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The Conrad Black Saga Part III



Whether it is a conference on the subject of regulatory crimes, or blog I read on the subject, the message is the same: regulatory prosecutions are out of hand. Many times the dialogue starts like this �I used to prosecute these types of cases; in fact, I was on the taskforce that prosecuted the defendants in [Enron/WorldCom/Adelphia/insert your favorite corporation here], but I feel that it has gotten out of hand!� If the speaker is a legislator regardless of party the message is the same �American businesses need room to breathe and the climate is not conducive for this!� The question I feel like asking these speakers is �then why did you prosecute them?�, �why did you ask for that awful sentence?�, or �why don�t you change the law?�.

It is almost as if we have become trapped in this bizarre system that everyone seems to accept is flawed, unjust, and in need of change; and yet, the system seems to get worse. Who would have envisaged just a few years ago the Thompson/McNulty memo would be in force? It is almost as if each successive administration feels the need to outdo its predecessor. Like the human sacrifices of earlier so called civilizations that were meant to appease the gods and ensure continued prosperity that kept getting more and more gruesome over time, we as a society (more on we are in a bit) almost revel in how much we can extract out of the leaders of our industry. Unfortunately, if true, the parallels are ominous: the ancient civilizations came to a screeching halt. And why not ours?

When we start looking at leaders of industry as enemies of the people, when we get our jollies from thinking about how best to put the thumbscrews on corporate defendants, and when we praise those who cooperate with the state and punish those who assert their innocence, then we have truly hit a sad state of affairs. How did we get here?

The answer (like all ills we face today) is the New Deal! Ok maybe that is a bit harsh, but much of what plagues us today can be traced to the New Deal jurisprudence. After all, the New Dealers were the first collective group of politicians who viewed the state as the answer and industry as the enemy. All you have to do is to look outside the Federal Trade Commission building, and you will a statute of a statue of a man struggling with a wild horse! The man is the state and the horse is the unbridled capitalism. Of course, the resentment against the capitalist class was brewing before the New Deal. It was not uncommon to find headlines in the New York Times exclaiming �Put Everybody In Jail,� (NYT, Jun 26, 1906 at p. 6) or �Afraid Of Wall-Street,� NYT, Apr 5, 1877 at 4. The difference between then and today was that the judiciary saw their role as guardians against the mob tyranny that infested many European countries. Decisions such as Lochner that struck down class based legislation were precisely the safeguards that used to keep the power of the state and the mob in check. A federal judge in 1888 dismissed an indictment that alleged that a bank director had certified a false bank statement without averring that the director actually knew that the statement was false. (for the source of this and other New Deal era headlines, see our paper �Left-Behind after Sarbanes-Oxley�) The Judge stated that a strict liability criminal regime would �would make it practically impossible to obtain as Directors men in whom the community would have confidence� and such a rule would �prevent men fit for the office of Director from assuming it, and the result would be to cripple the entire banking interest of the United States.�

Music to my ears!

The judiciary from District Court to the Supreme Court understood the role of law in society. They were not there to further the aims of one group over another; rather they looked out for the welfare of all.

Fast forward to the New Deal, and the Supreme Court allows strict liability crimes (Dotterweich), expands the powers of the federal government (Wickard), and the rest is history.

Today the Federal government is unlimited in its scope and its actual power. US attorneys face no budgetary constraints that their state (or say Canadian) counterparts face. No case is too big or too small to take on. The only constraint is the sense of fairness that lurks in their hearts. Alas, there is also a sense of �I have to be seen doing something� that keeps the state from stepping back and contemplating. No politician wants to be the one who was soft on corporate crime. No prosecutors wants to be one who let the CEO off easy. So what to do?

I propose two solutions that others have not already been offered by others:

1. The first is to remove the federal question from the Federal Courts. The Federal Courts have been appropriating more and more power for themselves over the decades, and this should come as no surprise to students of public choice. Judges like all human beings like to maximize the scope of their domain, and federal jurisdiction is no different. When any fraud or breach of duty (no matter how local) can be converted into a federal mail or wire fraud case, this is evidence of empire building gone amok. The Founding Fathers never even gave the federal courts federal question jurisdiction, and it was only until the late 1800s that this power was given. Diversity was the main impetus behind the federal courts as the Founders feared local borrowing state courts would repudiate debts from lending states.

Removing the federal question and only allowing adjudication of diversity questions would remind the federal judiciary that they are there to serve the states and not Leviathan in Washington. It would also remove the incentive to grab more power for Congress, because any power appropriated would still be enforced in state court (unless the parties were diverse).

2. The office of the US attorney would be shrunk to only handle cases pertaining to national security, terrorism, and truly national matters. All criminal prosecutions (even under federal law) would be done in state court by state prosecutors. This would restore the balance to the resource imbalances that many corporate defendants face. Imagine if the Cook County DA had to decide on whether to indict Conrad Black while also dealing with the hundreds of local criminal cases that infest the local docket. Would he have pursued such a case? Probably not, or at the very least focused on one or two charges, or offered a much better plea bargain.

What are the odds of these proposal working or being implemented? Probably not much at this stage. But I throw them out there, because the current system does not seem to be getting us any closer to an ideal solution. Everyone agrees there is a problem, but no one (not even the courts) have a will to fix it. If we could get the judiciary to understand that their role is to protect our liberties and constrain the state, then that would be great. If not, a political solution is needed. At the very least, changing who hears the cases and who can bring them may bring about a change in mindset. And if enough people repeat my far fetched proposals, eventually someone may take notice.

This concludes my thoughts on the Black Trial. I hope to address the Bell Atlantic v. Twombly case in the next post soon.

 

 


Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.