. Too big to fail and too big to jail are certainly convenient catch phrases but his book clearly lays out what happened and, more importantly, why it all went down the way it did. For ever compliance practitioner, corporate counsel and white collar practitioner, this book should be required reading.

Contemporaneously with the posting of this blog, I am posting the podcast recording of my interview with book author, Jesse Eisinger, and Paul Pelletier, a key source for the book. The interview is fascinating and I urge you to take a listen for both the substance and the interplay between Eisinger and Pelletier.

For the Everything Compliance The Chickenshit Club podcast, click here.

For the FCPA Compliance Report Jesse Eisinger-Paul Pelletier The Chickenshit Club interview, click here.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Thomas Fox, Compliance Evangelist | Attorney Advertising

Written by:

Thomas Fox
Contact
more
less

Compliance Evangelist on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.