A former prosecutor of white-collar criminals, now hustling business for his private law practice, opines humbly:

White-collar crime is rarely about greed, in the opinion of the former prosecutors. “It is generally hubris,” Mr Owens says. “It’s a corporate culture that is detached and guarded by advisers who never challenge.”

The same could be said, with perhaps more justification, for the US culture of criminal prosecution. Businessmen are subject to criminal liability for a wide range of behaviors, and often stand to lose enormous amounts of money and their careers based on mere allegations of wrongdoing. Meanwhile, prosecutors who destroy highly productive business people out of hubris and personal ambition are almost never accountable for their most egregious actions, and indeed are likely to benefit professionally from them.

13 thoughts on “Hubris”

  1. I’d like a few examples of prosecutorial allegations destroying the careers of businessmen before I agree. Someone else pointed out that white-collar crimes often affect far more people, amnd in a more damaging way, than blue collar criminals do, yet there punishments are often lesser.

  2. Milken, numerous other prosecutions of traders in the 1980s, Martha Stewart, Conrad Black (ongoing), the indictment of the Arthur Andersen firm, etc. In all of these cases there was either no harm done by the defendant(s) or the harm was minor, but the prosecution cost the jobs of many people and destroyed much wealth.

    Your comment about white-collar crimes begs the question since it assumes that crimes were committed. In some cases (Enron, Adelphia, Tyco, etc.) they were. In other cases, like the ones I listed above, there was either no crime or the crime was trivial in relation to the costs of prosecution.

    For example, Milken, whose bond-trading operation created thousands of jobs and billions of dollars in wealth by financing start-up companies that couldn’t easily get financing in other ways, was accused of offenses that were the financial equivalent of parking violations. He accepted a coerced plea deal that put him out of business. Meanwhile, the guy who prosecuted him, Giuliani (many of whose other trader convictions were overturned on appeal), used the Milken case successfully as a springboard to elected office.

  3. Good point, Jonathan. Some white-collar criminals get a bad rap, just like blue-collar, no-collar, criminal suspects. Nothing special there about white-suspects; if anything, we can safely assume they stand a much better chance of buying legal services capable of exposing prosecutor chicanery or overzealousness than do the scores of death row inmates, for example, who have been shown to be victims of prosecutorial abuses.

    I tend to agree that crimes such as Milken’s petty fraud aren’t as serious as the cost of prosecuting them should warrant, but again, the same goes for all the petty drug cases under which tens of thousands of Americans languish in prison.

    The problem, of course, is the willingness of people to cut corners on justice when the objects of it come from groups they don’t like. For a segment of American, white collar criminals are the ultimate scum, so if prosecutors fail to dot the i’s and cross the t’s, so be it, no big deal. For others, drug users are beneath contempt and don’t really deserve a fully fair trial. Fortunately, most Americans take the right to a fair trial seriously, be it for financial scammers, drug dealers or “non-combatant” terror suspects.

  4. Am I right in thinking (and please correct me if I am wrong, as I expect people will) that Arthur Andersen has belatedly been exonerated of all wrongdoing? Too bad for the people who lost their jobs and for the rest of the business world whose options were considerably narrowed with serious implications for competitiveness in auditing and accounting.

  5. They didn’t all just lose their jobs. Andersen partners, most of whom were unconnected to the group that handled Enron, had their equity in the firm wiped out by a gratuitous decision by government lawyers. A similar pattern of events is seen in many of these prosecutions. Martha Stewart’s insider trading didn’t cost anybody anything (she didn’t trick anybody into buying the shares that she sold), but prosecuting her cost her shareholders and employees hundreds of $millions. The antitrust jihad against Microsoft, like the similar government campaign against IBM a generation earlier, did little more than transfer revenue from Microsoft to its competitors and to trial lawyers. Did Microsoft do anything wrong? Who knows. Most of the people who opine on this subject don’t know what they’re talking about.

    In all of these cases the costs to the target(s) of being prosecuted were so big as to amount to punishment without due process.

  6. Thanks, Jonathan. Martha Stewart seems to have bounced back, which does not make that case any less appalling and preposterous. But the destruction of Andersen has had all sorts of ramifications. Still, that merely confirms your point.

  7. I knew some of the people involved in the mutual fund scandal. In the cases with which I am most familiar (and I don’t have anything not already in the public record), there was a breach of fiduciary duty because the shareholders were not represented by management, the board of directors, or the outside experts. First, management’s interests diverged from the shareholders’ interests, and the board of directors did not step in. Then, when outside auditors and lawyers were engaged by this same management and the same boards, all the incentives were designed to perpetuate the betrayal of the shareholders.

    This disconnect still exists. Even today, the Code of Ethics for one of the firms involved in the mutual fund scandal addresses mostly securities trading issues. There is no prohibition on having a financial interest in a vendor, accepting or giving gifts, receiving payments for referrals or endorsements, or other activities that would be clear conflicts of interests in any normal company. These are provisions that are recommended by the SEC as stated in the best practices code of ethics model. Imagine someone with the authority to award fund business to a custodian, brokerage, transfer agent, or other service provider while also holding that outside company’s stock.

    There is more of the same out there.

  8. Martha Stewart’s insider trading

    Umm, let’s be careful. Stewart was not an insider, so by no definition could she have been involved in “insider trading”. And of course, that’s not what she was convicted for.

  9. She wasn’t an insider, but the govt initially tried to get her for insider trading, and then securities fraud on some idiotic theory. They got lucky when she made a false statement to investigators. Otherwise the case might have been thrown out or she might have been acquitted, either of which outcome would have confirmed for everyone that the prosecutors were arrogant fools.

  10. Marta stuart basically betrayed people into buying worthless stock, when only she knew it was worthless. Do you sugges rich people should get away because they are rich?

  11. If Martha Stewart had done nothing the people who bought her IMCL stock would instead have paid at most a few cents more per share to buy it from other sellers. She had no fiduciary obligation and the government was unable to prosecute her for insider trading. Do you suggest that because she is rich she should be punished for crimes she did not commit?

  12. Federal prosecutors do not search for truth or justice. They are only interested in winning and promotion, at all costs. Moreover, there is no scrutiny or oversight of their activities. Indictments are usually loaded up with bogus charges under the prosecutorial theory of making the defendants disprove everything, while hoping for a conviction on something. They lie and distort evidence. Perhaps their biggest failing is drawing conclusions about defendants and then fashioning a set of facts to prove criminal allegations. Congress needs to step in with oversight and legislation. For starters, Federal Prosecutors should sign affidavits swearing that they have enough evidence for a conviction, and then attach civil and criminal penalties when they lie.

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