white Collar Witch Hunt: Why do Republicans so easily accept Neobolshevism as a cost of doing businness?
Moore, Stephen
"white Collar Witch Hunt" Why do Republicans so easily accept Neobolshevism as a cost of doing business? BY STEPHEN MOOR E ItT'S BECOME ALMOST ACCEPTED WISDOM that the Sarbanes-Oxley law, passed in...
...TEST YOU THINK I AM EXAGGERATING, let me turn to recent real life examples to underscore the Aabuses: • Arthur Andersen employees evidently destroy some of their work papers during a federal probe of a single audit client...
...By the way, now that the case against Arthur Andersen has been overturned, who gives back the affected people their jobs and their lives...
...On that basis most of Corporate America's CEO/CFOs could be in the dock if their stock price falls...
...Perhaps most demoralizing about these prosecutorial abuses is that because of relentless demonization of the business community in much of the media and among political grandstanders, those political leaders who should be standing up for the rule of law and the basic principles of fairness have become inured to it all...
...Eliot Spitzer has come to realize that his most powerful tool is not his power to prosecute, but his power to accuse, which has become, irrespective of trial outcome, a power to destroy...
...CEOs of major U.S...
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...Although that count was thrown out on the facts of the case, astonishingly the judge was willing to allow the theory to proceed initially...
...In this case the prosecutors were able to extort pleas from the company with a prosecutorial gun at their head, which said: cooperate, including giving up your employees promptly, plead out, or dissolve...
...To fend off indictments in these cases typically involves millions of dollars in legal costs, a permanent injury to one's reputation and good name, and the risk that if one rolls the dice in court and loses, a prison term awaits...
...It should not be surprising that the anti-capitalist left has enthusiastically embraced this fearSEPTEMBER 2005 THE AMERICAN SPECTATOR 21 WHITE COLLAR WITCH HUNT some weapon of using the criminal law for the endgame purpose of striking down the productive class in America that they so envy and despise...
...In a recent inter-view, one CEO showed me a stack of financial statements nearly four inches thick and noted that he could go to jail if there were any arithmetic errors contained therein...
...The more dangerous problem is that our legal system is being transformed from one that provides protection for our personal and economic freedoms, to one that in the name of fighting white collar crime is increasingly at the service of the state in the pursuit of exacting tribute from our economic system...
...The weakening of the requirements for clarity and prospective effect, and the corollary lessening of the certainty of the law so vital to its proper functioning, is bad enough at the civil level...
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...TO ONE DISPUTES THAT OUR capitalist system, which has created a vast ownership society in America, requires some degree of enforcement of the integrity of the markets by government...
...Whatever one might think of Martha Stewart, one of the indictments brought against her is breathtaking...
...They often include ill-defined categories of crimes such as fraud, obstruction, and conspiracy to commit these crimes...
...With only some rare exceptions, the lawyers on the bench have been all Stephen Moore is senior economics writer for the Wall Street Journal editorial page and author of Bullish on Bush: How the Ownership Society Is Making America Richer...
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...Sarbanes-Oxley and other such laws criminalizing economic behavior have become a toll on the free market system...
...Of course regulators and prosecutors have always liked vague standards, which give them the flexibility to attack behavior they decide they don't like after the fact...
...Liberals celebrated the law, and all its perversions of justice, just as they in general celebrated the outrageous Supreme Court decision allowing a city council to allow private developers to raze houses against the homeowners' wishes under the guise of eminent domain so that a shopping mall could be erected...
...Obviously in some of these cases there appears to have been some very serious wrongdoing, but in others it would appear that defendants have been pursued at least in part as a result of political and media agitation...
...Through the ill-defined fraud statutes, equally imprecise accounting rules have been retroactively incorporated in toto into the criminal code...
...The rash of these white collar criminal laws came into being during the immediate aftermath of the technology stock market bubble bursting, with angry investors, stirred up by the media, searching for culprits in the wake of their wealth losses...
...No longer...
...The situation cries out to be openly confronted rather than merely being allowed to run its course...
...The jury agrees and he is acquitted on 29 of 33 counts, with the jury deadlocked on the other four...
...A mid-level employee of a New York financial firm engaged with others in an accounting scam and receives 25 years in jail with no possibility of parole...
...The primary victims of the unaccountable and out-of-control prosecutorial arm of government as it applies to white collar crime are the very people who are supposedly being served here: the shareholders whose wealth is being gradually eroded by a rogue criminal justice system...
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...Most judges at the trial level are ex-prosecutors themselves...
...Various prosecutions arise out of the timing of revenue recognition, earnings "smoothing," retail re-bates, and related matters, which were rarely even subject to civil sanction and are now retroactively at-tended by penalties which make them de facto capital 24 THE AMERICAN SPECTATOR SEPTEMBER 2005 crimes...
...The judiciary will be of no help here in righting this wrong...
...lie Collar itch Hunt Why do Republicans so easily accept Neobolshevism as a cost of doing business...
...It was President George W. Bush, after all, who eagerly signed into law the Sarbanes-Oxley Act after the Republican Congress approved it...
...As a corollary, I might add that the certainty and reliability of the system so essential to our freedom is compromised as the rules of the road evolve from case to case and we move toward a system of ad hoc justice that changes from prosecution to prosecution...
...Spitzer has ruined lives and careers through his white collar crime indictment power even in the high-profile cases that he has lost in court...
...Rasierer" refers to being razor-thin...
...Sihpol, who is by no means rich and was caught up in a much larger investigative net that Spitzer has cast, declares that he was executing trades that he believed to be legal and that in any case were ordered by his superiors in the company...
...The balance of the justice scales are so heavily tilted against the accused, who has been effectively stripped of the power to defend himself in white collar cases, that the overwhelming incentive is to cop a plea even when innocent...
...The merits of these cases and the culpability of the individuals involved undoubtedly vary, but many have several disturbing elements in common...
...New York's Eliot Spitzer, at least a dozen other anti-growth states attorneys general, and a bevy of prosecutors around the nation have become America's new regulators on the beat and their stick reaches to whole swathes of the U.S...
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...What is not well known is the real chilling effect of this law, and other white collar crime laws like it, which carry social and economic costs that go well beyond the quantifiable monetary price tag of compliance...
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...Meanwhile, a non-violent, first-time offender, who was not accused as far as I can tell of seeking any personal gain, is dying a slow death in a cell over a quarter of a century...
...The New York Times editorialized in favor of the decision because it gives more power to government to do whatever it wants...
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...So the burden and the responsibility of con-fronting prosecutorial abuses fall into the hands of conservative Republican leaders...
...But almost any reasonable person should believe that these cases belong in civil enforcement, and the recompense should be in the form of private dam-ages, not criminal penalties...
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...To put this in context, a man in New York City recently received 18 years for chopping up his wife with a machete...
...On this theory, the timing of disclosure of almost any adverse event is subject to second-guessing under threat of federal or state prosecution...
...The firm is prosecuted and thousands of honest, law-abiding people have lost their jobs...
...If that doesn't hap-pen we will see, just as Bob Woodward and Carl Bernstein inspired tens of thousands of muckraking journalists, a vast proliferation of hyper-politically ambitious Eliot Spitzers around the nation slapping handcuffs on America's wealth producers...
...The message of Arthur Andersen's fate was not lost on the business community...
...But what of supposed free-market Republicans in Washington and in the states...
...But what will launch the necessary back-lash is the realization that our free market economy, operating under the watchful eyes of a thousand unrestrained Eliot Spitzers just waiting for their next opportunity to stand before a hundred television cameras to vilify the next supposed high-profile corporate crook, will be effectively shackled...
...J v EACH OF THESE CASES, there might have been wrongdoing that warranted punishment...
...The factor that adds enormously to the government advantage in such cases is that the idea of innocent until proven guilty has been turned on its head in white collar crime cases...
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...The entire Sarbanes-Oxley fiasco—which passed on a 98-2 vote in the Senate and almost unanimously in the House—is symptomatic of a new cancer that has invaded our criminal justice system...
...Sarbanes-Oxley also imposes hefty criminal penalties, including 10-to-20-year jail terms, for management and directors associated with, for example, signing false financial statements...
...Republicans say they are the party that represents the financial interests of the vast shareholder society in America...
...In many of these murky cases, the search for criminal intent degenerates merely into an effort to prove guilt by portraying the defendant in front of the jury or judge as excessively wealthy and avaricious...
...The judge sentencing him indicates he is "just following the law," which in part involves the never-never land of the Sentencing Guidelines where theoretical market damages are treated as if they involve person-al theft...
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...Sarbanes-Oxley, proclaimed one CEO, who for obvious reasons insists on anonymity, "is a politically well-crafted wealth destruction machine...
...Contributing to this atmosphere of a prosecutorial witch-hunt against CEOs and the successful firms they run is the erosion of any clear requirement of criminal intent on the part of the wrongdoers...
...Well, guess what...
...Where was the ACLU in decrying the injustices of the Sarbanes-Oxley law and similar measures that erode the rights of corporate and white collar plaintiffs...
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...They have come to realize that the power to indict is the power to destroy...
...too willing to acquiesce in the trend...
...As Rick Sharp, the chairman of Carmax, notes, "Managers and directors now ask the logical question: Is this job really worth risking going to prison over if I inadvertently sign a misleading quarterly earnings report...
...The entrepreneurial and wealth-producing class in America will gradually slip into a state of submission and CEOs will begin routinely to practice the businessman's version of defensive medicine...
...Many of the CEOs indicted in the recent corporate scandals are charged with, among other things, making overly optimistic statements to the press, employees, and analysts...
...Q NCE UPON A TIME it was liberal civil libertarians who could be counted on to protect the innocent—standing up for Miranda rights of the wrongly accused "little guy"—against prosecutorial tyranny...
...Magnifying the problem is the authority currently wielded by publicity-minded prosecutors at both the state and federal level (for some reason Eliot Spitzer keeps leaping to mind), often with overlapping jurisdiction, and in many cases the vagueness of the proscribed behavior only strength22 THE AMERICAN SPECTATOR SEPTEMBER 2005ens the prosecutor's hand...
...continued on page 24 WHITE COLLAR WITCH HUNT ly punished, retroactively, for behavior that in many cases at the time was not viewed, and certainly not prosecuted, as criminal...
...economy...
...Often the explanation is cast in terms of a notion that the mind of man is creative and we can't anticipate all forms of anti-social behavior...
...In no other area of our political system is such awesome power to destroy lives and livelihoods exercised in such an unaccountable way...
...The mere gross injustice of it all perhaps will not inspire the retaliatory and crusading actions by the Of course regulators and prosecutors have always liked vague standards, which give them the flexibility to attack behavior they decide they don't like after the fact...
...Rather than protect the interests of shareholders, they reduce corporate profitability and thus shrink shareholder wealth...
...This lusting for the blood of corporate villains in the wake of the stock market crash in 2000, followed by the high-profile cases of fraud at Enron and WorldCom, no doubt explains why many of the cur-rent cases have the heavy whiff of ex post facto prosecution...
...If the left will no longer protect the rights of a low-income homeowner against the awesome power of the state, how can it possibly be counted on to safe-guard the legal rights of the accused when he is an "evil" wealthy capitalist...
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...Why not the same thing with, say, Merck/Vioxx...
...We accept that under these standards some will engage in behavior that is anti-social in some broader sense and escape sanction (at least in the here and now), because a society organized other-wise is tyranny...
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...Spitzer outrageously demands a retrial on the remaining four counts, in an action that, as the Wall Street Journal put it, "is as close as you can get to double jeopardy...
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...corpora-ions now routinely point to these new onerous accounting standards and the attendant reams of paperwork, legal bills, and auditing costs—which can easily stretch into the tens of millions of dollars per firm—as one of the major new public policy impediments to growth and profitability...
...instead, its impact is to deter top-quality talent from 20 THE AMERICAN SPECTATOR SEPTEMBER 2005 serving on boards and in management positions...
...Well, yes, but in our society clear, unmistakable, and prospective identification of behavior to be treated as a serious felony is a price we pay for freedom...
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...This cancer could be more hazardous to our financial health than even the excesses of the tort system and the trial lawyer bounty which extracts tens of billions of dollars a year in dead weight loss from our economy...
...Chiron closes a vaccine plant in England and federal prosecutors open a criminal investigation for potential securities fraud for failure to disclose the possibility of this closing earlier...
...It seems clear that Sihpol's real "crime" here is that he hasn't turned state's evidence and ratted out his colleagues...
...The larger victim is the very integrity and fairness of our criminal justice system itself...
...conservative movement to fix our public policies in this realm...
...As the precise con-tours of these offenses are unclear and evolving, they of course can be, and are, used by prosecutors to mean whatever they are required to mean in order to accommodate the pursuit of the targeted individual, company, or industry...
...She was accused of obstruction of justice and of criminal securities fraud for, in part, alleging her innocence in public...
...Standing back from it, it would seem inconceivable as a constitutional matter, and one of basic fairness, that our system would permit the prosecution of a person or company if the meaning or applicability of the relevant statute were even remotely in question...
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...This assault against our financial system and this perversion of our justice system has occurred mostly on Republicans' watch...
...In this age of victimization, the multi-trillion-dollar reduction in the value of 401k and other pension plans could not have possibly been the result of Americans' own imprudent investment choices...
...BY STEPHEN MOOR E ItT'S BECOME ALMOST ACCEPTED WISDOM that the Sarbanes-Oxley law, passed in the wake of the corporate accounting scandals of the late 1990s, is one of the most economically imbecilic new regulations ever enacted in Washington...
...But what has been happening here under the guise of "cleaning up the markets" is a significant expansion of criminal law to areas that do not involve what any normal American would regard as criminal conduct...
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...Businesses and individuals are being severeWhere was the ACLU in decrying the injustices of the Sarbanes- Oxley law and similar measures that erode the rights of corporate and white collar plaintiffs...
...The criminalization of falsely signed financial documents is meant to deter accounting fraud...
...Nor does anyone dispute that those engaged in theft, embezzlement, fraud, or the like deserve the wrath of the criminal law...
...In the process, one of the great institutions in the financial community over the years has been lost, to our collective detriment...
Vol. 38 • September 2005 • No. 7
