Lee Drutman: Worse than window dressing
Providence Journal
Thursday, April 27, 2006
Today the U.S. House is expected to take up the lobbying- and ethics-reform bill that has been in the works since the Jack Abramoff scandal first broke. If all goes according to GOP-leadership plan, House members will approve legislation so ineffectual as to be almost a parody of itself. Then, behind closed doors, House-Senate conferees will hash out the differences between that bill and a slightly (only slightly) better Senate version; President Bush will sign it into law; andvoila! Members can return to their districts and say they've taken care of lobbying reform.
The problem is that the process so far illustrates exactly the kind of congressional disingenuousness that makes 80 percent of Americans think that bribery and other corruption are widespread in Washington. For example, for all the talk of need for transparency and openness in government, House GOP leadership is expected to bring the lobbying-reform bill to the floor in a way that would limit debate and prevent members from offering any amendments.
The House bill itself, meanwhile, is a masterpiece of subterfuge. It promises to ban privately funded travel -- but the ban expires in December. It requires lobbyists to disclose fundraising events -- but then defines fundraising events so narrowly (only events specifically billed "to honor" a member of Congress) as to render the provision meaningless. About all the House bill does is slightly increase disclosure of lobbying activities and "earmarks" in spending bills.
That this will only tell us more about what we already know is a colossal problem. It is as if a doctor attending to a dying heart-attack patient recommended another round of tests, instead of life-saving surgery.
Common Cause President Chellie Pingree, who called the Senate bill "largely window dressing," has rightly tabbed the House version "worse than window dressing." At least the Senate bill has some provisions to increase disclosure of fake "grassroots" lobbying, and mandates a two-year "cooling-off" period between a Capitol Hill or White House job and a lobbying job, instead of the current one year.
Neither bill, however, would create an independent ethics-oversight committee, which good-government types have been calling the most important reform, on the premise that if you ask members to police themselves, you get the broken ethics-oversight process we have now. Nor does either bill make any attempt to limit the amount of private money in campaigns -- which is what gives the lobbyists much of their influence. Turn to full public funding of elections (as some, including Rep. Barney Frank [D.-Mass.] and David Obey [D.-Wis.], have proposed), and suddenly members of Congress would surely feel much less obligated to sit down with every lobbyist who comes a-knocking.
Asking Congress to pass lobbying and ethics reform is a difficult task. Most members probably don't think of themselves as unethical people, and would no doubt bristle at the suggestion that they could be bought off for a steak dinner or a ride on a corporate jet. (House Majority Leader John Boehner [R.-Ohio], for example, called a private-travel ban "childish.") But what matters is not the specific trips or meals or fundraisers, but the aggregate: that too many lawmakers let themselves -- often without thinking -- become constantly surrounded by lobbyists, because there is so much lobbyists can and do provide for them.
Perhaps the House will suddenly get religion and approve something resembling meaningful lobbying reform. More likely, though, Sen. John McCain (R.-Ariz.) will have been proven right when, after approval of the Senate bill, he proclaimed: "The good news is there will be more indictments, and we will be revisiting this issue."
http://www.projo.com/opinion/contributors/content/projo_20060427_27drut.f07bfca.html
Thursday, April 27, 2006
Thursday, April 13, 2006
The Enron Standard - TomPaine.com
The Enron Standard
Lee Drutman
April 13, 2006
TomPaine.com
Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.
In a Houston courtroom this week, former Enron CEO Jeffrey Skilling took the witness stand to plead his innocence, telling jurors that “My life is on the line.”
The blockbuster Enron trial is far from over, and things are not looking up for Skilling and Enron founder Kenneth Lay, both of whom could face 25 years in prison if convicted on fraud charges. Government prosecutors presented 22 witnesses over 32 days, building a solid case that Skilling and Lay knew full well that Enron’s finances amounted to house of cards build on a foundation of fraud, yet continued to make bold (and untruthful, hence illegal) proclamations about the company’s financial health.
Such a painstaking prosecution has been four years and millions of dollars in the making, and has ensnared more than a dozen co-conspirators along the way. And while it is heartening to see what government prosecutors are capable of when they set their minds to it, Enron represents a mere drop in the bucket in the wide world of corporate crime.
When it comes to government follow-through in punishing corporate crime, Enron is a true shining star. Unfortunately, the rest of the universe is rather dim—particularly when it comes to crimes where the victims don’t happen to be wealthy investors. Consider a recent Associated Press report that studied how well government agencies were doing in collecting fines levied on white-collar and corporate criminals. The AP’s answer, in short? Not well at all.
According to the report, the federal government is now owed $35 billion in fines—five times the amount that went uncollected 10 years ago, and enough to fund the entire Department of Homeland Security for a year. According to a Government Accountability Office (GAO) report, in cases involving white-collar and corporate criminals, on average just 7 percent of the initial fine actually gets paid.
The report makes for depressing reading. Case after case of government agencies making big public charades over big fines, only to later cut those penalties dramatically—or not bother to collect them at all.
There is, for example, the story of the gasoline company that paid only 8 percent of an original $3 million fine after an explosion killed three young people. There are the nuclear labs let off the hook after a $2.5 million fine was imposed for exposing workers to radiation, and the coal companies allowed to walk after being fined $1.3 million for deaths and injuries to miners. Company after company, it seems, is being told that there are no penalties for their actions.
Quite a contrast to the zeal that prosecutors have demonstrated in going after Enron.
Now, I would not for a moment suggest that federal prosecutors should not be pursuing the Enron case with all the force in the world. Enron remains one of the most spectacular corporate frauds ever, and to let the folks who cooked it up off the hook would be a travesty of justice.
But at the same time, I also think it’s important to take a step back and remember what it is that Lay and Skilling are being prosecuted for. They are being prosecuted for bluffing about the financial health of their company—which allowed them to make off with millions by selling their stock high while unwitting investors were left holding the bag.
This is a serious crime, and it is true that many Enron employees had their whole pensions in Enron stock and subsequently lost everything. But it is also true that the roughly half of the stock out there is owned by the wealthiest 1 percent of Americans. As far as classes of victims go, investors tend to be a pretty privileged class.
Perhaps, then, it is not surprising that the face of “corporate crime” has come to be defined largely by Enron, WorldCom and other cases of accounting fraud where the victims are primarily wealthy investors. Nor should it seem surprising that corporate reform and corporate accountability is still largely discussed in reference to the Sarbanes-Oxley Act, which dealt almost exclusively with curbing accounting fraud. After all, investors are a pretty powerful political class.
Yes, financial fraud is a serious crime; and yes, reforms are needed and violators ought to be pursued with the full force of the law. But all this must not distract us from the fact that when the victims are not wealthy investors, the same force of response is often lacking.
Consider the Sago mining disaster, which claimed the lives of 12 miners on January 2. The event drew plenty of media attention for a little while, and plenty of disapproval was heaped on the mine’s owners, which, as it turned out, had been given many “serious and substantial” violations in the past (though never with serious fines to match). But almost three months later, the prospects of actual improvements in mine safety regulation now seem dim.
Workplace safety is an ongoing problem, and not just in mines. According to Bureau of Labor Statistics, more than 5,500 workers are killed on the job each year (an average of 15 per day), and another 4.7 million suffer serious injuries.
As the AP report reminds us, most corporate criminals are still given kid-gloves treatment. Sure, financial fraud now gets punished with almost as much force as an under-funded Justice Department white-collar unit can muster—as it should. But when it comes to issues like the environment, health and safety, it seems that the Justice Department seems content to let companies pretty much do as they like.
http://www.tompaine.com/articles/2006/04/13/the_enron_standard.php
Lee Drutman
April 13, 2006
TomPaine.com
Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy.
In a Houston courtroom this week, former Enron CEO Jeffrey Skilling took the witness stand to plead his innocence, telling jurors that “My life is on the line.”
The blockbuster Enron trial is far from over, and things are not looking up for Skilling and Enron founder Kenneth Lay, both of whom could face 25 years in prison if convicted on fraud charges. Government prosecutors presented 22 witnesses over 32 days, building a solid case that Skilling and Lay knew full well that Enron’s finances amounted to house of cards build on a foundation of fraud, yet continued to make bold (and untruthful, hence illegal) proclamations about the company’s financial health.
Such a painstaking prosecution has been four years and millions of dollars in the making, and has ensnared more than a dozen co-conspirators along the way. And while it is heartening to see what government prosecutors are capable of when they set their minds to it, Enron represents a mere drop in the bucket in the wide world of corporate crime.
When it comes to government follow-through in punishing corporate crime, Enron is a true shining star. Unfortunately, the rest of the universe is rather dim—particularly when it comes to crimes where the victims don’t happen to be wealthy investors. Consider a recent Associated Press report that studied how well government agencies were doing in collecting fines levied on white-collar and corporate criminals. The AP’s answer, in short? Not well at all.
According to the report, the federal government is now owed $35 billion in fines—five times the amount that went uncollected 10 years ago, and enough to fund the entire Department of Homeland Security for a year. According to a Government Accountability Office (GAO) report, in cases involving white-collar and corporate criminals, on average just 7 percent of the initial fine actually gets paid.
The report makes for depressing reading. Case after case of government agencies making big public charades over big fines, only to later cut those penalties dramatically—or not bother to collect them at all.
There is, for example, the story of the gasoline company that paid only 8 percent of an original $3 million fine after an explosion killed three young people. There are the nuclear labs let off the hook after a $2.5 million fine was imposed for exposing workers to radiation, and the coal companies allowed to walk after being fined $1.3 million for deaths and injuries to miners. Company after company, it seems, is being told that there are no penalties for their actions.
Quite a contrast to the zeal that prosecutors have demonstrated in going after Enron.
Now, I would not for a moment suggest that federal prosecutors should not be pursuing the Enron case with all the force in the world. Enron remains one of the most spectacular corporate frauds ever, and to let the folks who cooked it up off the hook would be a travesty of justice.
But at the same time, I also think it’s important to take a step back and remember what it is that Lay and Skilling are being prosecuted for. They are being prosecuted for bluffing about the financial health of their company—which allowed them to make off with millions by selling their stock high while unwitting investors were left holding the bag.
This is a serious crime, and it is true that many Enron employees had their whole pensions in Enron stock and subsequently lost everything. But it is also true that the roughly half of the stock out there is owned by the wealthiest 1 percent of Americans. As far as classes of victims go, investors tend to be a pretty privileged class.
Perhaps, then, it is not surprising that the face of “corporate crime” has come to be defined largely by Enron, WorldCom and other cases of accounting fraud where the victims are primarily wealthy investors. Nor should it seem surprising that corporate reform and corporate accountability is still largely discussed in reference to the Sarbanes-Oxley Act, which dealt almost exclusively with curbing accounting fraud. After all, investors are a pretty powerful political class.
Yes, financial fraud is a serious crime; and yes, reforms are needed and violators ought to be pursued with the full force of the law. But all this must not distract us from the fact that when the victims are not wealthy investors, the same force of response is often lacking.
Consider the Sago mining disaster, which claimed the lives of 12 miners on January 2. The event drew plenty of media attention for a little while, and plenty of disapproval was heaped on the mine’s owners, which, as it turned out, had been given many “serious and substantial” violations in the past (though never with serious fines to match). But almost three months later, the prospects of actual improvements in mine safety regulation now seem dim.
Workplace safety is an ongoing problem, and not just in mines. According to Bureau of Labor Statistics, more than 5,500 workers are killed on the job each year (an average of 15 per day), and another 4.7 million suffer serious injuries.
As the AP report reminds us, most corporate criminals are still given kid-gloves treatment. Sure, financial fraud now gets punished with almost as much force as an under-funded Justice Department white-collar unit can muster—as it should. But when it comes to issues like the environment, health and safety, it seems that the Justice Department seems content to let companies pretty much do as they like.
http://www.tompaine.com/articles/2006/04/13/the_enron_standard.php
Friday, April 07, 2006
The glorious appeals system for the rich - Providence Journal
Lee Drutman: The glorious appeals system for the rich
01:00 AM EDT on Friday, April 7, 2006
THERE IS a wonderful moment in the recently released film Thank You for Smoking in which Nick Naylor, the tobacco-lobbyist protagonist, tackles a question from his son on what makes America the greatest country. Without missing a beat, Naylor replies: "Our endless appeals system."
Another individual who must be feeling pretty good about our endless appeals system is Frank Quattrone, the former Crédit Suisse First Boston technology banker. Quattrone recently learned that if you're willing to spend countless millions on high-priced lawyers and keep fighting (never give up the faith!), sometimes you can get a federal appeals court to take seriously your contention that the previous judge was biased against you and win a third trial.
Quattrone, of course, has always thought big. During the technology bubble, he didn't let himself get bogged down by silly things like price-to-earnings ratios or common sense. No, he was out there handling a record 138 high-tech initial public offerings between 1998 and 2000 (almost as many as the next two competitors combined) and cheerleading a brave new future, in which instead of a sucker born every minute, a sucker would be born every second.
Where others might have had ethical qualms about giving top tech executives hot new share offerings in order to secure their investment-banking business, Quattrone was establishing his "Friends of Frank" program, charting a brave new course in back-scratching cronyism.
Where most top managing directors in investment banking were content to make off with $8 million, maybe $10 million, during the tech bubble, Quattrone sequestered a cool $200 million. And where others might have felt they needed to be extra careful two days after learning about a federal grand-jury investigation, Quattrone boldly sent out an e-mail to his staff telling them to "clean up those files."
It was this fateful e-mail that, almost two years ago, led a jury to convict Quattrone on obstruction-of-justice charges. U.S. District Judge Richard Owen then sentenced Quattrone to 18 months in prison -- which was actually far less than the 25-year maximum he could have faced, and also much less than the 55 months the average convicted burglar spends in prison.
But unlike your run-of-the-mill burglar, big-thinking Frank Quattrone had a few hundred million dollars to use on his defense. And so, immediately after his trial, his lawyers were out there asserting that their client hadn't gotten a fair trial, that the judge had had it in for Quattrone from the start, and that the judge had improperly instructed the jurors, so that they would convict the banker.
Now, almost two years after his conviction (and more than four years since he sent his e-mail), a federal appeals court has agreed that, yes, "jury instructions were erroneous," and, yes, "the interest and appearance of justice are better served by reassignment."
Dreams, it seems, do come true.
It is unclear what will happen next. The federal prosecutors who had brought the case have since gone into private practice. But the Justice Department has already spent thousands of hours and millions of dollars on pursuing the trial, so it seems a shame to give up now.
Still, whatever the Justice Department does, the case ought to highlight just how hard it can be to get a conviction -- even for a lousy 18-month obstruction-of-justice charge -- when you've got a fighting white-collar defendant determined to use every last million to clear his name.
Quattrone's well-funded feistiness is hardly unique. Former WorldCom CEO Bernard Ebbers is appealing his 25-year sentence with all he's got. And former Enron CEO Jeffrey Skilling (now on trial) reportedly spent $23 million on his defense -- roughly 1 percent of the budget of the entire Justice Department -- before his assets were frozen. No doubt, even if Skilling and Enron founder Kenneth Lay (also on trial) are convicted, they, too, will keep asking for justice to be "better served" for as long as they possibly can.
If so, they, like Quattrone, will also be taking full advantage of that wonderful "endless appeals system" that makes America so great -- especially if you have the resources to properly exploit it.
Lee Drutman, a frequent contributor, is the co-author of The People's Business: Controlling Corporations and Restoring Democracy.
http://www.projo.com/opinion/contributors/content/projo_20060407_07drut.e3f0814.html
01:00 AM EDT on Friday, April 7, 2006
THERE IS a wonderful moment in the recently released film Thank You for Smoking in which Nick Naylor, the tobacco-lobbyist protagonist, tackles a question from his son on what makes America the greatest country. Without missing a beat, Naylor replies: "Our endless appeals system."
Another individual who must be feeling pretty good about our endless appeals system is Frank Quattrone, the former Crédit Suisse First Boston technology banker. Quattrone recently learned that if you're willing to spend countless millions on high-priced lawyers and keep fighting (never give up the faith!), sometimes you can get a federal appeals court to take seriously your contention that the previous judge was biased against you and win a third trial.
Quattrone, of course, has always thought big. During the technology bubble, he didn't let himself get bogged down by silly things like price-to-earnings ratios or common sense. No, he was out there handling a record 138 high-tech initial public offerings between 1998 and 2000 (almost as many as the next two competitors combined) and cheerleading a brave new future, in which instead of a sucker born every minute, a sucker would be born every second.
Where others might have had ethical qualms about giving top tech executives hot new share offerings in order to secure their investment-banking business, Quattrone was establishing his "Friends of Frank" program, charting a brave new course in back-scratching cronyism.
Where most top managing directors in investment banking were content to make off with $8 million, maybe $10 million, during the tech bubble, Quattrone sequestered a cool $200 million. And where others might have felt they needed to be extra careful two days after learning about a federal grand-jury investigation, Quattrone boldly sent out an e-mail to his staff telling them to "clean up those files."
It was this fateful e-mail that, almost two years ago, led a jury to convict Quattrone on obstruction-of-justice charges. U.S. District Judge Richard Owen then sentenced Quattrone to 18 months in prison -- which was actually far less than the 25-year maximum he could have faced, and also much less than the 55 months the average convicted burglar spends in prison.
But unlike your run-of-the-mill burglar, big-thinking Frank Quattrone had a few hundred million dollars to use on his defense. And so, immediately after his trial, his lawyers were out there asserting that their client hadn't gotten a fair trial, that the judge had had it in for Quattrone from the start, and that the judge had improperly instructed the jurors, so that they would convict the banker.
Now, almost two years after his conviction (and more than four years since he sent his e-mail), a federal appeals court has agreed that, yes, "jury instructions were erroneous," and, yes, "the interest and appearance of justice are better served by reassignment."
Dreams, it seems, do come true.
It is unclear what will happen next. The federal prosecutors who had brought the case have since gone into private practice. But the Justice Department has already spent thousands of hours and millions of dollars on pursuing the trial, so it seems a shame to give up now.
Still, whatever the Justice Department does, the case ought to highlight just how hard it can be to get a conviction -- even for a lousy 18-month obstruction-of-justice charge -- when you've got a fighting white-collar defendant determined to use every last million to clear his name.
Quattrone's well-funded feistiness is hardly unique. Former WorldCom CEO Bernard Ebbers is appealing his 25-year sentence with all he's got. And former Enron CEO Jeffrey Skilling (now on trial) reportedly spent $23 million on his defense -- roughly 1 percent of the budget of the entire Justice Department -- before his assets were frozen. No doubt, even if Skilling and Enron founder Kenneth Lay (also on trial) are convicted, they, too, will keep asking for justice to be "better served" for as long as they possibly can.
If so, they, like Quattrone, will also be taking full advantage of that wonderful "endless appeals system" that makes America so great -- especially if you have the resources to properly exploit it.
Lee Drutman, a frequent contributor, is the co-author of The People's Business: Controlling Corporations and Restoring Democracy.
http://www.projo.com/opinion/contributors/content/projo_20060407_07drut.e3f0814.html
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