I don’t have much to add to Larry’s post about Eliot Spitzer’s persecution (and non-prosecution) of AIG and Maurice Greenberg, or to Larry’s ongoing crusade against the criminalization of agency costs. But I just can’t resist registering my outrage.  How can this sort of thing not make your blood boil? Other than a few lonely voices clamoring in the wilderness of the blogosphere, where is the outcry? I’m not suggesting that those who are enraged by politicized prosecutions in other spheres should take up this cause, but a little sensible appreciation among the rest of us for the costs here would be nice. And while I’m thinking of it, let me add to Larry and TomK’s despair about the egregious prosecution of Jamie Olis.
And while the destruction of human life in these cases is lamentable, it is the social costs that should worry even those who can’t muster any sympathy for the travails of a few rich, white businessmen. Larry’s articles and blog posts on the topic should be required reading for prosecutors, regulators, law makers and law professors. Instead, those folks are too busy hammering away at the presumed evils of backdating, vertical integration, “excessive” compensation, insiders on boards, bundling arrangements and DRM, to name but a few.
It’s possible that some or all of these practices, in some cases, may be costly. But before I’m accused of hypocrisy, there is a huge and under-appreciated difference, even — yes, it’s true — in the business world, between the bad behavior of private individuals and firms and that of the government. Among other things, the former is generally localized, susceptible to economic pressures, and, quite often, ambiguous in its effect. The latter is far-reaching, corruptible, difficult to constrain, and largely immune to economic limits. And these are just the utilitarian concerns. These differences are all-too-well appreciated in other contexts (and I often find myself in embarrassing agreement with the crackpots on left-wing radio who fulminate against the exercise of excessive state power when it comes to wire-tapping, war-making, the drug war and online gambling), but here, where the social costs are so enormous, there is naive belief in the government rather than skepticism. It’s outrageous.Â
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Geoff, this comment would be a lot more tolerable if I could think of a single instance in which you expressed outrage — or even concern — about criminal conduct, fraud, or the abuse of power by executives and corporations. These things are quite often NOT ambiguous in their effects. On the contrary, their effects are often unambiguously negative, to say nothing of the behavior being ethically obtuse and appalling. The absence of any concern on your part about this kind of bad behavior makes it seem as if your main agenda is coming up with ways to justify what is, often, simply unjustifiable.
Color me surprised. Larry, Geoff, and the WSJ are the sources of all things true? Who knew!
Hmmm … (1)WSJ opinion column makes point X; (2) Ribstein makes point X (citing “the WSJ” without noting that he is citing an editorial); (3) this space enthusiastically makes point X.
1. While it is acceptable in the usual blog world to engage in linkbaiting, I think that a legal blog owes it to its readers to educate the audience. AIG clearly felt uncomfortable about whether they had misstated their reserves -it appeared to come too close to the line of deception. Perhaps in a world less rocked by accounting fraud, AIG could have worried less. But Spitzer was not wrong to jump on what looked like a manipulation of reserves.
2. I litigate civil fraud in Ontario, and I would be thrilled if our regulatory agencies had half the zeal of Spitzer. But supposing that I am wrong, and zeal was misplaced. It is a far cry from zeal to prosecutorial misconduct. Agency costs can be criminal – simply calling them agency costs doesn’t mean that they are not criminal.
Ask and you shall receive, Geoff. I am not outraged because:
1. Spitzer didn’t say Greenberg was blameless or did not have blood on his hands. What Spitzer might just be saying is “it was not as bad as we thought, so we have bigger fish to fry.”
2. Geoff, do you get upset every time you find out that the fraudster CEO made it past the government? The government wins some, and they lose some. Sometimes the case holds up; sometimes it does not. I would only be upset if it ultimately came to light that there was a memo somewhere to Elliot Spitzer from a clerk, from the day before Spitzer went public with his claims about AIG, saying “Dear Boss, There is *nothing* in our AIG/Greenberg file that even smells bad. AIG is the model business, and Greeberg is doing everything so far above board that we shouldn’t even question him. He should teach a class for CEOs on making clearly legal and ethical decisions.” If you think the NYS AG has the time or the inclination to go after cases that are totally without merit, you have not worked for the NYS AG. (I have.) Did Spitzer miss the call a bit? Maybe. Is he guilty of persecution? Not in my view.
3. Perhaps Greenberg lost his job b/c his Board was annoyed that he had gotten so close “to the line” (the line between what is beyond reproach and what is not; the line between what is legal and what is not) that the AG of a fairly important state thought he actually *crossed* the line? Chiarella, anyone? Eisenberg’s casebook used to include some blurb talking about how Chiarella couldn’t BUY a job in his field after his well-publicized case went to the Supreme Court. I never felt too bad for Chiarella — it’s not like the fellow had the scruples of a nun. It is not as though what he did was on the up-and-up. It was just that the law had not yet evolved to penalize his underhanded conduct. Had he hit the Supreme Court after O’Hagan, he would be called “a criminal.” Are we only outraged by Chiarella’s conduct depending on it’s place in time?
(By the way, I like your post even though I disagree with your opinion a bit.)