Pulitzer-Prize winning journalist Jesse Eisinger speaks about executive impunity and the key to justice in America. 

Jesse Eisinger

 In January, Sen. Elizabeth Warren released a scathing indictment of the American justice system. The 12-page report, titled “Rigged Justice: How Weak Enforcement Lets Corporate Offenders Off Easy,” highlighted 20 criminal and civil cases from 2015 in which the federal government “failed to require meaningful accountability from either large corporations or their executives involved in wrongdoing.”

The cases cover numerous industries—banks, car manufacturers, mining companies. Only one of them led to an indictment and conviction of an individual executive: following the Upper Big Branch mine disaster, in which 29 people were killed, former Massey Energy Company CEO Donald L. Blankenship was convicted of one misdemeanor.

According to Warren’s report, there are currently two legal systems in the United States: one for wealthy corporate executives, where impunity is the norm and accountability is “shockingly weak,” and a separate system for everyone else. In the latter, enforcement is far less timid and punishments are severe.

Over the past few years, ProPublica reporter Jesse Eisinger has interviewed dozens of Wall Street executives, defense lawyers, and former prosecutors and regulators in an effort to understand the roots of executive impunity, as well as to answer the question that has troubled millions of people around the world for the past eight years: how come, following the largest financial crisis since the Great Depression, not a single financial sector executive went to jail?

Eisinger, senior reporter at ProPublica and regular columnist for The New York Times’s Dealbook section (currently on book leave), shared the Pulitzer Prize in 2011 for a series of stories on the illicit practices of Wall Street executives prior to the financial crisis. He is currently writing a book about the failure of the Department of Justice to prosecute major corporate criminals.

In an interview with ProMarket, Eisinger shared insights from his forthcoming book and traced the rise of executive impunity, from its nascent stages following the successful prosecutions that followed the accounting scandals of the late 1990s and early 2000s, to the current state, in which, he says, prosecutors are bewildered and captured and corporate executive are all but immune. “The book is an explanation why the United States has lost the will and ability to prosecute top corporate executives,” he says.

Q: You describe the financial history of the United States as a series of boom and busts, followed by crackdowns. Before the financial crisis of 2008, we saw the biggest boom, followed by the biggest bust—but no crackdown. We saw a significant crackdown after Enron, which was a scandal on a much smaller scale. Is it a lack of will or a lack of ability that leads to executive impunity, or do the two go hand in hand?

I think it’s both, they do go hand in hand. Over the last 15 years or so, prosecutors have lost a lot of tools that they used to combat corporate crime. For instance, one of the things they had was a charge they used to convict Jeffrey Skilling and Ken Lay—the two top corporate executives from Enron—called “honest services fraud.” The Supreme Court overturned that and threw out the charge, and as a result, a lot of prosecutions of top corporate executives got thrown out as well.

That’s a small example of the kind of tools that prosecutors were losing. Nothing was particularly cataclysmic, but there was a slow erosion. There were resource shifts as well: the FBI, which is charged with investigating these kind of cases, shifted away from white collar crime to domestic and international terrorism, and that affected the skill set.

The Department of Justice (DOJ) started emphasizing corporate settlements in the guise of something called deferred prosecution agreements (DPA). In doing so, they didn’t realize they were losing the skill set to do investigations of individual executives. If you’re expecting a settlement with a corporation, it’s not the same kind of investigation that you would proceed with if you were investigating an individual. It’s going to take much more time to investigate an individual, and you’re going to have to prepare for a fight, because an individual is going to fight much more than a corporation.

Q : The shift away from individual executives to prosecutions that involve the whole corporation was originally seen as an ambitious method of uprooting illegality, not as a mechanism to absolve individuals, right? 

Exactly. There’s a sense the DOJ is completely corrupt, which is a misunderstanding. There’s the soft corruption of the revolving door, no question about that. But it’s not the only factor at play. One of the factors at play was that the prosecutors kept running up against institutions that were serially breaking the law. They would prosecute low-level individuals, and they would see that the institution was still a malefactor.

So they started to think that they needed to change the culture of the institution. Like the mob, you can’t just prosecute a soldier. You have to really go through the whole thing, get to the top but also change the culture of the entire organization. But that can’t be a replacement for the prosecution of individuals, because then you really have toothless enforcement and a lack of accountability. In lieu of prosecuting individuals, especially high-level individuals, they started to settle with corporations.

We have this notion in our culture that prison would deter criminals. When it comes to street crime, this is possibly less true, but in a white collar setting it seems very true. White collar executives have a lot to lose: their stakes in society, assets, reputation, families. They also pay attention to the news—if their colleagues go to jail, they’ll pay attention. But it doesn’t work if a faceless piece of paper, their corporation, is paying in a way that doesn’t touch them at all, because the shareholders are shouldering the fine. Then they’re just untouched.

Q: Was Enron the turning point, or did this process begin earlier?

The turning point was the prosecution of Arthur Andersen, which came out of the Enron prosecution. What happened was that the DOJ saw the Enron debacle and created a task force to tackle the Enron prosecution. They pull prosecutors from multiple offices, take them off all their cases, and instruct them to exclusively prosecute Enron. It was a very smart move, and a very successful move.

The first thing they did was Arthur Andersen, the accounting firm that oversaw Enron’s books. Arthur Andersen was one of the top five accounting firms at the time, and it had a reputation as one of the finest, most upstanding accounting firms. In the 1990s, they kind of lost their way and serially enabled accounting fraudsters. When the Enron scandal happened, they destroyed documents related to their audits of Enron before they got subpoenaed by the SEC. When the SEC and the DOJ found out, and after a long period of negotiations during which Andersen refused to admit wrongdoing, they brought charges against the firm.

They won the trial, and then Arthur Andersen effectively went out of business. Then a surprising thing happened: there was a big corporate backlash, an engineered PR effort to rehabilitate the reputation of Andersen and to put a human face on the firm. What people ended up focusing on was not that Andersen had been a serial enabler of accounting fraud, a really corrupt entity, but that it had tens of thousand of employees who had been thrown out on the street when it was prosecuted.

People ended up deciding that it was a mistake to prosecute Andersen, including most mainstream prosecutors. Most of the supervisors and top executives and regulators at the DOJ now think it was a mistake to prosecute Andersen.

Q: Because they think they went too far?

They think they went too far, and they think there was collateral damage, that they damaged the lives of innocent employees. I think that yes, they did damage the lives of innocent employees, but prosecutors are not economic ministers. They’re not in charge of employment, and it’s not their job to take care of collateral damage. When a murderer is charged, we don’t think about what’s going to happen to his children or his wife, because there’s a societal import to prosecuting that murderer that outweighs the economic damage wrought upon his extended family when he goes to prison.

Q: What happened between the successful prosecution of Arthur Andersen and the outbreak of the financial crisis?

After the successful Enron prosecutions, there was momentum that kind of shifted the perception of this. In the wake of the prosecutions of Enron and WorldCom and Global Crossing and Adelphia, there was a corporate backlash against the overreaching of the DOJ.

Q: And part of that backlash was the media campaign that focused on the human cost, the damage to employees?

Right. The other thing they focus on is something called the Thompson Memo: a Bush era document that lays out the principles of corporate prosecution. Essentially, it says (to corporations): “If you have these nine factors and show us you’re cooperating, then we’ll be lenient with you when it comes to settlement negotiations.” One of the hallmarks of cooperation was to waive your attorney-client privilege. Attorney-client privilege is constitutionally protected, and for very good reasons. What prosecutors were doing was asking corporations to waive this privilege when it came to their investigations, and there was a huge backlash against that led by the American Bar Association, the Chamber of Commerce, and the corporate lobby. The ACLU also got involved in this.

Eventually they won this fight, and today it’s not allowed for a prosecutor to ask a corporation to waive attorney-client privilege. And so in these big negotiations now companies try to hide a lot of things under privilege, and that makes it much, much harder to prosecute individuals, because prosecutors are just getting the bare bones from companies. Prosecutors are very dependent on companies cooperating, and since they don’t see these details or evidence against individuals, they can’t prosecute them.

Q: When you have a crisis on the level of the financial crisis, though, with millions of people losing their jobs, potential harm to employees seems hardly an excuse. The human cost of the crisis was far bigger.

Absolutely. It’s a puzzle and a scandal. One of the reasons there were no prosecutions in the wake of the financial crisis is that the DOJ is no longer set up to adequately and skillfully do it. They’ve lost the tools and the skills. They also don’t really have the will. They’re really nervous about it, very trepidatious.

The DOJ lost its first prosecution in the wake the financial crisis, in the Eastern district of New York: a case against two executives at Bear Stearns who ran some hedge funds and lied, or appeared to lie, about the performance of their hedge funds. They were acquitted at trial. The DOJ has been losing a lot of these cases: the Andersen case was reversed, there was a case against KPMG that was thrown out. They’ve been losing cases on stock option backdating, and now they’ve lost the Bear Stearns trial.

So they’re back on their heels, they’re hyper-cautious about investigating these things, and what they do is they investigate these cases to the ground, without being able to pull the trigger. When it came to financial crisis-era prosecutions, they did two things: they didn’t investigate many cases, and in some cases they investigated but could never make a decision. They left the Lehman brothers investigation to the Southern district of New York, which historically is the office you want to count on to lead these kind of things, because they have a lot of skill in these kinds of prosecutions, but the Southern district is distracted by a lot of insider trading investigations. So they basically starve the investigation of resources.

Q: Because it’s much easier to prosecute insider trading?

Insider trading is easier to explain to a jury. It’s easier to prove. It’s easier to understand. They have wiretaps, so the direct evidence of the wiretaps are very easy to convey to a jury. And very importantly, each individual hedge fund or executive at a hedge fund that you’re prosecuting is a discreet entity that is contained, so when they go out of business nobody gets hurt. You’re not putting thousands out of work, only a dozen or two dozen people are affected. So you are really not having a terrible, dramatic effect on the economy or the markets.

What happened at the Southern district of New York is that they do these investigations over and over and over again, and they neglect the financial crisis investigations. They don’t even start some of them, some of them are started elsewhere. They do very few serious investigations into residential mortgage-backed securities, into CDOs, these complex mortgage securities that were at the heart of the fraudulent activity on Wall Street. And nobody in Washington says “do those investigations, these should be a priority.”

Q: You’ve spoken to dozens of regulators and prosecutors for your book. How did they explain this?

The first mantra you hear generally is well, there was a lot of recklessness and stupidity, but recklessness and stupidity are not crimes. There was indeed a lot of recklessness and stupidity in the lead-up to the financial crisis. Not everybody on Wall Street was guilty of a crime, there’s no question, but it is clear that crimes were committed. We now have evidence that huge percentages of the mortgages did not conform to what they were supposed to be according to their official filings. They’ve settled these cases for billions and billions of dollars.

Did no one know that the filings were misleading? I just don’t believe that. We’ve seen emails from executives saying “what we’re selling is shit, it will blow up.” It’s very hard to find an honest prosecutor who will say he doesn’t think there were crimes committed in the wake of the financial crisis. What they’ll say is “I didn’t see any evidence personally, but that guy over there, I can’t believe he wasn’t prosecuted.”

The other thing they say is it’s very complex. That’s not really an excuse. You’re not allowed to say your job is hard, therefore you couldn’t do it. It is highly complex to prosecute international drug rings, but we do it anyway. Also, some of these cases are actually not that complex when you simplify them for the purposes of distilling what the crime was. I don’t think these things were aggressively investigated, I don’t think they tried to understand the evidence, and I don’t think they tried really hard to bring cases.

Q: Everything we’ve spoken about until now seems to echo the words of former Attorney General and current FBI director James Comey: “We have a name for prosecutors who have never lost — the ‘Chickenshit Club.” Where does the part of capture, the lack of will, come in?

So when the Obama administration came in, they saw the DOJ in the late Bush era was full of hacks and cronies. They wanted to clean up, professionalize. Their notion of professionalizing was to bring in people with a lot of defense bar experience, people from Covington & Burling. People who up until then were defending corporate executives and now had to switch on a dime from defending corporations to prosecuting them. It’s very hard to make that switch. Some had prosecutorial experience, but many didn’t.

When it comes to prosecuting white collar crimes, everybody looks the same. They went to the same schools. They’re classmates, or they’re peers. You have to have a totally different mentality that says you’re going to relish giving these people discomfort. You have to be deeply unpopular, to risk your future career and weather accusations that you’re being overly aggressive. Anybody who prosecutes corporations, you see them attacked that they’re unfair or not playing by the rules. They have career difficulties later on. Eliot Spitzer got attacked. Ben Lawsky, the aggressive Superintendent of Financial Services of New York State, gets personally attacked. Neil Barofsky, who oversaw the TARP program, he got attacked.

So if you’re not playing the game, you get personally attacked for being overly aggressive, for seeking your own personal glory, for not knowing what you’re talking about. There is a concerted effort to take you down. To be a prosecutor, you have to be able to resist all that. It’s hard to find those people.

Q: And even when you do find people who are willing to go through this, you still run into a problem: they might be priced out of the city they work in?

There’s this other problem, which is you’re topping out at roughly $150 thousand per year as a prosecutor. And you’re wondering what you’re going to do next and trying to preserve your career viability. You have a very lucrative path to become a partner at a major law firm, where you can make 10 times what you’re making. As a partner, you can make $1.5-2 million.

But to do that, you have to preserve your reputation. You have to ultimately be seen as reasonable. You cannot be seen as a glory hound, or overly aggressive. You want to conform to these expectations. You want to show you’re smart and a tough negotiator…

Q: You want to be successful, but not too successful?

Exactly. A man of proportion that is able to sit at the right side of the person you’re negotiating with, as a future partner at a law firm. And so it’s easier to negotiate a settlement.

Q: Is it fair to say that in a way, either consciously or subconsciously, you’re auditioning?

What they’re doing now is recruiting young people, at the beginning of their careers, who are trying to make their reputation early on. They see the DOJ as a resume builder. They got high SAT scores, they went to the best colleges, the best law schools, did good internships, prestigious clerkships, then go to the Department of Justice. They build this perfect little tower, and the only thing that would upset the tower is if they really piss off the partners from Debevoise & Plimpton or Davis Polk.

Career prosecutors are looked down upon, so if you spend your career at the DOJ you’re seen as mediocre and a hack. Also, you can’t really raise a family in Washington, DC or New York on a prosecutor’s salary. You’re making this giant financial sacrifice to look like a schmuck, when you can go and be a well-to-do partner at a law firm.

Q: Top lawyers and prosecutors all went to the same schools and the same clubs long before Enron. What changed that the culture and norms got distorted to such a degree that, as you say, prosecutors today have little incentive to do their job?

A lot has changed. One of the things that changed dramatically is the business of law: law firms used to have their own corporate clients for decades. There used to be fewer law firms and very little shuffling of clients. It used to be more of an oligopoly. At the top of the firms you had the lawyer-statesmen, who really had a much greater sense of social obligation. That started to erode in the eighties, and as it got eroded, firms became much more mercenary. That’s why the best law firms are paying much more money, but they also have a much less developed sense of civic responsibility.

The second thing that changed is the money. In 1990 or 2000 you could maybe get paid two to three times the amount of money as a partner at a law firms than as a top prosecutor. Top lawyers were living nicely, but it wasn’t insane, and you could still live in a nice apartment and afford to send your kids to college. Now they make 10-15 times what top prosecutors make, and you’re being squeezed. You can’t live in the nice apartment, can’t send your kids to college. And the leap you would make as a partner is so much greater.

The incentive structure has really changed. A sense of monetary opportunities has really eroded civic sensibility. The class you are in now is much more elite and lucrative. Going to Harvard Law School in 1990 and prosecuting top corporate executives is different from going to Harvard in 2015 and trying to prosecute top corporate executives.

Q: You once advised young people to go the law firms first, make their fortune, and then become prosecutors. Why?

Get it out of your system, yeah. Be bored in corporate law, see that side of the business, then go fulfill your social responsibility later in life. But you can forget that you have a social responsibility when you prosecute people you’ve just been defending, so this is not really a solution. The solution is people at the top saying “these are the priorities, we have to prosecute at the highest level.” But the people at the top don’t want to do that; they’re the most captured.

Q: The U.S. has more people in jail than any other country in the world, yet executives who cause enormous economic devastation not only go unpunished, but are incentivized to do it again. Isn’t this is a huge inequality?

When we talk about inequality in this country, often we’re talking about jobs and wealth and economic opportunity. But I would say that the greatest perquisite of the power class in America is the ability to commit crimes with impunity. I think this profoundly undermines the sense that we live in a just and fair society when we see top corporate executives getting the kinds of protections from out legal system that are not available to people of lower means. 

In one of the cases I am looking at in my book, corporate executives are found guilty, but their criminal charges are overturned because the prosecutors put up the wrong stock chart. They put up a stock chart that prejudiced the jury because the chart went down, when maybe it didn’t go down as much as they thought. For that, these guys get their charges thrown out. The courts have been very interested in reversing white collar convictions.

Q: How do you explain that? We can’t say that Supreme Court justices are captured in the same way as prosecutors.

It’s ideological. Some of that is real ideology, not just pure capture. Partly, this is due to the rise of libertarian judges. There’s been an ideological shift from old-line Republicanism that stressed law and order and being hard on crime, whether it’s white collar or street crime, to libertarianism. And libertarians don’t like government overreach, particularly with white collar crime.

In the Democratic party, there’s a technocratic elite that is also not friendly to, is even hostile to, corporate prosecutions. The Democratic elite has moved right, and the Republican elite has gone full libertarian. They’re just ideologically opposed, and probably captured as well, to some extent.

Q: What is the role of business media in this? The press is supposed to pressure prosecutors and regulators to pursue these type of cases, but how often does that really happen?

There has been some journalistic pressure on this, but there hasn’t been the kind of sustained drum beat on this that you’d expect. A lot of these stories kind of dissipated because the regulators didn’t pick them up. The press is really dependent on the regulator being aggressive. It’s hard for them to generate their own stories.

Q: Would you say the press is also captured?

In general, the business press is very captured by interests and is not in the kind of adversarial role it needs to be. There’s another problem that you can’t simply assert things in journalism. The odds are stacked against a journalist who thinks a crime was committed and wants to demonstrate these things.

Q: Another problem seems to be that big corporate settlements are seen as great accomplishments. If you manage to get a billion dollar fine, you’ll get great press.

They have these press conferences when they have these big settlements, and they get bigger and bigger because they want them to be especially attention-getting. But they’re still a fraction of the profits made by these businesses. In fact, companies often have profitable quarters despite some of these payments, because they are tax deductible. Their stocks also go up after settlements, because it clears the uncertainty.

Prosecutors have become so worried about collateral damage that they go to all the regulators and ask, “Are you going to pull your license if we charge this company criminally?”

Q: So prosecutors make sure they don’t cause too much damage before reaching a settlement?

Right. They take the teeth out of their settlements before actually implementing them.

Q: Looking forward, what can we expect in terms of executive impunity? What is the endpoint?

I don’t see any change in the status quo for a long time. Loretta Lynch and her administration have tacitly admitted there’s a problem, and now they want to prosecute individuals. That’s a very good thing: you’re admitting there’s a problem, and you’re articulating your goals. We don’t know if they’re going to be able to succeed, and my suspicion is they’re just going to prosecute low-level executives, because the top executives are so isolated.

What they’re going to have do eventually is to overhaul the DOJ, to change both the skill set and the resources. You can’t flip a switch. There is no solution to it. You need a completely different ethos at the top.