Chicken shit club. After reading your book i can see that you also answered why does it appear that the Justice Department fails to prosecute executives so lets begin. Why . I cant wait to have this conversation. I think it is the flipside of mass incarceration in this country where we have two tiered justice systems, one group of people is proportionally for and punished to seriously and then weve got what im writing about which is a class of people rich and powerful who seem to have impunity in crime. Im talking about executives at the highest level of Corporate America not just bankers and not just in the aftermath of the financial crisis. This has been a problem that has been building before the financial crisis that existed today and affects not just executives of the big bank. In your book you talk about the fact it never really was the golden age when Corporate Executives violate that. You talk about the silver age and so trying to figure out how we got here i noticed you said the following the aftermath of 2008 called for aggressiveness. People demand it. The politics were favorable to the, public trials would have presented the evidence, juries would have decided if crimes were committed, the fear and failure took hold when it did so is that it for the title of your book the the Chickenshit Club come and talk about the title i feel like i have to ask. Guest fear is a major part of this and the title of the book that comes from jim comey and viewers will remember as the fbi director by donald trump but before this 15 years ago he was the u. S. Attorney in the Southern District of new york and it is the premier office of the department of justice now the prestigious office is also the main justice but this was the place the hot shots went, the greatest stars in the firm and he gathered them all together and gave them a speech and started off very folks he loves to talk and he said how many of you have never lost a case and a bunch of hands shoot up. The best law schools and clerkship they are the best and the brightest and if you ask them they will attest to that. So they are very proud of their record and then he said me and my buddies have a name for you guys, the Chickenshit Club and their hands go back downs. People are feeling a little sheepish. What does he mean by that . He says your job isnt about winning or preserving an undefeated record its about doing justice and justice requires ambitious cases and raising your site so youre not just picking off the formidable but going up against the most powerful wrongdoers in society and not being worried you might lose the case. Unfortunately, after that pure code of time that starts with a kind of high point when the government prosecute top executives from enron. After that there is a big backlash against a change in the department of justice culture and makes them fearful of trying these top executives. Guest im glad you mentioned james comey because he isnt the only name we see in this book with elevating courage over a Career Ambition and i see that as the theme of the book. Its wonderful that these classic shooters have a role model encouraging them to take risks and not just build their resume but something did change. You mentioned during this when the prosecution of enron occurred and it went down about 2004. The book is filled with people, some of the names Robert Morgenthau and so on and we even see Robert Muellers name but it seems there are these folks that you revere who stood up for justice but then something changed and i wonder if it was the discretion that comes into play. We can find at any time in history courageous people who isnt simply the people or the system that changed. Why are people not in those positions now and when did the change had been . It certainly is the case that some of it is that people. But i think a larger issue is institutional incentives because i think largely the department of justice is filled with dedicated Public Servants that are very intelligent and want to do a good job but there are and im glad you mentioned there are some people i considered heroic. Imperfect but really trying to do a good job of bringing justice. One of the guys that is a hero early in the book is the larger than life character who probably was the most important bureaucrat in the 1970s. He was the director of enforcement. Host lets just back up guest the director. And he wasnt the ahead that was probably regarded as the most important cop on the beat. Hes a huge guy with a Big Personality and used to terrify them and would sit on a couch in his joy and office. They would be working on Different Cases and he would sit on the couch and work on these cases three or four at a time and then bring in the lawyers for people they were they would sit on the couch and present their arguments for why their clients were not guilty and he appeared to nod off on theuch and it was a terrible couch with disgusting colors from the 1950s he would sink into the seats and appear to nod off and the lawyers had no idea what to do. Should we continue the presentation, is he asleep come is he listening. They would continue with the presentation and he would wake up and he had this brilliant way of anticipating their arguments that he was in their power and control over conversations. He put Corporate America on its heels through a variety of interesting techniques. Unfortunately his innovation ends up 30 or 40 years later becoming kind of corrupted and it corrupts the way they do business. Host the mission at that time was to protect investors and he was in the part where he was a career employee that had a job that was not one of the commissioners, he didnt have political power but though this power in the organization the way you are describing by being brilliant and popular with his staff. You mentione courageous they got deported later so can something you talk about what went wrong and what the unintended consequence was . Guest and the political protection and congress from both sides of the aisle, republicans and democrats and so much so that when they were interviewing candidates to be the chair they would say are you going to keep working in the office. He was that powerful even though he was not the head of the agency. He had a variety of innovations but two of them were he wanted to go after gatekeepers the way we think of investment banks, law firms and accounting firms. The ones that Companies Need to go public on the market. They have to have legal opinions and investments and what he thought was if we go after those firms then they will be on guard for fraudulent companies. We will lose their leverage. That was a Great Innovation. Hes kind of influenced by another one in the buck was the u. S. Attorney in the Southern District and really kind of starts the whole idea that they should go after accountants and lawyers and should raise their sights on a higher class of corporate whitecollar criminal. Host so, the Securities Exchange commission working as the top lawyer in the Enforcement Division and dealing of Civil Enforcement authority. They cant make criminal fines were for people in jail. If you want to work on a criminal case, the fcc to reach out to the department of justice. But you mentioned earlier in the conversation that one of the more prominent is in the Southern District of new york and you mentioned he was the head lawyer said they had to have a good working relationship guest and it was even more prominent than it is today because of fewer offices at that point so when he wants to do something criminal with whitecollar corporate crime hes got to go to the Southern District. He comes then in the 70s and morgenthau and the 1960s knows why so what youre they are doing, theres two kinds of enforcement and what they are doing is focusing on individuals. They dont prosecute companies or think about prosecuting companies at all in the 60s and 70s they emphasized going after the executives. They have the power to do this. There is a Supreme Court ruling that says if theres one employee in the course of his or her job that commits a crime you can prosecute the company, but they dont do it. Its not practice and the reason is they think of it as a piece of paper and they want to deter individuals. As people see that changes over the next decade because of an innovation in the civil arena where he realizes that they are under resourced and can leverage the resources by making companies voluntarily come clean on various things they are doing and the main thing hes focused on his watching watergate and seeing how the allegations of slush funds going to Campaign Donations and he realizes it is a very al capone technical brilliant idea where he says they have a slush fund to make illegal Campaign Donations in major companies. If we look at their books we are not going to see the line item for the secret slush funds and therefore what we can do is say its misrepresented to the public so come clean now and we will enter into a consent decree. You dont have to admit that youve done something wrong and later they are not allowed to deny that they clean their books up. In the early part, companies are genuinely scared. They dont want him on their case and they do come in and come clean over the course of the next 40 years. Host the innovation was the are under resourced, we dont have access to what folks are thinking so they rely on the company and lawyers to say if you settle with us then we get a win and the hope is that you will behave better. Guest we are going to make the companys work for us. Make them start to examine their own behavior and put them on notice for a variety of things but before that no one would say was wrong or was scrutinizing and this is why they kind of scream bloody murder because all of a sudden they are held to a new standard of behavior that they are giving a lot of bribery. This is before bribery is technically illegal so he has to get them on the technicality. They bring about the foreign corrupt practices act of 1957 and makes it illegal to bribe officials to. So this is a really Great Innovation and hes working with a young prosecutors in the Southern District like another hero of my book who learns and admires him and emulates him and then becomes a defense lawyer and later a judge and takes on the same institution that he worked for. Host i want to return to where we started which is what was wrong and whats changed. When i think about your book i think of it as a reverse makeover like a before and after like the picture doesnt look as good at the end. Whats interesting is we have these examples we just talked about but also many people look back at the enron prosecution and say those were a success with the caviar of other than the conviction of Arthur Andersen as many people that havent looked at it as closely as you have. Kenneth lay was the chairman and later became the ceo and was also convicted although he died before he was sentenced and many of us have read the book and have seen the movie so in terms of again the general public and whoever studies this closely thinks thats another Success Story and we can also say it we have have the soldier air out of you talk about and thousand people who were prosecuting the savings and loan debacle and then under george bush junior we have the successful prosecution of the bad guys. We think the bankers did something wrong and theres kind of a list of folks that what i think its a fascinating is the fault lines were there before the Obama Administration takes over in other words what it seems like and this is what i want you to talk about is the culture and knowledge and practice had already weekend. There was a shift. If you can talk about what caused this shift to feed into the conversation a little bit more im wondering how much another innovation that occurred in 1994 changed things. What weekend did so by the time president obama took over in 2009 it wasnt prepared to handle this crisis . Great question. Enron is a successful prosecution. The head of the fbi and the attorney general under ashcroft and the head of the Criminal Division of the department of justice form a task force and pluck the talented prosecutors from all over the country and essentially lock them in a room metaphorically although it ends up feeling like they are literally walked the room working 18 hours a day for years to look at one case, and by contrast one of the things the Obama Administration does not do is create an Operational Task force who are supposed to look at the specific types of issues and focus on them solely for there is no prosecutor in the wake of the financial crisis whose job it is to look at the financial crisis cases. Shes juggling Insider Trading cases and then some financial crisis case so it is a major problem. That is one thing. They are focused, they are concentrating, they are dedicated to it and they have patients and work for years and years. The task force was formed at the beginning of 2002 and it takes years. These cases are extraordinarily complex and one thing to note is they never did any stupid stuff on email which is sort of the way we make jesus now. Prosecutors know they are supposed to find dom emails and leverage goes to show what is going on in the mind of criminal intent but they didnt have that kind of direct evidence for what they had to do with the oldfashioned way which is you get them to click on the switch and you have to do that in a corporate prosecution, too. This is what they did in the early 2000 and its still fit in the intervening 15 years why was it lost . It was lost because of an enormous corporate backlash against the perception that enron was overly aggressive and primarily was focused around Arthur Andersen that you eluded to just now. Host so even though you agree that it was successful, because of the backlash against that there was a shift. I also want to mention Something Else was happening. You mentioned in 1994 Mary Jo White of the Southern District of new york was working with a fellow lawyer that came up with this idea that it might be a good idea to read this it getting an ntp to settle and work on the criminal side with the deferred prosecution agreement so theres a victory that you dont need to take the risk of going to trial. What is fascinating is it took place in 94 but never entered into another one and the whole tenure was the other officers found this to be a delightful and easy tool and again there was backlash so if you could talk about that and what that did to the prosecutors skills and the defense and how it transformed the defense bar. Guest the legend in the Southern District is working with a force of nature and they really do a bunch of major prosecutions. If you order prosecutions that say they are looking at Prudential Securities for criminal allegations they realize the trail has gone cold and the evidence into the allegations wrongdoing was a long time ago and they realized why dont we take this innovation from the juvenile courts where the person committed a crime but the judicial system could say we are going to put it in a tour and wait until you are 18 that we have prosecuted q. Just so you know. We are not dropping the case. So they reached this with prudential, and what is amazing to me and important to understand about the department of justice is theres little policy thinking into very little care and planning that goes into this, so this was an ad hoc settlement from some prosecutors. There is a lot of kind of entrepreneurialism in the department of justice. Every u. S. Attorney likes to run his or her office and the attorney general doesnt have a lot of control over them and each individual prosecutors kind of entrepreneurial. So the problem is theres a 30,000foot analysis of what kind of policies are happening so she invents the deferred prosecution agreement, settles with a company that is selling for money so no individual is being prosecuted. Its a settlement for money and the most important thing is that it is not coming from any executive pocketed this coming from the shareholders, so it is a piece of paper paying for it and not any individual. She didnt like it but it does become a little popular around the country and then the case comes. Arthur andersen is the auditor for enron and handmade to the fraud for the organization. If theres one thing i can do in my book it is to rehabilitate this prosecution because i think it was the right thing to do. I think it was a rotten organization. Many good people but through and through, the systems were in place to help companies commit accounting fraud and it wasnt just enron and Arthur Andersen helped put Waste Management and many others. So very early on the Enron Task Force prosecutors affirm and if they win in the trial, Arthur Andersen goes out of business, tens of thousands unfortunately are put out on the street out of work and something amazing happens which is there is a pr victory where anderson manages to change the subject from accounting fraud to these innocent people being put out of work and it gets internalized in the department of justice so they essentially decide theres no policy in there is no policy in place, nobody says explicitly that they take the ability to prosecute companies off the table because of these collateral consequences, because of employees losing their jobs and then later worry about Capital Market disruption, the financial crisis happening if you prosecute a bank. Host that is a fascinating shift because we kind of redefined success and failure and part of what i hear you saying today in the book is its not just whether you have won the case, it is kind of being perceived as being overly aggressive and kind of internalized the pr stand. Theres other things you said above i want to pick up on because there was another piece that weekend the department of justice which is the deficit on the collateral consequence. You talk a bit about how that got embedded and the prosecution policy for the department of justice and how that shifted over time depending on who was second in line for the Deputy Attorney general. Host guest there is a metal that comes from no other than eric holder when they get to detest the name on the memo at the department of justice so. Host v. Deputy attorney general is Rob Rosenstein writenow so even though second in line sometimes you have a public profile that comes to this and their name goes on it. Guest so he outlines and after they do this, mary joe sends her down to make sure washington doesnt screw up this memo and come up with principles for how to prosecute companies and holder puts his name on it and memo essentially says this is how we are going to look at things and you need to cooperate with our investigation if you want to get brownie points with us and this is what cooperation means, and theres a variety of things. One of them is you have to waive the attorneyclient privilege so that we can go in and examine what we want to examine when we are conducting our investigation. And host going to hold on to that point. I loved your book but the one place i disagree with you is on this. We are going to talk about the attorneyclient privilege in a moment. Talk about the collateral consequence. Guest one of the things they install in this is that its okay for prosecutors and in fact prosecutors should think about the collateral consequences of their actions when they are taking on corporations and by that, they mean the harm they bring to the innocent employees and also some kind of notion about a disruption in the Capital Market. But they really take it seriously. There are people who have attacked eric holder for the movie origin of this and he didnt even write the memo but they didnt really put this into place until postandersen and what happens is the Deputy Attorney general under ashcroft, Larry Thompson was a fascinating character, fascinating guy. He is an africanamerican who becomes a goldwater voter and then rises through the ranks of republican politics and becomes a Deputy Attorney general under ashcroft and is an old law and order kind of guy who doesnt believe that there should be a twotiered justice america. He wants to treat corporate criminals as aggressively as street criminals and a kind of republican attitude. On another person i deeply admire. He updates the memo and its almost identical but it does have a few additions and it talks about the collateral consequences. After andersen and the aggressive prosecution, then they incorporate over the attorneyclient privilege and roll that back into the department of justice rolls it back in a series of memos over the course of the next several years and in doing so what happens is they shift from thinking about the corporations and they take off so the last 15 years we had over 400 in the first ten years. So various forms of settlements for money. Often no admission of guilt. Most of the time no admission to guilt and then the various forms of promises to behave better in the future which are not kept and we can get to that. Host like any other tool it can be appropriate to use but in this case the public perceives that its been over used and you can look at it as they are going to claim it as a shakedown. Are they going to do its thing to be typical for the shareholders so we just threw some money at this and made it go away. Maybe some of the time it was true and maybe none of the time but from the public side they want to see trials because they think that this is just until you see the corporation being held accountable and the individuals in spite of the firm going to jail. They believe these two systems of justice but theres this other piece that you mentioned because historically with the rise, what happened. Guest the department of justice and vague law are creating each other and influencing each other and changing the sort of like the old batman with Jack Nicholson where the robber kills bruce waynes parents and he becomes batman and then he chases the robber and each of them creates the other. That is my literary reference for the evening. What happens is we talked earlier about the 60s and 70s and how Robert Morgenthau is raising the sights on higher classes of criminals. What happens is big law firms realize this and realize that now their clients are a Big Corporation and county executives are in the sights of the government and they start to represent them very slowly over time prosecutors have been doing these prosecutions go to the big wall. What happened earlier is prosecutors didnt really evolve out to go to the big law firms but if they did want to do criminal defense work they would go to knock the big prestigious law firms. Slowly over time they start to move to the big wall and create peace these practices and then slowly over time theres a movement to there is a movement to settle with corporations at the department of justice and that generates more business and the big law firms realize how lucrative it is and how much better it is to enter into a settlement with the corporation because it isnt just a one off investigation of one individual but a sprawling kind of thing where they can do internal investigations and all of a sudden the business of the internal investigations comes up and becomes a giant lucrative aspect of the big wall and today many of the big law firms specialize in doing internal investigations for the corporations and the dirty secret of american Law Enforcement for corporations is that we have outsourced and privatized investigation to the corporations themselves. Its like Pablo Escobar running a cartel and hiring his own lawyer. It is a big problem for American Society especially because now the prosecutors go one commonly to become represented by these firms. Host part of it is a revolving door story although i guess it is going mostly one direction. How do you think that shapes the behavior of a prosecutor . You note in your book it seems like what you are implying is a young prosecutor spends a few years successfully settling cases with big firms come against the scale and then is hired and if lucky becomes a part or at one of these large firms and can make several Million Dollars a year in this white collar criminal defense practice. What are some solutions to that particular problem . We should unpack stuff because it is a vitally important part of the book. When i present this to prosecutors they think no no no we have every incentive to go after the individuals because they are going to get the glory and the career. And you hear this all the time but one of the real and actual incentives here is that person wants to produce quickly and prosecuting an individual takes and enormous amounts of time when executives have huge differences they pay for the best defense lawyers they can so youre going up against the best lawyers in the country and its going to take years. If you lose at the trial then you havent built your resume so there is enormous risk. They are not afraid they just understand the risk scenario and they are very, very high but the risks end up being too high for each prosecutor to respond to these kind of incentives that is too much to add, so instead the incentives are to produce a lot of the corporate settlements and what they are doing is they are very complex and they think that they are doing a good job because they are kind of reforming the culture and looking holistically at a company and having the company engage in remedial activities so they can justify it. The fines go up and up so they think that this will cost a lot of money and they will feel the pain and they can do that quickly because like you said earlier the company has to come to the table to negotiate. They are not stupid enough to fight this usually especially the Big Companies so you can do a series of these over the course of six or nine months quickly and knock them out and give are getting accomplishments on your resume. Most important who are you sitting across the table from . Across from your bosss former boss very frequently. People whove been former prosecutors have saved the Southern District of new york or the Eastern District of new york. Their portraits are on the walls in the hallways as you walk to your office and your incentives is to baffle them with how smart you are and appear extremely tough as a negotiator but then ultimately you do not want to seem like a cowboy, reckless, overly in punitive, because you want to be seen as someone they can envision as a future part or in and that is as you can imagine a deeply corrupting incentive i think for a young prosecutor. Host sure. But we have done now is set the stage for rare the department of justice was by the time president Obama Took Office in january of 2009 and we did talk a little bit about where the prosecution policy was. Then eric holder came back and became the attorney general of the United States and the topic again of collateral consequences came up in part because in testimony before the Congressional Committee he was asked about this and mentioned that there were some concerns about the collateral consequences of prosecuting large firms and he was immediately attacked and then he backed off of that and put out a video saying no firm is too big to prosecute and defend sally yates who was the topeka Deputy Attorney general. So there was a shift. They added a factor about the prosecution policy to talk about the need for individual accountability. Not that this has to be a dichotomy. You can have enterprise liability. Both of these things can happen so that was supposed to happen. What went wrong with the policy. Why didnt it work . That is a great question and you are absolutely right. I think for all these things, finding companies guilty, all sorts of settlements, corporate liability and individual liability i just think that it had gone haywire and they need to get back to the bread and butter of accountability at the highest level. So they were worried about the collateral consequence coming out of the financial crisis of prosecuting banks aggressively. They thought that they were too fragile and i think that is a misreading if you prosecute aggressively you would restore faith in the markets more quickly but also if you were worried about that you should have rejected the notion because we are going to focus on individuals and as i said earlier they didnt create a task force so they dont focus on individuals. One of the defenses is do you think we would shy away from these prosecutions. We looked as hard as we could for evidence and we didnt see any and i just dont believe that. One of the problems is i dont think they looked and somebody who doesnt figure in the book that i wrote a new York Magazine piece about one banker who was prosecuted in the financial crisis is a walking rebuttal of that argument because what he did he was an executive credit squeeze that oversaw traders that lied about their portfolios and the values of their portfolio. Believe me, no one in wall street thinks that hes the only one that did that. It was a crime that was committed rampantly so skipping forward, the memo is incredibly important for a variety of reasons. One is that it is an admission that the whole regime made a mistake and shes admitting that without actually saying so i think that was a good reform from her but the system is still deeply problematic because of this outsourcing of investigations because the department of justice is so dependent on internal investigations that when they do focus, they are going to get the guy that is getting thrown under the bus instead of going up to top. Host one of the questions that comes up is you say maybe there just were not cases to be brought, and theres many examples in the book that you wonder about and i will mention some names not saying they are guilty of anything but someone like Lehman Brothers and perhaps others who were never prosecuted at all. But one of the things people say is that its too complicated for the jury to understand which might be another way of saying we are afraid of detail because he remember one of the first cases brought word that cases against the Hedge Fund Traders in the government lawsuit cases and ive always wondered what difference it would have made if they had one. Guest that made people nervous about the kind of evidence they had so this is why i started with enron because can you imagine anything more complicated than the enron fraud, they had secret ownerships and it was just complex with multiple business lines but they won the case and i try to walk through it carefully the investigation and why they won the trials because they managed to get a storyline that jury could understand they said this isnt a case about complex accounting or aggressive Business Practices that we will label. This is about truth and lies, blackandwhite. They distilled the case down and really understood that the jury was going to listen to a lot of complex evidence that we have a storyline and my argument is that this skill set has been lost and one of the reasons they dont do trials anymore. The average attorney does. 29 every year and that compares to the 70s to eight trials a year so, then you get to fast forward to Something Like where the Hedge Fund Managers were worried about the assets misrepresenting the state of their fund and to the counterparties and if they were acquitted by a jury but my view is that it shows erosion of the skill set at the department of justice and this is evidence there were no crimes. Host you talk about something that happened in the Obama Administration and say instead of doling out punishments, they had prevention measures to stave off future crisis and to be fair as in 2009 we were trying to deal with a larger downtrend despite depression and to help shore up the economy and work on the Affordable Care act, pass dodd frank. All that was happening this is true but there wasnt a task force set up immediately and i wonder what are your thoughts on how to there been a higher priority . Guest it would be a major difference. You see someone like the treasury secretary saying an eye for an eye, this notion that we should have pitchforks and put people in prison. The Obama Administration was very technocratic and i think they solve these people as people that have made mistakes and we need to reform the system, have a systemic reform rather than focus on a few bad apples and what happens in that is the system lacks legitimacy because the people can see the lack of accountability in that it is unfair and unjust. What the democrats did not recognize and i think the kind of technocratic and democratic notion that we have is the elevation sort of field to recognize you need individual accountability in order to persuade people that you care when they do something wrong and about fairness of the system and that reforms cannot be believed or trusted without punishment going hand in hand. The oldline republican idea of picking out a few bad apples and not giving any systemic reform isnt adequate either. They have to go hand in hand. In my view it is because the lack individual accountability, it undermined faith in the obama and cut the legs out from underneath Hillary Clinton and her campaign. Donald trump was able to campaign and take advantage to take advantage of the anger against goldman sachs, and i think with more accountability we may not have had donald trump as president. Host so you see a line between failure to hold individuals accountable and his election. I can see what youre talking you are talking about he didnt draw on the populist anger without evidence that the government actually did something to put people in jail and he spoke to that even though it is unlikely he will do anything about it. And last few minutes, can you tell me what is your wish list we have about two minutes. If you could, what tools do we need other federal or state level to make a difference . Guest pay the prosecutors a lot more money so they can live affluent lifestyles in new york and washington, d. C. So they are not drawn to the big wall and then diversity of hiring. And im not just talking about when men and more people of color in talking about the geographical diversity you want to draw from different schools and i want professional diversity. So the ball from people that are sick of being in the law and never going back but they are 50yearsold and want to do some Public Service or people that are plaintiffs lawyers were Consumer Protection lawyers you want a variety than just these hot shots that want to defend corporations. And i think that would be important. Then you have to change the culture to focus on individuals at the department of justice. If that means more statutory powers i think those would be warranted so you need one that is lobbying in the congress to get more power but that also means more about the power they have. Host i cannot believe we are out of time i want to keep talking about this book. Its wonderful. Thank you so much. Guest recently visited capitol hill to ask members of congress what they are reading this summer. Im in the im in the middle of reading testimony by scott turow which is not a mystery but a suspense that is too close to reality as it talks about the struggles of the human rights violation against the population. And a Police Officer comes up to you and slams you to the ground and handcuffed