In New York that’s getting to be a regular pattern in the settlement of charges against financial firms; although Eliot Spitzer, known for creative methods of corporate decapitation, may have departed office, Spitzerism lives on. I explain in a new Cato post on the state’s Ocwen Financial pact.
Related: Tactics the federal government used to seize control of insurer American International Group (AIG) away from Hank Greenberg, now made public despite years spent resisting disclosure [Gretchen Morgenson, New York Times]
I’ve got a new post up at Cato at Liberty about the Second Circuit’s sharply worded dismissal of two insider trading convictions, which alas came too late to avoid massive damage to the enterprises and people concerned. Quoting NYT “DealBook”:
The dismissal of the case also raises questions about the November 2010 raids of Level Global and Diamondback Capital Management by the Federal Bureau of Investigation. Soon after the raid on Level Global, the hedge fund, which was started by Mr. Chiasson and David Ganek, shut down, in part because of requests by investors to redeem their money after the raid. Mr. Ganek was never charged with any wrongdoing by federal authorities.
Diamondback, where Mr. Newman was a portfolio manager, continued to operate for another two years, but it decided to close its doors in December 2012 after receiving a wave of investor redemptions.
Mr. Ganek chided the government in a statement on Wednesday. “For the dozens of my high-integrity colleagues at Level Global who lost their jobs and their reputations because the F.B.I. improperly raided our firm in this now-discredited fishing expedition, today’s legal vindication is a reminder how prosecutorial recklessness has real impact on real people,” he said.
Raids, as opposed to subpoenas and other dull ways of obtaining information sought in an investigation, are irresistible to the press — and they greatly reinforce the public impression that there must have been serious wrongdoing at a target enterprise. That in turn can spell doom especially for financial undertakings, whose business will often be built on client and public trust. And if the case subsequently fails to stick by the evidence or the law, well, it’s on to the next prosecution, right?
More from Stephen Bainbridge and from Ira Stoll (more), who unlike many in the press gave skeptical attention to the case throughout its course.
The coroner’s inquest, familiar to readers of Agatha Christie, might be worth importing to the U.S. to look into police-caused deaths [Josh Voorhees, Slate, on ideas of Paul MacMahon]
Related: “The Grand Jury System Is Broken” [John Steele Gordon, Commentary, written post-Ferguson, pre-Garner]; New York Times “Room for Debate“; New York Attorney General Eric Schneiderman asks for authority to take over prosecutorial authority in police shootings [WGRZ (auto-plays), New York Observer, Paul Cassell]; Harvey Silverglate via Todd Zywicki (don’t gut grand jury protections). And from Michael Bell, “What I Did After Police Killed My Son,” Politico: “In 129 years since police and fire commissions were created in the state of Wisconsin, we could not find a single ruling by a police department, an inquest or a police commission that a shooting was unjustified. …As a military pilot, I knew that if law professionals investigated police-related deaths like, say, the way that the National Transportation Safety Board investigated aviation mishaps, police-related deaths would be at an all time low.” (& Wisconsin aftermath)
PBS NewsHour “read and analyzed more than 500 pages of witness testimony and compared each statement to those given by [officer Darren] Wilson,” pulling together the results in this chart, which illuminates points where the witness testimony tended to help Wilson’s defense and where it did not; perhaps most surprising is how many questions he was apparently not asked. Prosecutor Robert McCullough managed the grand jury proceedings almost in the manner of a defense lawyer for the man facing charges, a strategy extremely unlikely to be repeated in the great majority of grand jury proceedings where the accused is not a police officer [Jacob Sullum] And Conor Friedersdorf notes that if you were looking for poster cases of wrongful use of lethal force for which police were not held accountable — even when there was video or other strong documentary evidence — many other cases would stand higher on the list than that of Michael Brown.
The American Bar Association’s Standing Committee on Ethics and Professional Responsibility moves against a dubious practice. “The demand letters are effective at scaring consumers because they are sent on prosecutor letterhead and contain threats of criminal prosecution — threats that no other debt collector could make.” However, they mobilize the prosecutor’s apparent public authority on behalf of legal threats which typically the prosecutor has not reviewed individually exercising professional judgment, and they can deceive debtors about the legal status of their claimed obligation. [Deepak Gupta, Consumer Law & Policy; earlier]
Justice Scalia on the rule of lenity in U.S. v. Santos, 2008:
This venerable rule not only vindicates the fundamental principle that no citizen should be held accountable for a violation of a statute whose commands are uncertain, or subjected to punishment that is not clearly prescribed. It also places the weight of inertia upon the party that can best induce Congress to speak more clearly and keeps courts from making criminal law in Congress’s stead.
Vikrant Reddy (footnotes omitted):
Although this understanding should be perfectly ordinary, the application of the rule of lenity has in fact begun to erode dramatically in recent years. This has happened in concert with a troubling phenomenon: the dramatic growth of criminal law in a variety of non-traditional arenas, generally involving freely agreed-upon exchanges between adults. These “business crimes” (which include such things as harvesting oysters at the wrong time of day, improperly thrashing pecan trees, or even mislabeling citrus fruit) are increasingly exempt from the ordinary application of the rule of lenity in the minds of many judges and prosecutors.
Tim Lynch of the Cato Institute has even argued that the ordinary application of the rule of lenity “has been turned on its head.” He has observed that “When an ordinary criminal statute is ambiguous, the courts give the benefit of the doubt to the accused, but when a regulatory provision is ambiguous, the benefit of the doubt is given to the prosecutor.”11 What is troubling is that while defendants found guilty of these business crimes are subject to criminal sanctions—including prison—they increasingly do not enjoy the fundamental due process protections that are supposed to be guaranteed by the rule of lenity.
His paper for the Texas Public Policy Foundation recommends:
• Texas should formally codify the rule of lenity in the state code.
• The rule of lenity is a partial solution to a larger problem — the overall trend towards overcriminalization in American life.
• Fewer “business crimes” would mean fewer crimes for whichthe rule of lenity is disregarded.
In Bristol County, Mass., the force of public prosecution will protect your lawful comings and goings only when the D.A. approves of them [Eugene Volokh on environmentalist blockade case, earlier]
“…is bad for the rule of law and for capitalism,” opines The Economist, saying regulation-through prosecution has become “an extortion racket,” from hundreds of millions in Google drug-ad settlement money spread among Rhode Island police departments, to New York Gov. Andrew Cuomo’s muscling in to extract money from BNP Paribas in a settlement of legal offenses against U.S. foreign policy as distinct from New York consumers:
Who runs the world’s most lucrative shakedown operation? The Sicilian mafia? The People’s Liberation Army in China? The kleptocracy in the Kremlin? If you are a big business, all these are less grasping than America’s regulatory system. The formula is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company. …
Perhaps the most destructive part of it all is the secrecy and opacity. The public never finds out the full facts of the case, nor discovers which specific people—with souls and bodies—were to blame. Since the cases never go to court, precedent is not established, so it is unclear what exactly is illegal. That enables future shakedowns, but hurts the rule of law and imposes enormous costs.
Revelations that a single senior Houston police officer served on at least ten grand juries have been an eye-opener to those who might have assumed that the grand jury as constituted in Harris County (Houston) was random or representative in its composition. Radley Balko:
…critics allege that the “key-man” system that many Harris County judges use to pick grand jurors selects for law enforcement officials and their friends, family, and acquaintances. Critics say it’s too easily manipulated, and results in grand juries continually picked from the same pool of people — cops, retired cops, friends and family of cops, and older, whiter, wealthier, more conservative people who both have the time and money to serve, and are familiar enough with the system to even know to volunteer to serve on a grand jury in the first place.
Adding to the problem, grand jury members are invited to go on police ride-alongs, are given free time at police shooting ranges, and are invited to participate in 3D shooting simulators designed to make them empathetic with police officers. Those same grand jurors are then asked to assess the validity and credibility of the police officers who testify before them, not just in routine investigations, but in investigations of the killing of police officers, alleged abuse by police officers, police shootings, or police corruption.
Via Politico, a WSJ news item from last month that should not pass unremarked:
New York’s banking regulator is pushing to install government monitors inside the U.S. offices of Deutsche Bank and Barclays … as part of an intensifying investigation into possible manipulation in the foreign-exchange market … The state’s Department of Financial Services notified lawyers for the two European banks earlier this month that it wanted to install a monitor inside each firm, based on preliminary findings in the agency’s six-month currencies-market probe … Negotiations are continuing over the details of the monitors’ appointments, but New York investigators expect to reach an agreement soon.
The regulatory agency has selected Deutsche Bank and Barclays for extra scrutiny partly because the records it has collected so far from more than a dozen banks under its supervision point to the greatest potential problems at those two banks, the people said. Plus, Deutsche Bank and Barclays are among the dominant players in the vast foreign-exchange market, so investigators hope a close-up view into their businesses will help them observe other players and trading patterns [emphasis added -- W.O.].
We’ve covered the expanding role of settlement and litigation monitors in past posts, and noted the seemingly arbitrary and unaccountable powers these monitors may exercise during their stay within the enterprises to which they are embedded. But there’s something novel (isn’t there?) about the installation of monitors loyal to state overseers whose mission includes watching other firms and market players besides the one that has admitted misbehavior (or has been found by a court to have misbehaved). When you have dealings with a company, and perhaps decide to entrust your sensitive personal or business data to it, should you be worried that it wind up crossing the screen or desk of a quietly emplaced monitor reporting back to Albany, or perhaps Washington?
Never mind what rightish pundits have to say about the Perry indictment. Leftish pundits like Jonathan Chait are tearing it to shreds all by themselves. It reminds me of when prosecutor Andrew Thomas, sidekick of Sheriff Joe Arpaio in Phoenix, pressed charges against some of Arpaio’s political rivals over actions within their official authority, an episode that ended with Thomas’s disbarment. Chait:
They say a prosecutor could get a grand jury to indict a ham sandwich, and this always seemed like hyperbole, until Friday night a Texas grand jury announced an indictment of governor Rick Perry. The “crime” for which Perry faces a sentence of 5 to 99 years in prison is vetoing funding for a state agency. …
The theory behind the indictment is flexible enough that almost any kind of political conflict could be defined as a “misuse” of power or “coercion” of one’s opponents. To describe the indictment as “frivolous” gives it far more credence than it deserves.
When you’ve lost not just David Axelrod and Matt Yglesias but even Jonathan Chait and Scott Lemieux for a legal complaint against a conservative, you’re not just aboard a sinking ship, it’s more like you’re grasping a piece of random driftwood.
P.S. John Steele Gordon, Commentary: “the blow back from left, right, and center is so intense that Perry may well be the first public official to actually gain political clout from being indicted.” (& welcome Jacob Gershman/WSJ Law Blog readers)