[Music]
 - Hi, good evening everybody.
  My name is Philipp Nuzhdin
 and I'm pleased to welcome you
 to tonight's Author
 Lecture Series.
 I'm an alumni
from the Stern Business School,
 undergraduate class of 2012.
 I serve on the Alumni Council
  as Vice Chair of
  Signature Events.
  And I'm very glad
 to see a lot of alumni
 and current students
  here today with us
 and it is my distinct pleasure
 to announce and present
  our speakers this evening.
  Jesse Eisenger, author of
  the recently published book,
 The Chickenshit Club:
 Why the Justice Department
 Fails to Prosecute Executives,
 in conversation this evening,
 with Professor Paul Zarowin,
Director of NYU
Stern's Vincent C. Ross
 Institute of
 Accounting Research.
 Just a bit about
 Jesse's background,
  he's a Senior Reporter
  and Editor at ProPublica.
 His work has appeared
 in the New York Times,
 The Atlantic, The New Yorker,
  The Washington
  Post, The Baffler,
 The American
 Prospect, and on NPR.
  Before joining ProPublica,
 he was a Wall Street Editor
at Conde Naste Portfolio
and a columnist for
The Wall Street Journal
 covering markets and finance.
In April 2011, he and a
colleague won the Pulitzer Prize
for National Reporting
for a series of stories
 on questionable Wall
 Street practices
  that helped make the
  financial crisis the worst
 since the Great Depression.
  In 2015, he won the Gerald
  Loeb award for commentary,
 and he has also
 twice been a finalist
 for the Goldsmith Prize for
 Investigative Reporting.
  Our moderator this evening
  is Professor Paul Zarowin,
Director of the Ross
Institute here at Stern.
 He has won numerous
 research awards,
including the New
York University
Presidential Fellowship,
  the Peat Marwick National
  Research Fellowship
 and the Glucksman
 Institute Fellowship.
 Professor Zarowin's research
 focuses on the relation
 between stock market prices
 and financial accounting data.
 He has said how and why this
 relation varies over time
and across firms and how factors
such as firms, regulators
 and the economic environment
 affect this relation.
  Professor Zarowin's recent
  work deals with the extent
to which stock prices reflect
firms' future prospects
and how this is affected
by firms disclosures,
  accounting choices
  and regulations.
The Chickenshit Club
was originally published
 in the summer of 2017
and has been a favorite
among academics
 and industry experts alike,
 having won 2018 Excellence in
 Financial Journalism Award.
 This book provides a detailed
 explanation of the history
 and context of the evolution
 of the Justice
 Department's approach
to pursuing corporate criminals.
And thank you to both for being
here with us this evening,
 and we are now
 honored to have you
  and now please let me hand
  over the stage to you.
- Okay, thank you all for coming
  and we couldn't have asked
  for a more fortuitous time
 to hold this event.
  When we planned it,
  obviously we couldn't know
  what was going to happen
  in the last couple of days
 and especially today,
  but hopefully we'll get
  into some of those issues
  in a short while.
But it's certainly a
great time to hold this
 and want to thank
 Jesse for coming here.
And it's just an example of
the kind of intellectual energy
 that we have here
 at the Stern school
 and the impacts that
 our events have.
 So let me get right
 to the questions.
 Okay, so some in the audience
 might not be familiar
 with the book or the
 events it describes
so if you could, in a nutshell,
 describe how you got
 interested in this
 and kind of take us through
 the book a little bit.
  - Sure, happy to, and
  thanks so much for coming
and thanks for the Stern
School for inviting me,
and thanks to Matt
Rudder for spearheading
this.  I'm always happy
to have an audience
 where almost no one
 sits in the front row.
I feel like they're not
gonna be ready to pounce
 on my every word and
 error, so I like that.
I was inspired to write the book
 because I covered
 the financial crisis
  and I wrote about things
  that I thought were wrong
 that bankers had done
 related to the CDO business,
 Collateralized Debt
 Obligation business,
 which was a kind of
 mortgage security
 that was really at the
 nexus of the crisis.
 And we thought we'd
 uncovered a lot of activity
 that could be
 described as criminal,
 and so after we
 wrote those stories,
I waited around for some
of the prosecutions.
 I also thought that bankers
 had lied in other things
 that didn't have to
 do with my coverage
and waited and I waited
and they didn't come.
 And that seemed
 like a puzzle to me
 and I ended up writing a
 couple of columns about this
for the New York Times
and it really plagued me
and then I started noticing
that we were really in something
 of a white-collar
 prosecution crisis.
 And so I delved to it further
 with Times article,
 Times Magazine article
 and then the book
 and the thesis of the book
 is that CEOs commit crimes.
 I think that's a relatively
 uncontroversial thesis,
 but we don't seem to
 prosecute them anymore
  in this country at
  large companies.
So over the last decade,
in fact, you know 11 years
dating to the financial crisis.
I can think of only one
Fortune 500 company, CEO
 who's been indicted,
 no COOs, no CFOs.
 So of those many thousand
 men and women in the country
 who serve in those positions
 did no one commit any crimes?
 I find that highly unlikely.
  So what I'm looking for
  is a different explanation
 for what's going on,
why those people aren't
being prosecuted.
  Do they not really commit
  any provable crimes
 or have they committed
 provable crimes
 and are not being prosecuted
 for some other reason?
 And I end up
 arguing in the book.
  The thesis of the book is
  that we have lost the will
  and ability to prosecute
  top corporate executives.
 And it is an
 argument that I place
 as a kind of backlash to the
 prosecutions of the Enron era:
 frauds, the era of frauds in
 the late 1990s, early 2000S,
and we can get into it,
  'cause it's a complicated
  set of factors
 that lead to this Department
 of Justice inability now,
 the kind of ineptitude
 and unwillingness,
 and somewhat corruption that
 has led to this inability
 to prosecute top
 corporate executives.
- Hmm, very interesting,
interesting.
So developing that a little bit,
it's a lot of
interesting characters,
 if I may say that you
 develop in the book,
 people who play major roles,
 could you talk about
 maybe one or two,
or the most significant,
in your opinion,
 really caught your interest
 individuals in the story?
- Yeah, well so this is
not an academic account
 and it's not a legal brief,
 it's a journalistic account.
  And so I build it
  around characters.
  So I'm attempting to make
  interesting to the reader
 and there are a couple
 of heroes in the book.
  One is a federal judge
  in the Southern District,
Judge Jed Rakoff, and
another is a prosecutor
 who comes through the Miami
 office federal prosecutor
 who is there during
 the financial crisis
 at Main Justice,
 which is the nickname
 for the central office
 of the Department of
 Justice in Washington.
  And he's an executive, an
  official at Main Justice
  who has overseen a lot of
  white-collar prosecutions
and he is an ornery and big
character named Paul Pelletier.
 He is foul-mouthed.
You basically can't get
a sentence out of him
without 17 swear words,
 which is sort of it's
 a slight homage to him
that I've put a swear
word in the book title,
although the title comes
from a Jim Comey line,
  which I we can get
  into in a second.
 But so Pelletier is
 a guy who grew up
  in a working-class
  family in Boston
 and it's kind of remarkable
 that he managed to
 graduate high school
 much less become a
 federal prosecutor.
 He's driving around
 as a kid drunk
 and one time they decide to
 cross lines, state lines,
to go to a bar with his
buddy in high school
 and they turn off the lights
 and go on the back street
 because they're driving drunk
and they don't want to
be stopped by the cops,
  this is the kind of logic
  of a high school kid
  and they do end up getting
  stopped by the cops
 and he's arrested and his
 father has to bail him out,
  and his brother, older
  brother, comes in the car.
 And so they're driving home
 and the brother says
 very innocently,
"Dad, you know I
smell something,
 "do you think Paul
 has been drinking,"
 and the father goes ballistic.
 And so, he's a kind
 of ne'er-do-well,
 who ends up becoming a kind
 of remarkable prosecutor
 with great instincts.
And he's a counterpoint
 to the kind of button-down
 technocratic Obama prosecutors
  who have come by and
  large from big law firms,
 who come back to the
 Department of Justice
  and have been
  representing corporations,
defending corporations.
 Eric Holder, who
 worked at Covington,
Lanny Brewers, the Head
of the Criminal Division
 of the Department of Justice
 who worked at Covington,
  Mary Jo White who's the
  Head of the SEC for Obama,
who worked at
Debevoise and Plimpton.
And they clash with the
Pelletiers of the world.
 And Pelletier has had
 experience and has instincts
 and is great in trial,
 great with juries,
  and has prosecuted
  top executives
 and he's sort of emblematic
 of a kind of lost skillset
  and the kind of
  technocratic ethos
 that takes over the
 Department of Justice.
  The short version of
  what's happened at the DOJ
 is for a lot of reasons,
 prosecutors have lost tools
 and there's been a de-emphasis
 on white-collar investigations
 and prosecutions,
 and there have been
 a lot of bad rulings
 and there have been a lot of
 fiascos, losses, at the DOJ.
And because of all those things,
 they've become gun-shy
about investigating and
prosecuting individuals.
 What they've turned to
is settling with
corporations for money.
 And so the way we prosecute
and enforce corporate law
wrongdoing in this country is we
settle with corporations
for big fines.
 They're actually not very big,
 but they grab big headlines.
And this is a system
that I argue is broken.
- Can you talk a
little bit about Rakoff
  'cause you mentioned him.
  - Yeah, so, Rakoff is the
  product of this system.
  He was a young prosecutor
  in the Southern District,
 which is the best office of
 the Department of Justice,
 they're the smartest and
 best prosecutors in the land.
 And the reason you know
 that is you ask any alumnus
of the office, they'll tell you
  that they were the
  smartest and best lawyers.
 And Rakoff comes up in an era
  right after the legendary
  Robert Morgenthau
 has left the office, he's
 become the DA, Manhattan DA,
 but it's got a lot of
 Morgenthau DNA in the place
 and Morgenthau was really a...
  By and large, what I argue
  is there's never
  been a golden age
  where we've really
  done this well,
where we prosecute rich
and powerful people
  have had to fear
  for their liberty
  if they took a step wrong,
but Morgenthau really
wanted to prosecute CEOs
and he wanted to raise the
caliber of white-collar criminal
 that they were going after.
So there's a lot of DNA from him
 in the office when
 Rakoff is at the SDNY.
 Then he becomes a
 white-collar defense lawyer,
then he becomes a judge,
  he's appointed by Clinton
  to become a judge.
 He's really a
 product of the system
regarded as one of the most
brilliant district court judges
 in the country, but no
 radical by any means.
 And I think, I argue, he
 would maybe object to this,
  I argue that the financial
  crisis radicalizes him.
 When he sees
  the SEC going soft
first on Bank of America
  in its takeover
  of Merrill Lynch,
 where Bank of America
 seems to have lied
both to the public about
Merrill Lynch's losses
and the bonuses
  that they were paying to
  Merrill Lynch executives,
and then Citigroup about a CDO,
  he is angered and
  deeply troubled
 by the SEC's lenience in it.
  And what he does,
 he does something very
 unusual for a judge,
 he rejects an SEC settlement.
 He objects these
 two SEC settlements
  and judges didn't do that.
 They usually rubber-stamped
 them and deferred to the SEC
  and deferred to regulators
  and their judgment.
 And Rakoff said no.
 And Rakoff started to realize
 that there is a
 kind of crisis here.
 So he is another moral
 center of the story
 as a guy who was radicalized
 to see this failing at
 the government level
 and troubled by it and
 tried to do something.
  And he's really
  sort of defeated,
  this is not anybody
  wanted to come to my book
  for a happy ending
  will not get it.
There are no happy endings here,
 and it's only gotten worse
 in the Trump administration.
  But Rakoff sort of
  wins a few battles
  and wins the argument and
  the moral war I think,
  but actually loses on the
  substantive legal grounds.
  - So both of them are
  sort of like Don Quixotes.
 - Yeah.
 - In a sense.
 - Yeah, I regard them
 something of tragic heroes.
Pelletier in particular,
 is a guy whose whole career is
 dedicated to public service,
who was a true
prosecutor to his bones.
 And he really is drummed out
 of the Department of Justice
by the Obama people who
just can't stand him
 and don't like his approach
 and think he's dangerous,
think he's a cowboy and
the end of the book,
 toward the end of the book,
  I write about his
  retirement party
 and hundreds of people come
 to his retirement party.
He's beloved by not just
his fellow prosecutors,
 but by all the staff
 in the building.
He's the kind of guy who
he would have a trial,
  there was a trial that he
  did some crooked doctors
in Florida, and after the trial,
  one of the defendants came
  up and he was convicted
 and then he hugged Pelletier.
  Good guy.
  Like he's the kind
  of guy who like
people had this kind
of crazy loyalty to him
and hundreds of people come in.
 This is the kind of
 epic retirement party,
but it's incredibly bittersweet
 because he's losing
 the job that he loves.
 And so, my book, to the extent
 that I have heroes in it,
 they're tragic heroes.
 - Tragic heroes,
  very interesting.
  So you alluded
  before to the fact
  that prosecutions
  have been replaced
 with financial settlements.
  So two of the ones that
  you mentioned in the book
are consent decrees and
deferred prosecution agreements.
So those seem to take
on a very important role
in the way white-collar
crime is prosecuted.
 Can you talk about
 them, consent decrees
and deferred
prosecution agreements?
- Yeah.
 So the deferred
 prosecution agreement
 is something that is invented
 by the Southern District,
  by Mary Jo white,
 when she's the U.S. Attorney
 in the Southern District
 in the '90s in a completely
 unplanned, haphazard way.
 It's kind of regarded
 as a one-off.
 What it is is a
 kind of funny thing
 where they say we're
 prosecuting you,
 but we're not prosecuting you.
 We're prosecuting
 you, you corporation,
but we're going to defer it,
we're gonna put it in a drawer,
 don't do anything bad
 again, you promise,
 and the corporation
 says yes, we promise.
 And so we're not gonna
 take you to trial,
 we're not gonna convict you,
  we're not gonna
  have a guilty plea
 and then we can pull
 it out of the drawer
if you do something wrong again.
 And they think of this
 as a kind of one-off
 for the special situation
 that they're involved with.
 And it's an outgrowth
 of something
that another hero of the
book, Stanley Sporkin,
 has created, or not
 created exactly,
but has Kind of
popularized for the SEC,
 which is the consent decree,
  which is a
  no-admit-no-deny agreement
 that Sporkin uses
 as the enforcement
 director in the 1970s
 at the SEC.
  Sporkin, as I say, another
  big character in the book,
 is a larger-than-life
 figure kind of oddly enough,
 like one of the most powerful
 bureaucrats in Washington
 throughout the 1970s,
 more powerful than any chair
 of the SEC in that decade,
 protected by Congress.
 Both, he's a Republican, but
 he's protected by Democrats
like William Proxmire,
Senator from Wisconsin,
terrorizes corporations.
And he's reaching a lot
of these settlements
but it's a very powerful
tool in his hands
  because he's a
  kind of steely-eyed
  serious-minded regulator.
 It becomes corrupted over time
 and becomes toothless over
 time and becomes de rigueur
 to only reach no-admit-no-deny
 settlements at the SEC,
  which is the kind of thing
  that Rakoff objects to.
  The DPA, I'll give
  it a little bit,
so in the first decade of DPAs,
  the Department of Justice
  does about 18 of them,
it's with corporations.
Since the early 2000s to today,
they've done 430 of them.
  And in doing these DPAs,
  they have stopped really,
  as I've argued, as
  I've said already,
  prosecuting top executives
  at the largest companies.
 So this is really
 replaced these DPAs
  and now sometimes
  they reach NPAs,
 Non-Prosecution Agreements
 which have slight differences,
 semantic differences, I think.
Sometimes now they
even reach guilty pleas
  with corporations.
 The guilty pleas are
 really substance-free
because the companies are
protected from the consequences
  of the guilty pleas by
  the Department of Justice,
 sort of going around
 to the regulators
 and making sure that they're
 not going to pull licenses
 and things like that.
 So you saw a bank
 like Credit Suisse,
plead guilty to crimes,
 but it didn't get its
 banking license pulled
  so it could go on.
 So these settlements, there's
 a big problem with them.
 My central argument is that
 they just simply do not work.
  What I mean is they do
  not curb corporate crime,
 they do not prevent or
 deter corporate crime.
 And you can see this
 because you see corporations
 entering into every
 type of settlement
 known to the imagination of
 prosecutors and regulators
and going on to
committing other crimes;
 Pfizer, JP Morgan, BP.
 - [Paul] After they
 entered into them.
- After they have entered into.
 So Pfizer subsidiary
 has pled guilty,
 it's reached an NPA,
 it's reached a DPA
 and it still has entered
 into multiple DPAs and NPAs,
and settlements with regulators.
Wells Fargo, JP Morgan,
the list goes on and on.
  This is not something that
  prevents corporate crime,
 and my argument is that
 prosecutions of individuals
 is the single best deterrent
 for corporate crime
 that executives have
 a stake in society,
 a stake in preserving
 their own reputations.
  They're very well-informed
  about the world,
  and it would pay attention
  if one of their colleagues
 were to be prosecuted.
 It's the kind of thing that
 they would seek to avoid.
 Now, there's no perfect
 deterrent for corporate crime,
 but corporate crime
 is really a choice.
  These people have
  a lot of leeway
and a lot of moments where
they can either lie or not lie.
 They can take their medicine
 or not take their medicine.
 They haven't met their sales
 targets, there's a choice,
 do we move the trucks off the
 lot encounter the sale or not?
And if you raise the
incremental costs of it
 by prosecuting some
 of these people,
  you will reduce the crime.
 That's an argument.
  - Do you see any evidence
that we might be heading
in that direction?
Are you at all hopeful?
 - No, I'm not hopeful at all.
 I am the opposite of hopeful
 and I think the
 Trump administration
 is going in the
 opposite direction,
 which is that we're seeing now
something of a regulatory strike
and a prosecutorial strike.
  The SEC fines are
  down about 90%,
 the CFPB, the Consumer
 Financial Protection Bureau,
 investigative and enforcement
 operations are being gutted.
The Department of Justice is
not prosecuting top executives,
although there was one recently,
so there's like glimmers
of hope here and there,
 but largely what we're seeing
  is there's been some talk
  of prosecuting individuals
  from J Clayton at the SEC.
 It is traditionally
 a Republican idea
  or a Republican
  ethos or approach,
 to focus on individual
 prosecutions.
 In fact, one of the reasons
 why I think the
 Obama administration
 was such a spectacular
 failure in this area
  is that Democrats
 and liberals
 have historically undervalued
 the value of prosecutions,
arguing that you're
just getting bad apples.
 And so a lot of the
 heroes in my book
 turn out to be Republicans.
  There's another one is the
  Deputy Attorney General
under Ashcroft in the Bush
administration, Larry Thompson,
 turns out another figure I
 consider really interesting.
He's a guy who grows up
in segregated Missouri,
he's African-American,
becomes a Goldwater Republican,
 rises through the kind
 of Republican ranks
 to become Deputy Attorney
 General under John Ashcroft.
  And George Bush is
  no person's idea
 of a kind of serious reformer
or anyone who you would
be surprising to people
 that he was serious about
 cracking on corporate crime,
but Larry Thompson
takes it very seriously
 and regards it as an outrage
 that corporate criminals
are treated differently
than street criminals,
 particularly people
 of color or the poor.
 And so, he takes prosecuting
  the Enron era prosecutions
  very seriously.
  So, that's all to say that
  Republicans have drifted
 from this law and order ethos
and now have been
overtaken by a kind of,
 I think a corporate
 crony outlook or ethos
 and they've drifted away
 from prosecuting individuals
  which has gotten away
  from the kind of grounding
in this kind of
old-line law and order,
 making capitalism
 safe for capitalists
 by prosecuting rotten actors.
 - Very interesting.
 So there's a term
 you use in the book
 which you borrow from biology,
  you call it the ecosystem
  of corporate fraud.
 Could you go into
 that teem a little.
 - Yeah, sure.
 So this is really kind
 of Sporkin's insight
that I think is very important,
  which is to say
  that fraud thrives
  in an atmosphere
  of permissiveness
and that there are key
gatekeepers and at many points.
And Sporkin focuses on
three main gatekeepers:
 the accountants, the lawyers
 and the investment bankers.
 And Sporkin's idea is
you do much more good if
you go after those guys
 and prosecute or
 charge them civilly,
because the SEC has civil powers
  that you worked a
  lot with the DOJ,
  but if you go and sort of
  cut off the gatekeepers
  or prosecute them, they're
  going to crack down
and do a lot of good and
oversee their clients
 and there'll be a reduction
 in the corporate fraud
 at the underlying companies.
So he's quite productive at that
 and they actually prosecute
 a bunch of lawyers
and accountants who have enabled
 some of the major
 accounting frauds in 1970s.
 That ethos sort of goes away
 and by the time you
 get to the pandemic
of accounting fraud in corporate
America in the late 1990s,
the accounting firms in
particular have lost their way.
 And then there's a big
 prosecution of Arthur Andersen
 in the wake of the
 Enron prosecutions.
 And so Larry Thompson
 and the guy named,
  you may have heard of him,
  he's sort of lost to the
  sands of time, Bob Muller,
 (audience chuckles)
 he is the head of
 the FBI at the time.
 He and Thompson create
 the Enron Task Force,
which is a group of prosecutors
  who are sort of locked
  in a room, not literally,
 but it feels that way,
 and they focus just on
 the Enron prosecution.
This is something that
the Obama administration
and the late Bush administration
  did not do for the
  financial crisis.
 And I think is a terrible
 tactical and strategic mistake
to have not created task forces
 to go after the complex crimes
 that were involved in
 the financial crisis.
  So a group of prosecutors
  only focus on Enron
 and the ancillary prosecutions
 of the Enron fraud,
 which include prosecuting
 the firm of Arthur Andersen.
  And what I do in the book
  is try to rehabilitate
  this prosecution because
  it has become understood,
 almost universally, as
 a disastrous mistake
 that should never
 have been undertaken
 and was wrong on the merits.
 And it's not just accountants
 at Arthur Andersen,
 our partners who think this,
but it's kind of widely shared,
 not just by the Wall Street
 Journal editorial page
  and the Chamber of
  Commerce which argue this,
 but also by Obama appointees.
Mary Jo white and Lanny
brewer are interviewed
 and say the Arthur
 Anderson prosecution
was a terrible mistake.
So what I argue is that Anderson
was not just the handmaiden
to Enron's fraud
 in a way that was much more
 serious than is remembered,
 but had been the enabler of
 multiple corporate frauds
 in the lead up to this
 and was actually under
 SEC consent decree
 for the biggest accounting
 fraud to date before Enron,
 which was waste management,
 but also had been involved in
 Boston Chicken and Sunbeam,
 and the largest nonprofit
 accounting fraud of the time,
  a serial.
It had all the accounting firms
who were deeply troubled
and lost their way,
but Arthur Andersen
was possibly the worst.
 So I think that that
 prosecution was legitimate.
What I argue in the book
 is that prosecutions
 of corporations
 should be a last resort, that
 prosecutions of individuals
 should be the focus
 of prosecutors.
 But I don't think that they
 should eschew prosecutions
  of corporations entirely,
 which they
 essentially have done.
 They've essentially decided
 after Arthur Andersen,
which, for a variety of reasons,
it's a little complicated,
 but one of the reasons
 is that on something
 of a technicality,
  the Supreme Court
  overturned the prosecution
 and Arthur Andersen
 went out of business
 and a lot of people
 blamed the prosecution
 for Arthur Andersen
 going out of business.
  I don't think it was going
  out of business solely,
  I think it was inevitably
  going out of business
 and that the prosecution only
 may be accelerated things.
 But for a variety of reasons,
they've decided not
only was that a mistake,
 but we cannot really prosecute
 large corporations anymore
and take them to trial and
have the consequences of a loss
 on those corporations heads
because of what has become known
  as the too-big-to-fail or
  too-big-to-jail problem.
 And the Obama administration
 has absorbed this idea,
 this wrongheaded idea,
and the consequences are
  that we don't prosecute
  companies or individuals.
- So another point that
you make in the book,
 which I found
 really fascinating,
  you talk about
  the Supreme Court
 and you say that between
 members of the Supreme Court
 who are on the left
 versus the right
in terms of social issues there
is a vast ideological gap.
 I think most people
 would agree with that,
 but when it comes
 to business issues,
  you seem to think there's
  no gap between them.
 I found that very interesting
 and most people are
 probably not aware of that.
 Could you talk about
 that a little bit?
- Yeah.
Well, liberals have
essentially traded social gains
 on things like gay marriage,
  protection of affirmative
  action, social causes,
they've traded that for
corporate enforcement.
  And so people like Breyer
  and Ginsburg on the courts
 have been quite
 corporate-friendly.
  And the rise of the kind
  of Clinton-era, Obama-era,
 technocratic democratic ethos
 and the kind of the background
  that they have come from,
 a kind of white-collar
 bar background,
 has given rise to some
 Democratic lawyers
and judges and justices,
who turn out to be very
friendly to corporations
 and have voted to some extent,
  for things like upholding
  arbitration agreements,
 stripping consumers
 of their ability
to challenge arbitration
agreements, throwing out
  in the prosecution
  of Jeff Skilling,
  who was the CEO of Enron,
 one of the charges
 they prosecuted him
 was honest services.
 And this was something
 that was kind of
 remarkably imaginative
use of a statute
that had been used in
public corruption cases
  where they charged people
  in public corruption,
  with depriving the people
  of their honest services.
 And that was even if you
 weren't benefiting directly
 from something wrong,
 you were facilitating
 a bribe or a payoff,
  but you weren't benefiting
  as mayor from it,
 you could be charged
 with a crime.
 And they transferred
 this to say that CEOs,
 executives could
 also be prosecuted.
 And the Supreme Court
 is kind of energized
 by this transference
 from the public sphere
to the private sector
and concerned about it.
 This is a kind of cause celeb
from the Journal editorial page
and the Chamber of Commerce
  and right-wing think tanks
  and the federal society
  and it brings to
  the Supreme Court,
the Supreme Court throws it out.
  But Democratic judges
  support that by and large.
  - That's very interesting
because we tend to think
on the Supreme Court
 that there was this great
 divide in social issues yes,
  but in business issues no.
  - Yeah, much overstated.
  - Much overstated,
  very interesting.
  One of the points you make
  near the end of the book,
you say the U.S has lost the
ability to punish the powerful.
 I think that's a very powerful
 line, to borrow your word.
Do you see any or have any hope
 that may change going forward?
- Well, I don't.
 And I think that the
 point of the book is
 that what are we talking about
 when we talk about the lack
 of prosecutions of CEOs?
 We're talking about having
 a two-tiered justice system
 in this country and I think
 a lot of people are aware
 that we have
 over-criminalization
 of certain crimes like
 nonviolent drug possession,
 that we have a mass
 incarceration problem
 in the country
that this has disproportionately
fallen on the poor
 and people of color.
 And my book is about
 the flip side of this,
 which is that we have impunity
 for certain class of
 wealthy and powerful.
And in fact, when we talk about
inequality in this country,
 we're often talking about
 wealth and income inequality
 but I think the
 greatest prerequisite
  of being a wealthy and
  powerful in this country,
  is the impunity
  to commit crimes.
 And this is a
 threat to democracy.
 It is a threat to the basic
 legitimacy of our legal system
  and the rule of law and
  that people understand it
  and perceive it
  and recognize it.
  And it undermines the
  legitimacy of our system.
  So I think that it matters
  and that's the argument
  that I'm trying to convey,
that it is about having
a fair and just society
 that everyone, if
 they break the law,
 can be subject to fair and
 just and serious prosecution.
  - So you wrote the book
  in 215, I think you said.
- Yeah.
- And obviously,
 a lot has happened since then
with the election and obviously,
what's going on right,
  the last couple of
  days as we speak.
- [Jesse] Does it have anything
 to do with white-collar crime?
 - (laughs) I think so.
 So if you were kind of
 bringing the book up to date,
  if you were adding another
  couple of chapters,
 let's say or putting the book
 in the, or putting the events
 that we've seen in the last
 couple of days or a few weeks
 in the context of the book,
 kind of bring that stuff in.
- Sure.
So first of all,
 I think that
  Muller has exposed
a number of extremely
important and troubling aspects
 of white-collar enforcement
 in this country.
I think that you can see
through the Muller investigation
 and prosecutions that
 whole swaths of the economy
 are severely under-policed.
 And my book is about
 the prosecutions
 at the large corporate level
 and what's happened with them,
but I think I
understood the problem,
because you can see that
high-end real estate
 and corporate lobbying
 and campaign finance
 were relatively,
 basically unpoliced
 until Muller.
  And you can see the reason
  why Muller is effective
is that he's got
a team of people
 who are just solely focused
 on this one question
 and they're highly skilled,
 so he got to pick
 the best of the best.
And they have a kind of
focused mandate in there
 and he's using very
 aggressive tactics,
 which is another thing
  that they've started to
  eschew in the last decade.
 They've gotten away
  from kind of historically
  aggressive tactics,
particularly with
white-collar criminals.
 So I think that's one
 of the big lessons.
 The other big lesson
 is that if we had a serious
white-collar enforcement effort,
there's no way that Donald Trump
 would be President
 in the United States.
  The New York Times
  has demonstrated,
 beyond any reasonable doubt,
that Fred Trump and Donald Trump
 committed tax fraud for years.
 If we had a serious IRS effort
 and concurrent
 prosecutorial effort,
 it's almost
 impossible to imagine
  that he would have
  been president.
 We broke a story that Ivanka
 Trump and Donald Trump Jr.,
  were investigated
  for criminal fraud
  in the selling of
  the Trump Soho.
  They made material
  misrepresentations
  of the Trump Soho
 and the Manhattan DA's office,
 Cyrus Vance investigated it.
And in fact, all the prosecutors
 who were involved in
 that investigation
wanted to bring charges
 against Donald Trump's
 son and daughter
  and Vance overruled them.
 Vance overruled them
 after having received
 a very big donation
 from Marc Kasowitz
 for his reelection campaign.
Marc Kasowitz was Donald
Trump's personal lawyer.
 He says that that
 didn't influence him.
But he overruled the prosecutors
 and decided not to
 bring those charges.
 So I think that white-collar
 criminal enforcement
 matters at the national level
  and that's what
  we're seeing now.
- Wow, very interesting.
Well, we're just
about at the end
so let's give Jesse a big hand.
 (audience applause)
  Extremely interesting talk
 and we're gonna open it up to
 questions from the audience.
 So you have one here.
When you have a question
please raise your hand
  and make sure to wait for
  the mic to come around
  so everyone can hear you.
 - You've made a
 compelling assertion
as to the rampant nature
of criminal conduct
 among American CEOs.
  Who would be your top five
  targets for indictment?
 (all laughing)
 - Yes.
  I get this question a lot
 and I have a dodge for
 it, not surprisingly,
 which is one, the book
 is not a legal brief,
  so I don't lay out a case.
  I'm not a lawyer.
 So that wasn't really
 the point of the book.
  The point of the
  book was to argue
that things have changed
with our approach
 and also to identify
  the fact that if you
  don't look for criminals,
 you can't find them.
 And we didn't look in the
 wake of the financial crisis
in any concerted or serious way.
And I uses a couple of examples,
one example in the book,
  and I of course encourage
  everybody to buy the book.
You don't have to read the book,
 but everybody should buy it.
 (audience laughs)
 There's a chapter on the
 Lehman Brothers investigation.
 And Lehman Brothers
 investigation
is Lehman Brothers
collapses spectacularly
  in September 2008.
  There's no-too-big-to-jail
  problem,
because the corporation
has gone under.
 Three offices of the
 Department of Justice
 opened investigations,
 but in the end, it sort of
 falls weirdly by the wayside.
 And it falls actually
 to just one prosecutor
in the Southern District
  who it's not even
  her full-time job
 to look at the Lehman
 Brothers prosecutions.
  She's got three or four
  other cases on her plate.
  Not surprisingly,
 that's not the way to
 approach these cases.
 So I think you could
 have made cases
 against dozens of CDO bankers.
 I think you could have
 possibly brought cases
against the CEO of Bank
America for misrepresentations.
 The Lehman investigation, that
 was criminally investigated.
You could bring a case
against Lehman Brothers,
  top executives, COO, CFO,
  for misrepresentations
  on the bank loans, on
  the cash flow statements.
 Their liquidity
 representations were probably,
 I argue were
 regarded as criminal
 by the bankruptcy lawyers
 who are investigating that.
 I think that there
 are a host of charges
 that you could have brought
 against AIG executives.
 But the point of the book is
 not to make an individual case
 on an individual executive,
but to say that there's
a systemic problem.
 (audience members chuckling)
 - Thank you, very interesting.
 I share your pessimism
 and I want to see
 if you would agree.
 I think we're in
 an environment now,
I mean even post-Trump,
where the values of our country
 are so based on these,
 if you want to call it the
 basic bread- and-butter issues
 of do I have a job,
 do I have security
  that there really
  will be no reason
 to focus on corporate crime
 in any real, meaningful way
if the view is,
what's really important
is we create jobs,
 the GDP grows, we
 have a stable economy.
 And I see the problem
 getting even worse
because we live
in such a volatile
challenging environment.
So why is the individual
person gonna care about,
I mean they may complain
 about the fact that
 this guy's a crook,
 but isn't it kind of baked in
 as long as they have a job,
  they're doing well, their
  family's doing well.
 Is it pretty pessimistic view,
but I think of anything
it's gonna get worse
I mean, would you agree?
- I basically do agree.
 I think that's a valid point
 that the average person
 the economy is a particularly
 unstable and uncertain
and that people are struggling,
the average American is
struggling and very busy
 and not paying
 attention to details.
I think that viscerally,
 they understand that
 there's a troubling system.
  If you went into
  any bar in America
 and asked the
 person next to you,
 what's the one thing you know
 about the financial crisis,
they'd say nobody went to jail.
 That is the salient takeaway,
 nobody was held accountable.
 So people know it and
 they understand it.
And there's a corrupting aspect
 to not holding
 people accountable,
 especially because the
 Obama administration
 did not bail out homeowners,
  nearly to the extent that
  they bailed out bankers
 and people understand that.
  They might not understand
  exactly what the TARP did,
  or the distinction between
  the TARP and the stimulus
 or what the difference
 between HAMP and HAARP was.
But they understand that
homeowners didn't get a bailout
and bankers did.
 That's largely true.
And then they understand
 that people weren't
 held accountable.
  So I think that
  it's not difficult
  to change the ethos at
  the Department of Justice.
 You could fund it better and
 you could change the approach,
change the incentive structure.
 We didn't talk about
 the revolving door,
 it's a big problem,
 it's something I
 address in the book,
 but you could
 change these things,
  but it would take
  a concerted effort
 and it would take a
 change in approach,
and certainly the Trump
administration, DOJ,
  is not changing
  it any time soon.
  - My question is twofold:
 one is, and I think you
 touched upon it seconds ago,
 what remedies do you fathom
 would be effective in, shall
 I say, putting some steel
in the spine of the
DOJ, that's number one,
and number two,
 how do you go about
  keeping career prosecutors
  who are, shall I say,
inventive and aggressive at DOJ
because, as we all know,
government service pays
a hell of a lot less
  than Covington and Burling
  and Cravath, Swaine, etc.
- Yeah.
So both those questions
are intertwined.
  So what we didn't
  really talk about
 is how corporate law
 enforcement works
  and it's really important
  to understand it,
  which is basically that
  the Department of Justice,
  the U.S, government, has
  outsourced and privatized
 investigating
 corporate wrongdoing.
 And we have outsourced
 and privatized it
to the Corporations themselves.
  They hire law firms to do
  internal investigations.
 It's kind of like, if say,
 the president of United States
were being investigated
 for colluding with
 the Russian government
 to cheat and win the election,
  and he hired Rudy
  Giuliani's firm
 (all laughing)
 to investigate the question.
 You wouldn't really
 be optimistic
 about the answers,
 getting to the truth.
  And that's what
  happens every day
 in corporate law enforcement
 and it's worse than that
 because what happens is
 the internal investigations
 are produced by
 Cravath or Paul Weiss
or one of the Covington.
  And they are delivered to
  the Department of Justice
 and the prosecutors can do
 an investigation separately
 than that, but they
 really rely on this.
  And they negotiate the DPA
  and who are they
  negotiating with?
Well, they're
negotiating with lawyers
 for firms that they
 aspire to go work for.
  So the Department
  of Justice today
 has become a training ground
  for future defense
  lawyer partners
 at major corporate law firms.
 That's where 90% of
 young prosecutors go
 after the Department of
 Justice, after eight years.
So you have to break this cycle.
And you have to break it
by, it's not easy to do,
but you'd have to break
it with two things.
 One is you need to,
 if you're the DOJ,
eschew reliance on
internal investigations.
  You don't have to rely on
  internal investigations
 'cause you've got grand
 juries, you've got subpoenas,
 you've got sting
 operations, wiretaps.
You have all sorts of
investigative techniques
  that are not dependent on
  internal investigations,
which are studiously and curious
 about culpability of
 the top individuals.
 So you need to
 break that reliance,
 which means it's a lot harder
 to do those investigations,
it's a lot more time-consuming,
 it's much more risky for any
 individual prosecutor to do
 because he or she is
 not going to be able
 to produce something in two
 or three years necessarily,
  that will show an
  accomplishment,
  or get your stippled wrong
  in the Wall Street Journal
 for having reached the
 13-billion-dollar settlement
with JP Morgan.
So you need to change
the incentive structure
in the internal,
 the way that the Department
 of Justice functions
 and allow them to fail
 and allow them to,
  the point of The
  Chickenshit Club title is,
it comes from a Jim Comey speech
 who says how many of you
 guys have never lost a case,
 giving a speech to a
 bunch of prosecutors?
  A bunch of hands shoot up,
 he says, you're the
 chickenshit club
 because you're afraid
 to lose a case.
 You cannot be afraid to
 take on powerful interests,
 and sometimes justice can be
 done even if you lose a case.
So they have to change
the incentive structure
 so that young prosecutors
 can take on difficult cases
against individuals and
potentially lose them.
That's the first thing.
 The second thing is, they
 need to recruit differently,
 recruit from plaintiffs firms,
recruit from around the country,
  not six elite law schools,
  try to reduce the
  number of people
who are coming from
corporate defense firms
 or going to corporate
 defense firms.
You do academics,
public interest, lawyers
 and then, in a perfect world,
which if I were czar
I'd pay them a lot more.
 You're never going to compete
 with the private sector,
 but you don't have to
  because a lot of
  prosecutors love their job
and they would do it for
the rest of their lives
 or for a much longer
 time than they do
 but they can't because
 they can't live
 on a prosecutor salary
 in the most affluent
 cities in America.
Prosecutors are highly-educated,
  some of the smartest most
  able people in America.
 They should live
 affluent lifestyles
 in the most expensive
 cities in the country.
If we paid them 450,000 a year,
it's nothing compared to
a private-sector salary,
 but they would live and live
 nicely, handsomely on that
and stay and work very
hard for the government.
 - [Woman] Hi, good evening.
  Earlier you mentioned the
  impact of corporate hires
  onto Obama administration
  in the DOJ.
 What about Tim Geithner's role
 as Secretary of the Treasury
 during that whole time?
 - Yeah, so I never uncovered,
so Geithner is obviously
  an incredibly fascinating
  important figure,
  incredibly influential in
  the Obama administration.
 I never uncovered him giving
 the order to Eric Holder,
 and I don't think this exists,
 where he said don't
 prosecute the banks.
 And of course, what's really
 interesting about Geithner
 is that through the
 financial crisis
 before and through
 the financial crisis,
he's never worked at a
bank, he's not a banker,
 he's a career civil servant.
 but what he does
 is he has the ethos
  of the Obama
  administration, I believe,
a kind of technocratic,
democratic ethos
 where he famously says
 we don't want to have
 Old Testament justice.
 What I think he means by that
 is we don't want to succumb to
 the mob with their pitchforks
  and prosecute a few bad
  apples to placate this mob
  with kangaroo courts, this
  is a systemic problem.
It's a systemic problem
 which has complicated
 regulatory failures,
 and we need to address that
  and we need to address
  that in a kind of precise,
an all-encompassing way.
So we're gonna create Dodd-Frank
and Dodd-Frank is going
to touch every corner
 of the financial world with an
 incredibly precisely-written,
 incredibly
 intelligent regulation
 that will deal with
 mortgage reform here
and derivatives here, etc, etc.
And I think that's just
the wrong approach.
 It's a wrong approach
 for two reasons:
one is that bankers are
smarter even than Tim Geithner,
  Tim Geithner is a
  really smart guy,
 bankers are gonna be smarter,
  they're gonna get
  around the rules.
 And so what you want is
 stupid rules, not smart rules.
You want big broad basic rules.
  Glass-Steagall was
  a very dumb rule.
It says banks are banks
 and investment banks
 are investment banks
and never the twain shall meet.
 And that served us
 well for a long time.
 So when you need
 broad principles in
 your financial rules,
  not smart technocratic
  perfectly-designed rules.
  And the other big problem
  with Dodd-Frank was,
  and I'm repeating myself,
  but without the legitimacy
  of prosecutions,
 people don't believe that your
 form efforts are for real.
 So what you need to do
 is combine the old Republican
 law order order ethos
  of prosecuting individuals
 with the Democratic
 technocratic ethos
 of addressing systemic reform.
 That's the perfect marriage.
And it lends legitimacy
to your reform efforts
  in your system,
  systemic changes.
- [Paul] A little Old Testament
with some wise judges.
- Yes, exactly.
  Okay, two more questions.
- [Man] This is kind of similar
to the second question you got,
 but any data that you
 know about where yes,
 one in 20, one in 30 corporate
 CEOs, it's maddening,
  it's grossly unfair what
  they've gotten away with,
  but the rest of the cases
  it does actually being
  soft on white-collar crime
 promotes economic expansion.
 - You mean, oh, so
 soft on economic crime
promotes an economic expansion?
 - [Man] Soft on
 white-collar crime.
  - Are there date on that?
I mean,
I don't think there are,
I'm not familiar
with any studies
  about whether it actually
  helps the economy,
but I'd be extremely suspicious,
 because I think that
 actually strong institutions
 and the rule of law
and fair dealing
and expectations
 that you have the ability to
 take your case into court,
 actually undergird
 our financial system.
Strong regulation
leads to stronger banks
 and a stronger capital
 and capital markets,
and strong regulation
contributes to economic growth.
 So I would say a corrupt
 system ends up eating itself.
 - There is, I think, just
 to help with that question,
there is a lot of evidence
internationally across countries
 where those that have
 much more enforcement,
  stronger rules of
  law as you said,
  are stronger economically.
 Now, the difficult thing to
 know is what causes what,
 you can't never really know
 which way the causation goes,
 but the correlation is there.
  - Thanks.
 I wonder if you'd considered
 either NPAs or DPAs,
 with a little bit of
 a kind of rat factor,
basically the condition
pursuant to which a corporation
  will be permitted to
  enter into an NPA or a DPA
 would be a material support
 in connection with a
 prosecution of a CEO
at that particular corporation.
 - So that is written
 into all DPAs and NPAs
  as they exist now,
which is
  they all are contingent on
continued cooperation
with any investigations,
  and yet they there are no
  continued investigations
 and Brandon Garrett at UVA,
 I think he's at Duke now is,
  or found that in
  a book where it's.
 And so there's a problem there
 and it wouldn't be
 solved with a clause
that says you have to cooperate.
 Now, there was a
 tacit acknowledgment
 that there's been a failure
 to prosecute individuals
  in the Obama ministration
  with Sally Yates,
 was the Deputy Attorney
 General under Loretta Lynch,
  the last DAG in the Obama
  administration's DOJ.
 And she comes up
 with the Yates memo
 that says we need to
 prosecute individuals
 and we can't reach a
 corporate settlement
  unless you've also
  prosecuted an individual,
which I think, as I say,
 was a tacit admission
 that they've failed.
 The problem with that
 is the corporation
  serves up a middle
  manager schnorrer schmuck.
I think schnorrer was
the wrong Yiddish there,
schmuck is what I'm looking for,
 who is thrown under the bus
  and the top executives,
  the really culpable ones,
  are able to avoid
  any culpability.
 So I think the DPA is a drug
 that the DOJ needs to
 wean itself off of.
 I think it has to many
 malign consequences
 to be salvaged at this point.
  I think you could
  rehabilitate it over time
 after you had broken
 your dependence on it.
 - Very well.
 Let's give Jesse a big hand.
  Thank you so much.
  - Okay.
 (all applause)
 - It was a great discussion.
- Great.
 Thank you again Jesse, Paul.
 Just have two points to make
 before we conclude
 for the evening and
 head to the cocktail.
 Portion one, most importantly,
 there are books available for
 sale in the back of the room,
 and two, just want
 to make a reminder.
  NYU One Day is approaching
  so for anyone who
  wants to donate
or find another activity
to donate to the school,
volunteer work,
please contact one of the
staff or alumni relations here.
 And with that,
 thank you very much
 and we'll proceed
 to the next portion.
 (all applause)
[Music]
