Thursday, August 23, 2018

No. 283: Jesse Eisinger's Superb 2017 Book

I am embarrassed to say I did not read Jesse Eisinger's July 2017 book until this summer. It is entitled The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives.

Eisinger currently is an investigative reporter for ProPublica. Previously he worked for The Wall Street Journal Europe. He once worked at Conde Nast Portfolio, where he wrote a story in November 2007 that predicted the collapse of Bear Stearns and Lehman Brothers. In 2009 he began work on a series of stories co-authored with Jake Bernstein, for which they received a 2011 Pulitzer Prize for National Reporting.

In the introductory section of his book, Eisinger explains that James Comey was the source of the book's main title. Early in 2002, shortly after Comey was appointed by President George W. Bush to head the powerful Office of the U.S. Attorney for the Southern District of New York, Comey gave a talk to his prosecutors. He asked them: "Who here has never had an acquittal or a hung jury?" According to Eisinger, "Hands shot up," because they considered themselves the best in the country. Comey then said: "You are members of what we like to call the Chickenshit Club." Eisinger then said: "Hands went down faster than they had gone up." Comey then added: "If it's a good case and the evidence supports it, you must bring it." According to Eisinger, Comey then explained that government lawyers "should seek to right the biggest injustices, not go after the easiest targets."

The greatest hero in the book is Jed Rakoff, the famous senior judge in the U.S. District Court for the Southern District of New York. His name appears in the titles of two chapters of the 16-chapter book. Eisinger describes Rakoff's early life and career in detail. In April 2002 he handed down a decision against the death penalty.  He made the decision, which he knew would be reversed on appeal, with the full realization that it would prevent him from ever being nominated for an appellate court position. Another of his famous decisions was his initial refusal to approve the October 2011 "neither admit nor deny" $285 million settlement between the Securities and Exchange Commission and Citigroup. Although the ruling was reversed by the business-friendly Second Circuit, Rakoff's efforts on the case won the hearts of many court watchers and had a powerful impact on many other judges.

Another hero in the book is Paul Pelletier, a long-time prosecutor in the Department of Justice. As examples of his work, he was heavily involved in the PNC Bank case and in the trial of the Hartford Five in the AIG/GenRe case. According to Eisinger, when Pelletier left the Justice Department, the going-away party was attended by about 200 people who overflowed the restaurant and into an adjacent atrium.

Yet another hero in the book is Benjamin Lawsky, who was present at the 2002 Comey speech to prosecutors, and who had lost his first trial as a prosecutor. He later served as New York State Superintendent of Financial Services. According to Eisinger, Lawsky, after leaving his New York position, was blackballed by the New York bar, could not land a position at a major law firm, and instead became a consultant and attorney.

One of the leading villains in the book is Joseph Cassano, who eventually was forced to retire from his position at AIG Financial Products. That was the infamous unit that may have been most responsible for the collapse of AIG. Cassano was never indicted.

The first major case discussed in detail in the book is the Enron/Arthur Andersen case. Eisinger argues throughout the book that the destruction of Andersen—and the consequences for all the innocent employees of Andersen—was a major factor in later decisions on how far to carry prosecutions. Other cases Eisinger describes in detail are the Bank of America acquisition of Merrill Lynch, the BP Deepwater Horizon disaster, the PNC Bank case, the WorldCom case, the Tyco case, and the United Brands case. The latter case included the suicide of Eli Black.

I was startled to learn that the expression "white-collar crime" is generally attributed to Edwin Sutherland, an Indiana University sociology professor who came up with the phrase in the 1930s. Sutherland's classic work entitled White Collar Crime was published in 1949, a year before his death at the age of 67, and was censored until 1983.

Eisinger goes into considerable detail on why so few strong legal actions were taken against executives in the wake of the 2008 crash. Among the reasons he discusses is the major growth in the size and power of white-collar defense firms. He also describes the "revolving door," which is the manner in which attorneys associated with major defense firms move into government service for a time and then return to their defense firms.

Eisinger's superb book is a great read. I think it is required reading for anyone interested in the welfare of our financial system.