Jesse Eisinger on Why White-Collar Criminals Get Off

financial journalism. If you are at all curious as to why, during the worst financial crisis since the Great Depression, effectively nobody was sent to jail, at least nobody of any importance. A couple of Burger flippers who were hired to fabricate mortgage documents were threatened with prosecution. Handful of mid level traders the fabulous fab got finger wagged at him and paid a fine. But all of the people responsible for an epic collapse in the financial markets and the credit

markets escaped unscathed. If you're curious as to how that came about, then you need to hear Jesse Eisinger's story. He is a very thoughtful investigative journalist has won numerous prizes, including the Pulitzer. Uh I don't find a whole lot to disagree with in his new book, whose title I cannot say on the radio, but I can say in the podcast, So you get to hear me cuss there with no further ado. Here is my conversation with Jesse Eisener. My special guest this week is Jesse Eisinger. He is

currently a reporter for Pro Publica. He began his career at the South Pacific Mail in Santiago, Chile. Spent years at the Wall Street Journal, where he helped to create the Ahead of the Tape column and the Long and Short column. I originally know him from his work at the Street dot com. He has written for The New

York Times, Deal Book, The New Yorker, The Atlantic. He was the Wall Street editor at Conde nast In He won the Lobe Award and he in two thousand eleven he won the Pulitzer Prize for national reporting on Questionable Wall Street practices. It was notable because it was the first ever Pulitzer given for online journalism. He is also the author of a book whose name I actually can't say, on the air. But we'll give it a we'll give it a loose I'll leave one word out, and it's

called the Chicken Club. Why the Justice Department fails to prosecute executives? Jesse Eisinger, Welcome to Bloomberg. Thank you so much for having me. I know Jesse for a long time. I'm a fan of his work. And there's so many fascinating things in this book, which is written pretty much in the sweet spot of the world. I inhabit finance, legal and bad behavior. Those three then diagrams overlap, and

this is the book that's the result of it. Let's begin where the book pretty much starts out, uh with Enron and Arthur Anderson. How significant were those two companies to the future lack of prosecution by the SEC and the Justice Department? They were crucial, is what my argument is. And you know, so I started this book with this puzzle, why don't we prosecute top corporate executives anymore? And I

think it goes beyond just the financial crisis. Of course, we all know that no top bankers were put in prison for the financial crisis, But I think it started beforehand. This problem at the Justice Department, and it persists to today, and it goes beyond the banks to industrial companies, retailers, company's,

pharmaceuticals UM. And so I was trying to figure out this puzzle, and I started with Enron because if you remember, and of course you do, we were talking at the time UM and after the bubble burst, an Aztec bubble burst, there were a wave of prosecutions, not just Enron, but

World Comma, Delphia, Tycho, Global Crossing. Lots of executives did some time in the Great Bar, hard exactly, hard time in the pokey and so what changed, and really I locate this is the beginning the backlash and the problem started then in the kind of lobbying effort, a corporate and white collar defense bar lobbying effort against what they saw as overly zealous prosecutions of Enron and particularly Arthur Anderson. They were lobbying Congress, they were lobbying the Bar Association,

they were lobbying the Judges Association. They pretty much were pulling every lever of power the defense bar I'm refined to that was possible exactly. And what they were arguing was that the prosecutors were overly aggressive, that they had um overcharged the executives, particularly of Enron, and I focus on en Ron UM and then Arthur Anderson, which was the kind of seminal corporate prosecution. So let's talk about Anderson a little bit because I find people have consistently

mischaracterized that period. Let me ask you what killed Arthur Anderson. Arthur Anderson killed Arthur Anderson, UM, and we should be very clear about that. And UM. One of the big goals that I have in the book is to rehabilitate the prosecution of Arthur Anderson, because occasionally you do have to prosecute companies and put them out of business when they are rife with UH fraud, when they are serial

abusers of the laws, the corporate laws, as what Anderson was. UH. Now, what happened with Anderson is that they they destroyed doc ms in the Enron We'll back up before we get to that. They had gone through a series of snaffos where as auditors, they did a terrible job. Companies in their charge got away with lots of fraud, and they engaged in all these consent decrees where they said, okay, you caught us, we promised to do better this time. We mean it, We're really not going to do much

more fraud. And then as soon as Enron went down, they began this aggressive policy of hey, we haven't been subpoenaed yet. Shread everything exactly. And as Michael Chertoff, who was the head of the criminal division at the time, says in my book, this wasn't an ice cream company that was destroying documents. This is a company that was part of its business was legal advice for investigations. Uh. And so arguably preserving doctor and right and that means

not destroying documents and not destroying evidence. What um they went on an orgy. You have tons and tons of document destruction, but email destruction, and email multiple cities, not just one person. Um. So this was a kind of system wide thing. But two, in the lead up to the crash, the NASDAT crash, there was a pandemic of accounting mouthfeasance at in corporate America. And chances are all the all the big auditors at the time were guilty.

But chances were, if you were one of the bigger accounting frauds of the era, you were being audited by Arthur Anderson. And and to put a little flesh on that, people always blame the indictment. But weeks before the indictment, lots of but post end Ron bankruptcy, lots of big clients were fleeing Arthur Anderson. And then two weeks after the indictment, World Calm goes belly up more accounting fraud and guess who their auditor was, Exactly just like Enron,

Arthur Anderson was the auditor for world Com. And so I argue that Anderson was going down, and not only that, I argue that the partners wanted it to go down, wanted it to unwind. Now, this wasn't a corporation, it wasn't publicly traded. It was a partnership. And to avoid the liability from all the lawsuits, they literally had dozens and dozens, maybe over a hundred lawsuits that they were facing, and they were going to face more with Arthur with

World Calm. Um, you know that was it was a convenient excuse to say that the indictment caused the uh failure of the company. Of course it didn't help um, but but you know what my argument is that sometimes prosecutors can't worry about that uh that their jobs are to do justice. Their jobs are not to cushion the blow for failing companies. You write in the book, Today's Justice Department has lost the will and indeed the ability

to go after the highest ranking corporate wrongdoers. Discuss. So it has been building since the backlash to Arthur Anderson. And what I argue now is that after Anderson, they turned to corporate settlements. Uh, and in doing corporate settlements deferred prosecution agreements non prosecution agreements. Now, let me stop you right there. Deferred prosecution agreement is here's the deal.

We're gonna have you signed these documentations, and we're not going to throw the case out, but we're gonna hold it in a byance and if you could be good little boys for a year, a year from now, we'll we'll toss this out exactly X number of years. We're gonna Uh, we we've indicted you, and we can prove it in a court of law, they say, but we're just gonna put this aside for now, and uh, try not to do anything again. Now. Um, there are many

problems with this. One is that there's no enforcement mechanism. Nobody really looks at it. Sometimes they install corporate monitors. That's a problem. Problematic solution. Why is that problematic, Well, it's problematic because this has become a giant racket for big law. UM and big law both likes the settlements. They that provides a lot of work for them to

investigate the corporations. The big law firms like Paul Wise, Deba, Boys, Covington, and Burling do these investigations for these companies for their corporate clients, um, and then they deliver the results to the Department of Justice. The Department of Justice essentially reviews it without really looking at um, the conducting the investigation in and of itself. You're saying, the d J outsources

the investigation to the defendants lawyers. Dirty secret of American corporate jurisprudence is that we have privatized and outsourced in corporate criminal investigations. That's astonished. And not only have we done it, we have private privatized and outsourced it to the criminals themselves to conduct investigates of themselves, alleged criminal alleged criminals, they hire their own attorneys. Their own attorneys

conduct their investigations. These private law firms then deliver the results to the Department of Justice, which reviews them and it gets worse because the prosecutors who are reviewing them are tend to be people who are job candidates for the very law firms that I was about. The investors have to ask you, didn't we see after you know, the early two thousands, these life for prosecutors who have been in d O J and sec and the second Circuit.

They all end up going when when, to be fair, the departments are changing and it's no longer the job they loved, but they set a path and they end up working at these big firms are very well compensated, and that now that path is will trod from from

the prosecution exactly. The most prestigious offices in the Department of Justice, the Southern District of New York, which does most of the Wall Street prosecutions and many corporate prosecutions, and main Justice down in d c UM those are now effectively like post uh juris doctoral um let me each other. Those are essentially post doc um. Employment for lawyers who are training to become white collar defense work wasn't always They're not it is never. It has not

always been that way. In fact, in the nineteen sixties it wasn't that way at all, Uh, these prosecutors did not go to these white shoe firms. White shoe firms didn't really have this big corporate criminal litigation business. They looked down on criminal defense, even white collar criminal defense exactly, and so they some of them went into kind of transactional work um, which was very different. Um. White collar criminal defense was conducted by boutiques. The Department of Justice

focused on individuals, not on corporate non incorporations, um. And so there's been a complete transformation. And what I argue in the book is that big Laws approach to how it defends corporations has developed alongside and in symbiosis with the Department of Justices way that it approaches corporate prosecutions, investigations and prosecutions, and they've all sort of influenced each other,

and there's been this cross pollination. And then they go back and forth from the government to the private sector and back to the government and back to the private

sector again. And now it's almost like you know that line at the end of Animal Farm where you could no longer tell who the government people are and who the defense people are, who the pigs are on the one side, and who the pigs are on the other side, and it's a it's a deeply profoundly troubling and corrupt system when it allows corporate malefactors individuals to get off. So you you describe in the book how the Department of Justice loses the ability to prosecute criminal litigation against

corporate wrongdoers. Explain that, So what happens is they find that these settlements are much easier to reach because they the company has to come to the table and negotiate. The company says, well, we're just being extorted. We we have to pay a fine because, um, the cloud of a government investigation is so great, we must resolve this. The prosecutor that works and you know there's some validity to that, um, And the prosecutor uh then says, well,

we're gonna find you an enormous amount of money. What the prosecutors don't really do anymore is and look at individuals. And the point of the Enron investigation, at the point of starting the book with the Enron narrative, is that

they put enormous amount of resources. They devoted an entire team to do the that one prosecution individual the Enron Task Force, and they essentially lock them in a room and made them study the company from the bottom up and start indicting lower level people to get to the top, just the way you do with a mob family. Um, you have to roll the soldiers to get to the compos um. That art has really been lost over the last fifteen years, and the Department of Justice just does

not do that anymore. They essentially stop at the middle when they prosecuted individuals, and occasionally they do at a big bank, they're essentially stopping at the trader who was responsible. Sometimes they do a low level trader, sometimes they do his or her boss, but they rarely get higher to the executive level. You're at the journal for a long time, weren't you? Almost seven years you and in fact you helped to create the Ahead of the Tape column, which

just ended. What is that like, a fifteen year run? Yes, I was really sad to see a daily column that was You went from daily to the Long and Short was a weekly. I have written every column, uh known to man. I've written a daily, I've written a weekly times a week. I've read a weekly, and you went

to monthly a portfolio. If I do one to decade, then then you moved to to pro publico where it's quarterly, and now the book is out after a year, so it's annual, and soon soon it will be a decile publication. I'm trying to convince my edit decade. So so I I often ask authors, Hey, what's the inspiration behind the book? But with you, I know what the inspiration is because the lack of prosecution has been infuriating to all of us,

either on Wall Street, in finance, in journalism. What was the last straw that made you say I really have to write a book about this? Well, you know, Uh, we wrote about c d O s and the Magnetar trade betting against CDOs for your own account all received series. That's the series that won the Pultzer, which we were really grateful and lucky for. And um, after that, my colleagues and I sat around expecting to see some criminal

investigation and nothing happened. And then we watched that nothing happened with Lehman Brothers or a I G Or Bank of America or city you know, um, and you know, countrywide and it was utterly baffling and an enormous scandal. And and this has been plaguing me since then. And the economy and our entire body politics, I think so,

I think it contributed to Trump. It's certainly contributed to the rise of the two most potent movements on the left and the right, Occupy Wall Street and the Tea Party. I think it it undergirds the anger at Trump, and it undermined Hillary Clinton and Obama because I think people mistrusted them because they thought they were in the pocket

of Wall Street. Uh for this reason as paramount. So, I thought it was one of the great scandals of our time, and I thought it really deserved some kind of serious accounting that tried to get at the deep, fundamental and corrosive aspects um in society. This is not an easy problem, and it's not an easy solution, and there's not It's not a conspiracy. You know, Tim Geitner did not call up Eric Holder and say lay off. It's something more troubling, because it's something more pernicious and

more fundamental. So I have not not so much a conspiracy, but I have argued that the greatest innovation of Wall Street has not been the A T M or securitization, but that it's been convincing the Department of Justice in the sec that if you prosecute us, the entire economy is coming down, right, all right? So how First of all, I have yet to find anything that demonstrates that that's wrong. And second you're you're really saying that it's much more

systemic than that moment. This is something that's taken place over a long arc of time. You know, we saw it in the financial crisis, most prominently UM. That's when it became clear that this was a big problem, but

it really was building before then. There was no prosecution of the backstock option backdating scandal, which was which was huge, tremendous paper trail, should have been easy to process, should have been much easier to prosecute than it was, which raises a question of whether the skill set is there, whether the will is there, whether they devote enough resources to it. And I don't think that the answer is yes to any of those questions and the UM but

you know it wasn't It's not just the banks. That was a wonderful innovation that the bank said were too big to jail, too big to fail, and too big to jail. But you're seeing this with recidivist pharmaceutical companies. Fiser has had has um subsidiary plead guilty to one problem and has ad uh A d p A as an NP NBA. They'd say, on and on and on. You see Walmart getting away with bribery in Mexico that the New York Times had them dead to rights with

all the internal documents. UM we are seeing this across the economy and UM so this is impunity at the highest level of corporate America. What they do instead is prosecute CEOs of smaller companies or that head of a hedge fund, raj Rajer Rottenham can be prosecuted because he's committed a crime that the prosecutors are comfortable prosecuting, insider trading.

It's an easy thing to sell to the jury. And when UM Galleon goes out of business, it only puts five or six or ten or twenty people out of business. It's not putting the entire UH thousands, tens of thousands of people out of work, and they're terrified. My special guest today is Jesse Eisener. He has written for such August publications as The Wall Street Journal, The Atlantic, New York,

The New York Times, etcetera, etcetera. He is currently the author of a book whose title I cannot say, but we can at least talk about where the title came from. So the actual title is the Chicken Blank Club, the Justice Department and the failure to prosecute white collar criminal blank being a word that George Carlin would appreciate as one of the seven words you can't say on TV. Tell us about the derivation of the title. Sure, my children love the title, which makes my wife really not

like the title. Um. But and I'm so glad that Simon and Schuster went with it. Um. I think they went with it because it is actually organic. It is a real statement that came from, of all people, Jim Comey, who you may remember from such things as the testifying in front of the Senate after being fired for being FBI director, But fifteen years ago he was the US at turn for the Southern District of New York and he had just replaced Mary Joe White, and Mary Joe

White was a legend. Um. And he comes in and he gathers everybody together, and uh, they're a little trepidacious about him. Um. And they gathers all the criminal prosecutors and these guys you have to understand, are the best of the best of the best. They've gone to the best high schools, to go to the best colleges, to get into the best law schools, to perform the best, to get to the best clerkships, and then they go to the southern district. These are talented and brilliant people, um.

And they all think of themselves as towns a billion people um. And so he gathers them all and he says, how many of you have never lost a case? And a bunch of hands shoot out very proudly there, you know, chest stuff out and he says, so, me and my buddies have a name for you. You guys are the Chicken expletive Club. And the hands go back down and they're sort of sheepish, meaning there's a point here, exactly. And the point was you aren't taking ambitious enough cases.

If you never lose, it means you're only taking easy cases, exactly. You're taking the low hanging fruit. And that's not justice. You're trying to protect a record. But being a prosecutor for the government is not about protecting a record. It's not about going when um, you know, going under it. It is about doing justice and sometimes doing justice means that you take a hard case and present your evidence to a jury and then juries are unpredictable, and sometimes

they go with you and sometimes they don't. But justice has been served. That's a really insightful position from someone who's the head of a department of prosecutors. Like, we don't really know a lot about come me, other than the recent news flow, which has been insane. In other words, he's a principled guy who's telling them, hey, the hell with your record, you have to do justice. Me is principal.

I agree. I mean he's got um, he's imperfect. I have another episode where he really blinks on a corporate prosecution of the book about kpmg UM and you know, he is a guy who thinks a great deal of himself. Um. But it is very it's a very important concept. And you don't see leaders of these organizations, um without a fear of losing. They're terrified of losing, and they're terrified

of the humiliation of losing a trial. And you saw that with Pre Barrara, who has a great reputation as a crusader, especially as the supposed Sheriff of Wall Street. But in fact, I think blinked on investigations and prosecutions of Wall Street banks and didn't want to take the

chance he might lose and and damages. He didn't want to take the difficult course of doing the tough investigations and then didn't want to lose his pristine record and to take on, for instance, Stevie Cohene at S A C. Capital, didn't, you know, didn't want to take him to trial because he was worried he might lose, and that which was tough. Also,

it was a tough case. But at some point I do anything, I think justice requires that you take Stevie Cone to trial, and the hard cases, you know, you take somebody like Stevie Cone to trial, You present the evidence in public, you present the evidence of the jury, and if the jury disagrees with you, it's not necessarily humiliation. You have been exonerated. And um that is that is

a bad day at the office. But it should not be the overarching goal of the government should not beat to win the At the very least, there's a failure to supervise case. Although that's more civil than criminal if you're talking about capital or just look at what's happened now, is they pay a big fine and Stevie Cone continues to operate and then you know he's soon going to

be back in the hedge fund business. Called kind of message does this send to him, to any of his employees, to any other wrongdo or anybody contemplating a life of crime on Wall Street of which there are way too many. Um, you know, it sends a terribleness. So you reference KPMG. Let's talk about that, because I find that to be a fascinating judicial decision, a fascinating case. First tell us a little bit about what was going on with KPMG

that it led to a prosecution. So soon after this Arthur Anderson case, as we were talking about, uh, there's an investigation at the Southern District of New York into KPMG and this was another major auditor and they were selling illegal tax shelters to wealthy individuals to help them avoid taxes. I R S is the people who refer this to arrest, refers to reverse it. There's red um. Yeah, there's a big Senate investigation from Carl Levin's group by

partisan exposing enormous amount of um deeply questionable dealings. This should have been there, should have been a relatively easy prosecuted, well complicated, but complicated tax stuff but um really serious amount billions and billions of dollars in alleged fraud here um and lots and lots of paper trail and named partners, named individuals, and the Southern District names over a dozen individuals, mostly KPMG executives, um. And then what happens is KPMG

cuts off there um paying for their defense. Now that wasn't sue sponsor that was at the urging, Well, it's incredibly controversial and um. What later happens, to cut a long story short, is that the federal judge and the overseeing the case determines that the prosecutors the government has forced KPMG to cut off the funding for their these executives defense, and he throws out the cases against all

the individual executives. And he essentially creates out of whole cloth a new constitutional right, the right to have the best attorney money can buy. If you can afford it, or rather, if your company can afford it, then you are allowed to have, um, the most expensive attorney in the land. Now, I just goes without saying that street criminals and public defenders don't have this. Well, hold hold that thought a second. So this is Judge Kaplan in

the Eastern district or the Southern district. Is the Southern district still sitting? Yeah, still sitting, as is Raykoff and a couple of other judges who are referenced in the book giants of of securities litigation and all sorts of Rakoff. Certainly right, and and Kaplan himself is well regarded a democratic appointee. Um, but came from the world of corporate law.

But but here's the thing that's so fascinating. And you were alleging that there is no right to a near infinite set of resources to hire the most expensive attorneys in the land, even if you're a corporate executive, even though if you've been paid millions of dollars in salary and stock options. Why wouldd anyone imagine that you have the right to the most expensive council in the world.

In the book, you show examples that are insane, how criminals, how blue collar criminals are routinely denied the right to counsel, including a lawyer arrested for dee we on the way to trial and the court said no, he's he's fine, there was no ineffective assistance counsel just because he's arrested. But that was just the most agreed just But there are hundreds of examples of non white collar criminals who are really prevented the right to UH lawyer, and the

Supreme Court seems okay with it. Yeah, this is an undercurrent. Is just the terrible double standard here between street criminals and white collar criminals in in the American jurisprudence. UM. But you know, even if you argue you that it is UH, it does not sit well with us for an employer to cut off the legal defense for wrongdoing, especially in the course of doing your job as a journalist. I want Pro Publica to pay for my legal defense if I'm accused of libel um. Even if we think

that that was UM questionable and debatable. And I go back and forth on the the actual merits of the case. One thing is I don't think that the cases needed to be thrown out. I think the prosecutions could have gone forward against the executives. The second thing is that it had had an enormous effect on these guys. The prosecutors reluctance to charge individuals So you have Anderson where

they don't want to indict um any companies. Then you have KPMG where after that they're very reluctant to prosecute top executives. So what are they left with its settlements and these companies get away with paying, writing a check and um wiping the slate. To be fair, you can't really expect to sitting judge to understand the concept of judicial precedent when decision. I mean, he would actually have to be oh eight, he was a sitting judge. Isn't that what he Isn't that what case law? He was

very proud. He had his wife come to that to watch when he read the ruling. I mean, this is one of what he viewsed as one of his crowning achievements. We have been speaking with Jesse Eiinger. He is the author of the new book The Let's Call It the Chicken Club, about the Justice Department's failue to prosecute white collar criminals. Check out my daily column. You can find that on Bloomberg view dot com. Follow me on Twitter

at rid Halts. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. I'm Barry rid Halts. You've been listening to Masters in Business on Bloomberg Radio. If you're having a business dispute, the process can be slow and drawn out, especially if you rely on litigation in the courts. You can wait for years before your case is resolved, and the longer your case proceeds, the more your case can cost. Not

with the American Arbitration Association. Arbitration or mediation with the American Arbitration Association is faster. In fact, nearly fifty of our cases settled prior to hearings. A d r dot org resolve faster. Welcome to the podcast, Jesse. Thank you so much for doing this. I've been looking forward to this, I have to This has been great. Like eighty pages left in the book. I was plowing through it the past week and there are there are things in it

that are just infuriating. Good. You're good. I don't know if that was your Absolutely indeed, is to make people outread the The assistance of council stuff is just insane. That it's more than a double standard. It's if you're poor and probably of color or lower income, lower economic strata. Hey, you should have thought about that. Before you committed the crime.

You know the lawyer got a plan ahead. But if you're wealthy, if you're a white collar criminal, well you planned ahead and you worked for a big company, and they could certainly pay for your your lawyer no matter what it costs. That's what the constitution guarantees. Not only that, but the courtesy afforded these lawyers. So what happens is you get Um, if you're the subject of an investigation, the target of an investigation, you never see a prosecutor.

You They bring your lawyer in for a light series of conversations about what their evidence is, what your defense might be. Um, there's an enormous number of uh fights over what you have to produce in discovery. The public never sees any of this. Uh. You are treated with the utmost grace and respect and polly tests. UM. Suffice it to say, street criminals don't quite get now. Didn't

people like Spitzer and Giuliani start the frog march? They would walk into a place, blue jackets with the windbreakers with FBI or d e A or whatever on the back, and they would grab whoever, put him in handcuffs and march him out with what a coincidence. There's all the media waiting with TV and and so occasionally you get a prosecutor with UM ambitions not to go into big white whoo firms UM, and so they you know, they rea havoc UM and they kind of do their jobs.

I think Giuliani, after before being a kind of UM overly uh cruel and not particularly competent mayor was UM was an aggressive prosecutor, but there was an enormous backlash after him. UM. The courts then, odd enough, kind of take it on themselves. They see their role as to correct overly zealous prosecutors. UM. Not in street criminals, where they're often affirming them, but in corporate arena and white college criminals they can get their backs up exactly. You know.

It's it's you don't relate to the crackhead, you don't relate to the guy stealing whatever ten bucks. If you're a judge who's gone to college law school and you live in suburban I mean there is a lot of elite affinity. I think, UM that kind of undergirds both

the prosecutions. The prosecutors are from the same schools, and they when they're prosecuting these people they're either prosecuting their um their peers or their parents and their peers, and they're the parents of their peers are being defended by their boss's former boss. Um. This is just this whole milieu that they're in. The judges come from it. If we talked about Louis Kaplan in the Southern District earlier,

he was a Paul Weiss partner UM. And so you know when he says he's looking at um the prosecutors cutting off the defense funding from top law firms and top lawyers, yea, he thinks, like, you guys, this is just not done or I don't know what he's thinking, but you know this, it's you can read into that this is improper. He says, we do not do this in this country. You use the example of Bill Bennett, who was came out of was it the Bush or the Reagan White House? Bob Bennett, Yeah, yeah, Bob Bennett,

the who brother William Bennett, who was the he is um. Uh. You know, he's President Clinton's personal lawyer, UM, and he negotiates on behalf of KPMG. They get a power lawyer and he's incredibly savvage and he's not just a courtroom litigator. He's a guy in the holes of power in the White House. In Congress, he is they're mixing it up with oh, with the head of the Appropriations Committee who calls the Justice Department and says, we're having a little

bit of problem funding your agents exactly. And what he what he does Southern District. Well, when the Southern District is prosecuting KPMG, they keep issuing ultimatums to him, and he keeps saying, okay, okay. What what he's really doing is he's gone right to the top of the Bush administration Department of Justice, right to the Attorney General, and right to the Deputy Attorney General, who by this time

is none other than Jim Comey. And Jim Comey calls down to the calls up to the Southern District U S. Attorney at the time and says, you guys have to you can indict KPMG. You have to post try to post Arthur Anderson, um, you know. And it's unsaid that we don't want this. It's unsaid that we are worried about what having another Anderson on our did he say you have to lay off this Russia investigation effectively what he says the cloud. Um, no, he's found a spine

uh in this administration. Exactly. When it comes to that kind of thing, they do better than corporate press ecusions. I gotta say, Um, well, you know, I think that this elite affinity does not plague them when it comes to corrupt politicians. They look at somebody like look at Preparara. When he looks at Sheldon Silver or Dean Skelos, these top New York State politicians, he sees them as scummy. And I weren't afraid to go and I didn't go, you know, And I think it helps that you know

that it outrages them. I think that these people are moral. Um, but you know that they didn't go to the same schools, and they didn't aren't at the same law firms. You know, Sheldon Silver was a kind of two bit plaintiff's lawyer and so Um. They have a very different attitude to those people than they do to a Lloyd Blankfind or a Jamie Diamond. Um, they treat them with much greater respect. And to be fair, Lad Blankfind and Jamie Diamond have

not been accused of any undoing, any wrongdoing. Yeah, exactly, I'm just saying that they in this kind treat get the kind of respectful treatment Steve Jobs got enormously respectful. Do you despite the stock option back dating, but despite being dead to rights on a collusion over engineer salaries? Do you remember that Google things that people have gone to prison for UM And that's a recent development, only

in the past. Well, so there's never been a golden age where the rich and powerful really had to fear for the liberty if they stepped over the line. But as I say in the book, there have been silver ages. There have been better period. So we had Mortgage in the sixties UM and Bob Fisk in the seventies DO focusing on individuals taking on high level corporations UM. And then we had Juliani, we had the end round world, come a Delphia prosecutions. Now we are in a terrible crisis.

So if you if you want to commit widespread fraud, don't be a Bernie Maid. Don't open a small hedge fund, run a big bank, Run a big, big corporation, and you're pretty much bulletproof. UM. Wann't run a big corporation. Surround yourself with UM compliance officers, lawyers, UM, don't ask too many questions about a division that is making too much money. UM, be studiously incurious, UM studiously incurious. That's a that's a title to the book that we can

actually say on the radio. There you go, studily studiously incurious when you want to investigate, UM, the wrongdoing at your company. Higher a firm that is also a law firm that is also incurious enough not to ask questions of things that will lead them the investigation to the c suite or the board. So you reference in the book the ability of accountant firms and law firms to provide cover for what's pretty obvious frauds and pretty obvious

UM studious in curiosity. How significant are those organizations to the institutionalization of fraud. Well, we talked about it earlier that UM. The law firms are key to this now because they conduct the internal investigations and the prosecutors don't

do it, especially if it's something like oversees wrongdoing. UM. The Department of Justice thinks that it cannot prosecute UM Foreign Corrupt Practices Act bribery UH, because they can't what it's a lot that they It's not that they can't prosecute it's that they can't investigate it um and so they outsource the investigations to companies and they say, what, you know, just think of the resources that we would

need to do that. And my answer is, if you don't have the resources to sufficiently prosecute something, focus on things that you can prosecute or get the resources. It's not an excuse to just say our jobs are hard or we don't have the money. We don't. I mean, what do we gotta what do we gotta o J for? Right? That's exactly right. It's you know, one of the things that I was thinking about when I was reading the book was it wasn't just the lawyers, it was the accountants.

And one of the parallel developments over the lack of accountability for corporate executives including accountants, lawyers, orders, etcetera. I don't think it's a coincidence that as there's been less prosecutions of wrongdoing and the accounting rules have gotten squish year and squish ear with who can really rely on on corporate statements anymore, simultaneous to the huge rise of indexing, that people have kind of reached the conclusion, hey listen,

I can't tell what earnings legitimately are. How can I be a value investor if these are all nonsense? So I might as well just buy the whole market and hope for the best. Yeah, I think that's true. And I UM, if you look at the ai G investigation, and I go through a series of A I G doings and investigations in the book, um, the last one where they blew up on the CDs market and the

mortgage market. Um, sort of pivots on a very arcane, little handwritten note in the margins from the auditors at p WC and the higher ups that the Department of Justice are so shaken by the existence of this note that seems to suggest that PwC partners had some knowledge of this, that they put the kai bosh on the whole indictment, the whole investigation, so that it's so. In other words, we found in this year that senior people

knew about this. We better not yeah exactly, instead of saying, my god, if the PwC people knew about this, maybe uh, maybe things were worse. Maybe we need to go higher up, Maybe we need to prosecute more. Maybe we need to put a lot of pressure on the auditors what the innovation in the seventies from the Southern District and from the SEC. UM. And I cover this in the book Stanley Sporkin sort of the father of an enforcement UM. At the SEC they put pressure on the auditors and

the lawyers. They put pressure on the enablers UM. He calls them the gatekeepers UM. And the problem is that we don't do that anymore. We don't put pressure on the lawyers, and we don't put pressure on the lawyers and the auditors to lesser extent, but the lawyers especially UM. One of the big problems is that these guys want to go become corporate lawyers and make two five eight million dollars a year. So the revolving door is this

perennially corrosive um aspect of this whole thing. Before I get to my favorite questions, I have to at least during the podcast make reference to the actual title of the book, and hopefully, hopefully this will make through one bleeped. This is, by the way, published by Shimon Simon and Schuster coming out the Chicken Ship Club, the Justice Department and failure to prosecute white collar criminals, and the phrase chicken ship club comes from the speech by Jim Comey.

That's pretty much how you managed to get Simon and Schuster say that. That's astonishing. What was that? What was by the way, I have this fantasy about The Big Short. There's a line in it from I forgot who uh in the book says the line um, but the line is the poor And I just have this picture of Michael Lewis arguing, no, no, no, the Big Short is a subtitle. The Poor is the name of the book, and it's a quote because this guy said it. And obviously that doesn't happen. But the S word seems less

offensive than the F word these days, for sure. So what was the pushback like? And by the way, everything I just said, I'm sure we'll get But what was the pushback like to the name? Even though there was I kept waiting for it and it never materialized. I think Simon and Schuster, you know, I think the book their adults also the book business and stuff these days, and you gotta get people's den and somehow it's it's clickworthy. It's a little buzz buzz. Yeah. So you know, my

wife sort of feels like it's a little crude. She's like something a little bit more refined. Um, I felt like, look, this is this is really encapsulates it and it also is you know, I couldn't come up with it on my own. It came from Jim Comey. He really said it, and you get suddenly he's in the news and talk about you know, I really I was worried when his reputation sank in the election with the Hillary intervention of the campaign, and everybody thought were so, you know, on

the left, we're so angry about Hillary. Now he's revived. That's all good for the So so let's jump over to my favorite ten questions, and this is sort of, um tell us. One important thing people don't know about your background? Oh man, Um well, uh, I have no education beyond college. I didn't study law, I didn't study any finance. I didn't study accounting. I'm faking everything. Okay. That's the reason that James Glick said something very similar. Every time he picks up a new subject. Um, it's

that's his education. He becomes educated enough to be able to ask questions. You must do something similar. Yeah, I'm very curious. By the way, the best thing about this show is I'd become an inveterate name dropper, not on person on purpose, but it's like, well, when I was speaking to Jim Click, he said, and I love his his If you haven't read the information, oh I should, Yeah, astonishment. UM, tell us about some of your early mentors who influenced

your approach to research and writing. Huh that's a good question. I UM, you know, I read the big books, big journalism books like UM Den of Thieves and Barbarians at the gate Um that was Uh, those were big influential books. I had, UM a bunch of great uh colleagues at the street dot com where we really kind of learned finance and investing and UM investigations. Uh. Dave Kansas was

the editor there. My colleagues like Colin Barrows, an editor at the Wall Street Journal, and Alex Barrenson who went on to the New York Times. And John Edwards was another editor at the Wall Street Journal. UM, a bunch of really talented people there. Uh. So that those were probably the early influences. And then Larry and Garcia hired me at the Wall Street Journal. Um, he's one of the best editors of our era. So those guys all

sort of helped my colleague. My colleague, Josh Brown calls The Street dot Com the unknown Motown of financial journalism. I'm so glad that he appreciates it, because, um, we really it's all been lost to history. Um, but half my columns from there are are gone. And I'm playing and put him on the blog, you know. Uh. And Jim Cramer, Um, to his credit, really kind of invented this whole kind of way vernacular of speaking about doing

financial journalism. But back then it was serious financial journalism. We did an enormous number of real investigations, deep reporting. Um. It was innovative, it was online, we weren't nobody had seen anything like it before. It was totally snarky. It was really unique. It's a lot of fun. That's how I know Jesse long enough that we go back to that period. And full disclosure if I have to mention this, because if I don't, someone's gonna send a nasty email.

When Bailout Nation, UM was in the fourth editling and I'm arguing with mcgrow hill over their SMP five D division. I'm sorry they're standard and poor credit rating division and they're not happy with the chapter that's critical of them. Um, Jesse wrote a delightful column for Portfolio that pretty much set the tone for or all the other coverage on

the book, which was um Simon and Schuster. I'm sorry mcgroy Hill drops book critical of SMPH credit division and that really colored all of the subsequent coverage and it ended up going wildly and that transition just brought more attention to it. But glad to help. Well, I I have to say thank you, and I also I think I am obligated to disclose that otherwise otherwise his Trouble Spy magazine called this log rolling and yes, exactly by the way, Denna Thieves written by James Stewart, Who's Who's

a legend? And then Barbarians at the Gate was was that co authored Brian Burrow and John Hellier yep. And and also to to rockstar um journalists out there for doing doing God's work. UM talk about so so you mentioned a handful of mentors, primarily UM, LARRYN. Grassi is legendary and lots of those folks at the Street dot Com. I went to the Four Winds and they're all running major. I think, uh, who is the c the head of USA today? There's like a whole. You could find people everywhere. Yeah,

Dave Callaway. Dave Callaway, No, he wasn't there, but there was a guy. Uh, Dave Kansas was editor. Uh he is. He's no longer in journalism or I don't know where David. I haven't. I've lost touch of them, but I'm sure I'm going to forget that million mentors. Of course, of course when you do a list like this, but uh um, he was one. Um. Let's talk about investors. What investors? Um influenced your thinking about markets? Um? Well, uh, you

know it was interesting. The what happened to me was that I was working for this obscure operation in the street dot com. You know, nobody's really talking to me, um, and so I kind of naturally gravitated the people would talk to me. Um, the kind of desperate weirdos and quirks, you know, cranks and uh um and outsiders, and most

of them were short sellers. Um. And so you know, and in context, this is the nineties, right, and the big bulls they have access to the New York Times, Wall Street Journal, c NBC, they have access to all the regular media, right, and and the business journalism was I would argue even worse than it is today. And I don't think I don't have a great today. If you're a selective you can find great journalism. But you know, overall it's still too generous and too uh. There's too

much happy talk, and there's it's too addulatory. But then it was even worse. Sturgeons law applies to everything. Yes, that's true, but but so um, so you know so uh. And I always thought, you know, if a company is making money, if a company develops this product, I was doing pharmaceuticals and biotech, then you know, if the company companies the science works and exact covering exactly, um, and the science works and the drug works and um, they tested and they get it approved by the FDA, and

they sell it and they make money on it. All those things. They're supposed to do those things, so that's not news. It's only news when those things they don't do it. So I gravitated to when the drug was killing people, when they were lying about the drugs results, when they couldn't sell it, when they couldn't make money on it, and those were all stories to me. And the short sellers were the people I talked to, and so I learned from the best short sellers in the game.

Some examples, Well, Jim Chenos was one of them, although he didn't do as much biotech. Um, but there you know, a lot of them were, well a lot of them. These guys are sort out of the game. So like Dave Shally, um is probably one of the best short sellers ever in the And I hope that he forgives me for outing him. Um, but now he's retired. Um and uh he worked for a shop on um in California.

Uh and um he's one of the guys who did the most work that he would have been He probably would have been the best prosecutor in the Department of Justice. Drop him into the Department of Justice today and he would see, hands down the best prosecutor. He was one of the most brilliant guys. No, no, he was just a sort of finance guy, but just a nose for frauds. And uh, um he knows Marcojodas, who was a big short seller. You guys know, you had a partner I

won't name because he's still in the business. Um. Uh. These guys were, Uh, these guys were the most influential. They taught me how to read a balance sheet, which I can do in a rudimentary fashion. They taught me how to look for frauds, um identify them and UM really that was that was an incredible learning experience. And you know, the only reason they were talking to me is no one else would talk to them. I love that. Let's talk about books. You mentioned Danna, Thieves and Barbarians

at the Gates. What are what are some of the books that are amongst your favorites or that you found influential by the way, fiction, nonfiction, finance, it doesn't matter. Yeah, I was trying to think about that earlier today. You know, I think that the UM one of the biggest influences that had me on a path to journalism that I read in college was a Bright Shining Lie from Neil Sheen,

which really exposed the government's lies during Vietnam. UM and Uh, I didn't have any idea I wanted to be a journalist. But that's a piece of nonfiction journalism. It's brilliant and it really captures the Vietnam era almost better than any other book, although um, there are a lot of classics from there. But I was I that I liked I loved Dispatches. I loved the journalism of Michael hair. I love the journalism of the Vietnam era. So that was great.

And then you know, I gravitated to the great um uh essay s s polemicists like George Orwell and um h L Menkin, those are the people that I read. I read Joan Didion, So I was sort of gravitating to this kind of nonfiction reportage. Um those were so so we all know Orwell wrote four an Animal Farm. What Menkin Pieza influenced you? Oh? Well, Menkin really does a lot of essays. Um. And so he's he's doing

he's a critic. Really, he's doing essays, his collection of essays or there's no one sort of novel or one big book that that he writes. But he's really kind of brilliant and lacerating and hilarious. Um yeah, and coins a million words like the boom was he Um. So he's he's very entertaining. And Joan Didion, Joan Didion Slatching to Bethlehem, Um is the White album. Um, those are

collections of essays. She's a beautiful writer. Lucid um Uh extraordinary observer of um of humanity, just the kind of UM, the perfect, the best, probably the best writer of in any journalism. And you know, I liked a lot of new journalisms. I read a lot of wolf Tom Wolfe and that kind of stuff. So but I think she's probably the best of that era. So since you've joined

the industry, what do you think has changed? What's the most significant outside of the obvious business is the biggest transformation in the business is the discipline, UM and fear that executives have when they talked to journalists. So when I broke into the business in the early ninety nineties, I could call up a desk and talk to anybody

on Wall Street UM. And I got a great education and found out a lot of what was going on by t I covered I p O s and I talked, just called all the desks and talked to all the heads of the I p O operation. There was no pr involved. UM. And now if you call any cell side analyst which was desperate to talk UM. Now, if you call anyone, they understand that they could be fired for talking to you as a journey UM. And they're so fearful for their jobs and they're just they they're

so loyal to their companies. I think it's it's fear, but also this kind of loyalty that they um, they and disdain for the press. The press has really fallen in estimation um. And that the combination of that has resulted in this kind of pr grip on businesses that makes it so much more difficult. It's so much harder now to report on corporate America. That that's shocking and fascinating. Um. What's the next positive shift do you see common um in the business? Y? Um? Well, I mean well, I

would say two things. One is what pro Public is proving is that the nonprofit model for investigative journalism works. Um. When we started out, that was a question mark whether there was going to be enough or enough money and foundations and wealthy individuals to port this nonprofit And I think nonprofit investigative journalism is not the solution to the journalism crisis where we don't hold the powerful accountable enough,

but it is part of the solution. So I think that is the most powerful development that's happened over the last decade. And I just point it's sort of pulled a lot of people to realize that investigative journalism is incredibly important, and that's central to the mission of journalism.

Journalism is not about selling clicks. So BuzzFeed is um invested in investigative journalism, and Washington Post has done more in investigative journalism in New York Times, that's in part um because they're waking up to their reawakening to their mission. And I think pro public has contributed to that. What do you do outside of the office to relax? What do you do, uh, to keep mentally and or physically fit? Oh, you know, I do a lot my um My work

is not particularly all consuming. Um, So I cook, I hang out with my children. I um, I listened to music. I'm trying to I don't know a lot about classical music, but I'm starting to listen to it. I'd always sort of learning. I like teaching myself the trees now, you know, trying to figure out what they are. So I walk around with a book. I'm I'm that guy in the park walking around with a little tree book. I'm like, I'm the most embarrassing dad. You can imagine. That sounds

pretty pretty amusing. Um, a millennial, someone just coming out of college comes up to you and said, hey, I'm interested in the career in journalism. What sort of advice would you give them? Go abroad? Which is what I did. Um, it's easier to find stories, and they're more desperate for copy from there. Um because there aren't aren't that many. So uh, and do what you like, don't do what

you think you can make a living it. UM. Gravitate to something you like and really understand it and develop it, and the livelihood will follow. And our final question, what is it you know about wool Street and journalism today that you wish you knew twenty years ago? That is a good question. UM. I think I wish that I had been even more jaded about the systemic corruption. Um that it exists in the system and they in the

malign incentives. UM I would I was too. I thought that the corruption happened at the smaller companies or was an unusual thing. I think that the system is quite troubled and needs, um needs more vigilant oversight. We have been speaking to author and journalist Jesse Eisinger. If you enjoy this conversation, be sure and look Up an Inch or Down an Inch on iTunes, SoundCloud, overcast, Bloomberg dot Com or the Bloomberg terminal, and you can see any

of the other hundred and forty somethings. Uch uh previous podcasts. I would be remiss if I did not think my technical producer Medina Parwana, recording engineer par Excellence Taylor Riggs is our booker producer Michael bat Nick is my head of research. If you enjoy this conversation, we love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. I'm Barry Ridholtz. You've been listening to Masters in Business on Bloomberg Radio. Masters in Business

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