Jesse Eisinger’s book ‘The Chickenshit Club’ is an excellent look at how we have failed to deal with white collar crime.
My other videos mentioned in this video:
Binance and Changpeng Zhao Indicted: End of an Era
Resources mentioned in this video:
If you would like to subscribe to my free newsletter then please go here.
If you want the posts from this blog delivered to your inbox:
I also have a Discord server that you can join here.
Transcript:
00:00:00:00 - 00:00:07:14
Bennett Tomlin
Hello, everyone, and welcome back to my personal channel where we remember that the rich and powerful are to blame.
00:00:07:14 - 00:00:22:10
Bennett Tomlin
Today we are reviewing a book by Jesse Eisinger about why and how our regulatory and law enforcement system have failed to deal with white collar crime. I had to wait a few seconds to see the title of the book to make sure I'm not demonetized.
00:00:22:12 - 00:00:45:19
Bennett Tomlin
But the title is The Chickenshit Club. The Chickenshit Club tells the story of first how we started prosecuting white collar crime and then how we stopped. White collar crime is one of those things that I have a lot of interest in. And I found this book to be a really useful and enjoyable look at the problem. Jumping ahead to the conclusion, I highly recommend this book.
00:00:45:21 - 00:00:54:20
Bennett Tomlin
Jesse is a truly talented journalist and writer who clearly did deep research into this issue. And I think this book really helped improve my own understanding
00:00:54:20 - 00:01:05:07
Bennett Tomlin
With that out of the way, I do want to summarize some parts of the argument because I found it so compelling. The name The Chickenshit Club comes from a speech by James Comey.
00:01:05:09 - 00:01:27:03
Bennett Tomlin
Yes, the James Comey who messed with the 2016 election. But before that, he gave a speech to the Southern District of New York after he was named the U.S. attorney. He looked at all the prosecutors gathered in front of him and asked them all, Who here has never had an acquittal or a hung jury? Please raise your hand once hands were raised.
00:01:27:05 - 00:01:48:18
Bennett Tomlin
He looked over the room once again and stated, Me and my friends have a name for you guys. You are members of what we like to call the chickenshit club. Comey believed that if it's a good case and the evidence supports it, you must bring it, he told the troops. I know it can get crazy in court. You feel stressed when the judge is pounding on you.
00:01:48:23 - 00:02:10:11
Bennett Tomlin
When that happens, you can all take a deep breath. I don't want any of you to make an argument you don't believe in. I want you to believe that you were doing the right thing. Make the right decision for the right reasons. This particular belief of James Comey is one that I endorse without endorsing, you know, the rest of James Comey.
00:02:10:13 - 00:02:20:23
Bennett Tomlin
However, despite this speech, the book and myself as well argue that we have all become victims of the chickenshit club.
00:02:20:23 - 00:02:29:14
Bennett Tomlin
This is something we talk about all the time on crypto critics corner. The government wants the W they don't want to deal with actually prosecuting the crime.
00:02:29:14 - 00:02:45:04
Bennett Tomlin
Recently on the podcast, we discussed Binance as an example of how the government often seems willing to excuse just about any inappropriate behavior from a corporation, as long as at least one executive is willing to take a token plea and a pinky promise that your company will start behaving.
00:02:45:06 - 00:03:19:06
Bennett Tomlin
Even here, I was somewhat overstating it because often regulators and law enforcement won't even insist on the token sentence against an executive. This is backed up by the data. Jesse references a Wall Street Journal analysis of 156 cases which were brought by the SEC, the CFTC and the Department of Justice against the banks after the financial crisis. And they found that in more than 80% of those cases, in more than four out of five of those cases, the government didn't even bother finding a single executive at fault.
00:03:19:08 - 00:04:08:19
Bennett Tomlin
Only a single high level executive was charged in any of those cases and only civilly by the SEC. Jesse argues this is because prosecutors began to see “probes of single human beings one by one by one, as a slog. Nasty trench warfare that carries a risk of humiliation if they lose.” He argues convincingly in this book that the increase in deferred prosecution agreements, which allowed companies to avoid the bulk of criminal consequences by cooperating, even ended up causing companies to agreed to these agreements as soon as they hear they are under investigation, because they hope that doing so will make it so they can avoid the investigators finding these serious crimes they are doing.
00:04:08:21 - 00:04:25:04
Bennett Tomlin
One quote from the book that hammers this home is “large and powerful corporations under the advice of their expensive defense lawyers, were eager to appear cooperative and wrap up investigations quickly before prosecutors uncovered more damning information.”
00:04:25:04 - 00:04:26:17
Bennett Tomlin
the government can get a win.
00:04:26:21 - 00:04:58:09
Bennett Tomlin
The company can avoid serious consequences. Everyone wins. Well, except for those of us who are neither massive corporations or government prosecutors looking for a promotion, the people who aren't in those categories lose. You lose. I lose. We collectively lose. But these corporations are winning. That's probably not great. The prosecutorial service arguably loses as well with Jesse arguing that “settlements have another downside they weaken prosecutorial skills.
00:04:58:11 - 00:05:08:04
Bennett Tomlin
Over time, prosecutorial aversion turns into lost knowledge. Settlement culture breeds investigative laziness and erodes trial skills.”
00:05:08:04 - 00:05:28:05
Bennett Tomlin
one example the book uses to emphasize this argument is Arthur Andersen. Arthur Andersen was the auditing firm implicated in the accounting fraud at WorldCom and Enron. And the prosecution of Arthur Andersen is a turning point in the history of white collar crime.
00:05:28:07 - 00:05:37:01
Bennett Tomlin
Specifically, Arthur Andersen was able to fight a PR battle while they were appealing parts of their case all the way to the Supreme Court.
00:05:37:01 - 00:05:53:21
Bennett Tomlin
publicly. They argued that this was a firm of 26,000 innocent people to imply that punishing those people for the crimes of several partners could not be right. And eventually they were able to get then CNN and later FOX business host Lou Dobbs on their side.
00:05:53:23 - 00:06:29:04
Bennett Tomlin
He was able to turn the story of corporate malfeasance, of the awful culture at Arthur Andersen into a perceived overstep by the federal government. This nonsense narrative resonated and still resonates in conservative talking points and helped contribute to a hesitancy for others to prosecute this type of case. Lanny Breuer, Obama administration's head of the Department of Justice Criminal Division, said in 2012, In reaching every charging decision, we must take into account the effect of an indictment on innocent employees and shareholders and shareholders.
00:06:29:06 - 00:06:49:15
Bennett Tomlin
Just as we must take into account the nature of the crimes committed and the pervasiveness of the misconduct, I personally feel that it's my duty to consider whether individual employees with no responsibility for or knowledge of misconduct committed by others in the same company are going to lose their livelihood if we indict the corporation
00:06:49:15 - 00:06:51:06
Bennett Tomlin
and large multinational companies.
00:06:51:11 - 00:07:26:22
Bennett Tomlin
The jobs of tens of thousands of employees can be at stake and in some cases, the health of an industry or the markets are a real factor. Those are the kinds of considerations in white collar crime cases that literally keep me up at night in which must play a role in responsible enforcement. That's right. The head of the Department of Justice's Criminal Division after the great financial crisis, wanted to make sure that he emphasized the importance of taking into account the market and the shareholders when considering whether to prosecute white collar fraudsters.
00:07:27:03 - 00:07:55:03
Bennett Tomlin
We had committed egregious acts against the American public. This lack of desire to go after these challenging prosecutions has resulted in us all suffering. Even worse, things have arguably gotten worse since Jesse wrote this book. The Supreme Court seems very likely to end up overturning the Chevron deference, which is what allows regulators to interpret laws to regulate.
00:07:55:03 - 00:08:07:21
Bennett Tomlin
without this, the SEC the CFTC, the EPA, the FDA, the FTC, all of them will be even more toothless than they currently are, and they currently have to gum their food.
00:08:07:23 - 00:08:24:20
Bennett Tomlin
The Chickenshit Club, by Jesse Eisinger is a powerful book which speaks powerfully about a serious problem. He walks us through why we can no longer prosecute white collar crime and fraud and points out the consequences of that. I highly recommend this book.
