The Yin Blog

Why Eliot Spitzer's conduct matters

As you've no doubt read by now, the bombshell news is that New York Governor (and former New York Attorney General) Eliot Spitzer was identified as a client of a prostitution ring through a federal wiretap.  Does it matter?

I think so.  One thing that defenders of Bill Clinton never seemed to acknowledge was that his impeachment wasn't based merely on the fact of an illicit sexual relationship with an intern, but rather, lies under oath about that relationship.  Here, Spitzer's conduct is even worse. . . .

Had the story been that Spitzer had gone to Nevada (where prostitution is legal everywhere except in the cities of Las Vegas and Reno) and hired a prostitute, there might have been some moral outrage, but it would otherwise be a non-story.  This would be true even if, as is the case, Spitzer -- as AG -- brought cases against prostitution rings, for it is entirely consistent to say that as AG, he was merely enforcing New York law, whether he agreed with it or not.

That argument, however, is not available to him.  It's not a private matter, as he asserted in his "apology."  (If it were truly private, why would he feel the need to call a press conference about it?)  The fact that he, as AG, prosecuted prostitution rings and yet engages one himself, means that he is putting himself above the law.  Had he disagreed with the ban on prostitution, he -- as AG -- could have declined to prosecute such cases.  He did not.  He obviously felt those laws were worth enforcing.  So why is it "private" when he allegedly engages in it?

I don't see how Spitzer has any choice but to resign.  His political career has to be in shambles.  How could he ever win another campaign?

"Pretexting" = indictment

The California AG's office has indicted former HP chairperson Patricia Dunn and three others for using "pretexting" to get personal phone records of board members they suspected were leaking information to the press.  I haven't looked at the state laws at issue, but from the description of them in the story, it sounds at least plausible that the AG can get convictions.

Is (was) Eliot Spitzer a necessary evil, or just evil?

Since my teaching package includes Corporate Crimes, I've followed Eliot Spitzer's career in recent years, though not so much last year since I was on pretenure leave in the fall and taught Con Law in the spring.  Still, it's one thing to read an occasional news story; it's altogether different to read a biography of Spitzer, as I did recently with Brooke Masters' Spoiling for a Fight, which the publisher sent to me.

I'll admit, I was quite bothered by a passage on page 15, where Masters, in discussing how the Reagan deregulation revolution impacted Spitzer's thinking, seemed to suggest that the Republicans invented "federalism" as a theory to justify deregulation.  Ordinarily, I'd cut a non-lawyer some slack on such matters, but the way it was presented made me think that Masters was revealing a not-so-subtle political bias that was wholly ignorant of our constitutional history.

My concern passed, though, and I plowed ahead into the book.  It's basically organized chronologically, but what works well is that Masters sticks to one scandal per chapter.  Thus, we see how Spitzer approached the Wall Street analyst bias scandal (aka Henry Blodgett), the mutual fund after hour scandal, and the Dick Grasso retirement pay brohaha.  In one passage that I particularly enjoyed (credit to Masters for her writing, but also to Spitzer, who apparently does have a wicked sense of humor), Spitzer was invited to give the keynote speech at a setting honoring 51 stock analyst "all stars."  Spitzer's speech started by saying that it was nice to meet all these people, so that he could put faces to the names on the e-mails that his office was reviewing.  Then he noted how of the 51 all-stars, something like two-thirds of them didn't even beat the average fund in their field!

Spitzer has been a polarizing figure in corporate scandals, lionized by some and demonized by others.  As I read Masters' account of his investigations, I was consistently struck by two thoughts: (1) Spitzer's targets generally seem like they warranted investigations, and the other regulatory agencies hadn't been performing that function; and (2) the methods that Spitzer used (public denunciations, often pre-indictment; leveraging the threat of criminal conviction of corporations, especially after the demise of Arthur Andersen, to extract massive settlements; almost utter failure to provide any restitution to individual victims, with the money going to the state of New York; and unrelenting obnoxiousness and combativeness with even erstwhile allies) left a bad taste in my mouth.  Though his targets may have deserved what happened to them, the biggest beneficiary by far has been . . . Eliot Spitzer, who appears on his way to become Governor of New York.

Martha Stewart -- a tale of two narratives?

I reecntly got back from the First Annual Big Ten UnTENured Conference, generously hosted by the Indiana University law school.  It was wildly hot and humid in Bloomington, IN, but the facilities were nice, the Bloomington campus was beautiful (it reminded me of the Berkeley campus -- high praise!), and best of all, the other junior law profs were terrific fun.

Anyway, Martha Stewart was a recurring topic of conversation, as it turned out.  First, on the drive from Iowa City to Bloomington, my friend and colleague Ethan Stone and I had a good debate about the propriety of prosecuting Stewart for, essentially, lying and covering up a non-crime.  Second, at the Big Ten conference, Conglomerate blogger Christine Hurt presented a paper on the "undercivilization of corporate law" in which she also touched upon the same question.

Personally, I do not have much sympathy for Martha Stewart.  18 USC s 1001, the false statement statute, is quite strict in application, and I have no doubt that the government could easily prosecute any number of people who are waylaid into lying to the government through panic.  I'm most bothered by the cases where the government knows the facts and asks the defendant something anyway -- hoping for a false response so that it can bring a 1001 charge.  But in Stewart's case, she had access to legal counsel, and not just any legal counsel, but Wachtell Lipton, one of the most prestigious firms in the country.

So, for me, the persuasive narrative in this case is a superrich executive who figured it was acceptable for her to lie to SEC lawyers and FBI agents -- with her own lawyers present -- because that was the most expedient thing for her.

However, that's not the only narrative that could be told in this case.  Could it be that prosecutors, having already stated that they were going to bust Stewart for corporate crimes, had to come up with something to convict her of when the dubious securities fraud charge fell apart?

Unfortunately for Stewart, the second narrative was not one that could be offered to the jury, and hence the jury readily accepted the first narrative and convicted her.  Nonetheless, the second narrative is an undeniably powerful one, and I wouldn't be surprised if it did explain to some degree the prosecution's decision to go after Stewart with such zeal.  The debate between the pro- and anti-Stewart camps is ultimately, in some ways, an assessment of the relative likelihood of each of the narratives.

Ebbers gets 25 years

A district judge just sentenced former WorldCom CEO Bernie Ebbers to 25 years in prison after he was convicted for his role in WorldCom's accounting fraud.

Meanwhile, my blog has been getting hits for people searching for "Ebbers wife" or "Kristie Ebbers."  Are these people who feel sorry for Ms. Ebbers?  Or are they thinking of hitting on her?

Is Bernie Ebbers giving up?

It sure sounds like it from this news account of his settlement of the civil matters against him:

Former WorldCom boss Bernard Ebbers will give up nearly everything he owns — including his Mississippi home and his stake in a golf course — in a settlement with angry investors in the fraud-toppled company.

* * *

Authorities involved in the settlement said Ebbers must sell his multi-million-dollar home in Clinton, Miss., and his family must move out of it by Oct. 31.

In addition, Ebbers' property, including thousands of acres of timberland and his stakes in a golf course, a lumber company, a trucking company and a rice farm, will go into a liquidation trust.

For most of the property, 75 percent of the proceeds will go to the investors. MCI, the post-bankruptcy version of WorldCom, will get 25 percent.

Sean Coffey, a lawyer for Hevesi, said a "modest" living allowance would be made for Ebbers' wife, Kristie. He would not give the amount. Money will also be set aside for Ebbers' legal bills.

(Note: the settlement still has to be approved by the judge.)

Ebbers still gets money for his legal bills, so I presume he'll be able to pay for counsel to appeal his conviction (as opposed to having to ask for a public defender).  Still, settling the civil matters means that even if he were to get his conviction overturned, he'd be virtually penniless.

On a marginally related note, I was across the deposition table, so to speak, from the plaintiffs' lawyer mentioned in the story (Sean Coffey).  He was one of those lawyers who tried to make the witness feel like he was the witness' good buddy during the deposition.  His partner, on the other hand, was the "bad cop" with those witnesses the partner deposed.  (My role in the matter was very limited, as I was one of about ten lawyers on our side of the table.)

Should young people be punished more harshly than old people?

That, in a way, seems to be what Bernie Ebbers will argue at his sentencing hearing.  Ebbers is 63, and apparently not in good health, so a lengthy sentence may be the equivalent of a life sentence.  Indeed, prosecutors are openly asking for such:

Federal prosecutors want former WorldCom boss Bernard Ebbers to go to prison for the rest of his life, urging a judge to brush off his pleas for leniency.

To be fair, Ebbers raises other grounds for leniency:

He has asked the judge for a sentence "substantially below" life in prison, citing his poor health and a history of charitable works. More than 100 people, mostly family and friends, have also written to Jones on his behalf.

Still, I'm interested in the implicit argument that he should have a chance to get out of prison alive, so that a sentence that might be appropriate for a younger person (say, 20 years) would be inappropriate for him.  I have to confess that my initial reaction is that this would be an unfair rule.  After all, Ebbers has had all this time not in prison, which the younger person would not.  So why should Ebbers benefit from the fact that he committed his crime later in life?

(And I might add, there is no guarantee that a 40 year old would survive a 20 year sentence.  Prison is probably a high stress lifestyle.)

On the other hand, I suppose there is something in the notion of hope -- a prisoner who is not sentenced to an actual life sentence should perhaps have some reasonable hope of walking out of prison a free person one day.  That might provide some incentive for good behavior, etc.

All I am questioning, therefore, is the implicit argument that compassion for the elderly should lead to their receiving lighter sentences for identical crimes than younger criminals.  If we want to have compassionate sentences in general, that's fine.  But just as one can make the case that a 63 year old defendant should get a break because he's old, one could argue that a 23 year defendant should get a break because he's young and can still learn from his mistake and contribute many years of productive work to society.

Delicious irony?

Yesterday's Wall Street Journal ran a short story that goes down as one of the best examples of irony (true irony, not the Alanis Morissette version).

Here it goes.  Back in 1995, a corporate executive was convicted for embezzling from his company.  For the sentencing hearing, the CEO of the company wrote a letter blasting the executive, calling the crime "particularly egregious," and noting that the executive stole from shareholders and breached fiduciary duties.  The CEO called for the maximum term of imprisonment.

Oops.  You'll notice that the letter was written by Dennis Kozlowski, who was just convicted of massive theft from Tyco, dwarfing the amount that the executive stole in 1995.  Not surprisingly, prosecutors want to use Kozlowski's letter against him.

You have to wonder about the sheer chutzpah of some of these corporate criminals.  Most likely, Kozlowski didn't think about looting Tyco until some time after he wrote that letter, but still, you'd think he would've remembered.

Andersen gets vindicated, but too late. . . .

The Supreme Court reversed Andersen's (aka Arthur Andersen) obstruction of justice conviction (the opinion should be available soon here), agreeing with Andersen that the jury should have been instructed that it needed to find that Andersen acted with the knowledge that it would be obstructing an investigation by ordering the shredding of documents before receiving a subpoena from the SEC.

Of course, little good that the result does for Andersen (except perhaps in defending itself from various civil lawsuits, since those suits won't be able to use the criminal conviction anymore against the accounting/auditing firm); after the indictment, Andersen largely dissolved, with only a skeleton staff left behind to manage the lawsuits.  I think most of the rainmaking partners left for the remaining big 4 accounting firms.

So the end result is that lots of lower level employees lost their jobs because of a prosecution that was deemed aggressive at the time and that ultimately turns out to have been invalid based on the way the case was presented.

Impact of the Ebbers conviction

The L.A. Times has a pretty good article about what Bernie Ebbers' conviction suggests for other fallen CEOs facing trial:

"These guys are shaking in their boots now," said Andrew Genser, a white-collar criminal defense lawyer at Kirkland & Ellis in New York.

If anyone seemed poised to pull off the "know-nothing" defense, others said, it was Ebbers.

The former high school basketball coach and milkman twice flunked out of college. He disdained e-mail, denying prosecutors a weapon they had used effectively against Quattrone and others. And Ebbers almost never sold his WorldCom shares, testifying that he even had bought $5.3 million in stock a few weeks after he was forced to resign in 2002 under the cloud of a federal investigation.

Notable boot shakers mentioned in the article are Ken Lay (Enron) and Richard Scrushy (HealthSouth).  As I've blogged before, the corporate executives whose actions look really egregious (i.e., those involved in Enron, WorldCom, etc.) are slowly but steadily getting prosecuted and convicted, making it harder to see that Martha Stewart's prosecution was inevitably gender-related.