In 2008 Wall Street banks created a financial crisis that incinerated the economy. It was only a few years after the Justice Department had aggressively prosecuted Enron and Arthur Anderson, and so many folks expected similar prosecutions of financial executives, especially because Democratic presidential candidate Barack Obama promised to “bring a new era of responsibility and accountability to Wall Street.” But as recounted in a new podcast with Pulitzer Prize-winning journalist Jesse Eisinger, it never happened.

Eisinger has just released a new book called “The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives.” It tracks how a furious pressure campaign by corporate America fundamentally changed the culture of the Justice Department. Instead of going after executives who commit white collar crime, the agency now often offers settlements with corporations, forcing shareholders to pick up the tab for fines while leaving executives untouched. 

The result, says Eisinger, is a criminal justice system that no longer seriously deters corporate crime, but instead makes it just a mundane cost of doing business. Shareholders may pay some fines, but executives often get a nice get-out-of-jail-free card, avoiding prison or any kind of punishment. 

Subscribers can click here to listen to the full podcast. What follows is a lightly edited excerpt of the conversation with Eisinger.

Sirota: Where does the term “Chickenshit Club” come from?

Eisinger: That term comes from Jim Comey. Everybody knows him as the man who was fired by FBI director by Donald Trump. Before he was in that role, 15 years ago, he became the U.S. Attorney for the Southern District. The Southern District was the premier office with the hottest-shot prosecutors. He gathered them all together in a room, and he looks them over, and he says, “How many of you guys have never lost a case?” A bunch of hands shoot up. These are the best of the best of the best. He says, “Me and my buddies have a name for you guys. You guys are the chickenshit club.” The hands go back down, and they're a little sheepish about bragging.

Essentially, what he's saying is, “You are not about winning. Your job is about justice. You're not a sports team that needs an undefeated record. What you need to do is not try to pick off the low-hanging fruit, but go for the most ambitious cases you can, the worst people, the most powerful bad guys. That's what society demands of you.”

Unfortunately, the Department of Justice writ large then, over the next 15 years, becomes the chickenshit club, because they lose the will and the ability and the focus on top executives, and now no longer really tries very hard and knows how to prosecute executives. I think the prosecutions of executives in previous eras, like Jeff Skilling and Ken Lay of Enron, couldn't be done today. I don't think they would be able to do it.

eric holder U.S. Attorney General Eric Holder. Photo: Reuters/James Lawler Duggan

Sirota: You say there were moments where the Justice Department was a strong weapon against white collar crime — and certainly much stronger than it was in the Obama era and today. Was there ever a golden era?

Eisinger: I would say that there were ups and downs. What I say is there were these small silver ages from the period of the Great Depression up to through the prosecutions of the Enron era frauds, and now we are in the bronze or the stone age. There's never been a golden age.  After the Great Depression, essentially white-collar crime has to be invented. Edwin Sutherland, a sociologist and criminologist, coins the phrase. We've always known that things like embezzlement were crimes, but we didn't really have a definition for accounting fraud, for securities fraud. Those kinds of things literally have to be invented by post-Great Depression laws, mainly the '33 and '34 Securities Act.

Then, just to skip really forward a few decades, for the next period of time the SEC, the Securities and Exchange Commission, after it's been created doesn't really do serious white-collar enforcement of big companies. They focus on boiler-room operations, small-time, a little insider trading here and there, but not much, and Ponzi schemes, things like that. Then, in the 1960s, the premier office of the Department of Justice, the Southern District of New York, starts to raise its sights under the leadership of Robert Morgenthau, who is a legend, becomes even more legendary because he's the 40-year DA for Manhattan, but before he's District Attorney, he's the U.S. Attorney for the Southern District in the '60s.

That is the office that focuses on securities fraud. Essentially, what he does is he says, "I want to raise my sights to a better class of criminal. I don't want to just do these Ponzi schemers. I want to look at bigger companies, and not only bigger companies, but lawyers and accountants who aid them." The mantle is picked up by Stanley Sporkin. Morgenthau's a Democrat. Sporkin is a Republican who was the director of enforcement at the SEC. He is the most powerful bureaucrat through the 1970s in the federal government. Doesn't run the SEC, but is protected both by Republicans and Democrats in Congress, and scares the bejeezus out of corporations through a variety of serious enforcement….

[Sporkin] says he wants to save capitalism by rooting out the wrongdoers. They're serious-minded about prosecution, more so I would argue even than Democrats, because Democrats in these periods, with some legitimacy, say, "The Republicans just care about rotten apples, but the whole system is rotten, and the whole system needs much more serious regulatory oversight, and so we want to have systemic reforms. We don't want to just have prosecutions."

Sirota: You argue that the Enron and Arthur Anderson prosecutions — and the aftermath — were a watershed moment in the Justice Department’s shift away from going after corporate executives. Why were those cases so important?

Eisinger: We think of the George W. Bush presidency as incompetent and cronyist and a moral vacuum, and certainly that became much more pronounced in later years, and certainly that is in effect with the Iraq invasion and the neocons, but in the Ashcroft Department of Justice, they take the prosecutions of the companies that failed under accounting frauds after the NASDAQ bubble bursts very seriously, most seriously Enron, the Enron era of prosecutions. They prosecuted almost all the top executives. They give adequate, serious resources.

They get protection to do these investigations from political cover from George W. Bush himself, and the most notable thing here is that the Enron guys were friends of George W. Bush. They went way back with both the Republican Party and the Bush family. Big supporters. It's just impossible to imagine [President Barack] Obama and [Attorney General Eric] Holder having prosecuted the kinds of people who were as close to them as George W. Bush, or not impossible to imagine. What I should say is, it's incredibly notable that they go after these very powerful, connected people with Enron, given what we know about the later Bush period and given what we know about Obama.

Sirota: At one point, Bush himself got involved, right?

Eisinger: Yeah, exactly. What they're doing there is there's some pressure there. There's some pressure from business interests. There's some pressure from White House political officials. Bush calls them in, calls not only [Deputy Attorney General] Larry Thompson but [FBI director] Bob Mueller…

When you go to the White House, you may be getting a political dressing-down, but what happens is, they in turn say, "Here are all the allegations. Here are all the investigations. Here's all the evidence we've uncovered so far." They give him a serious briefing, and Bush to his credit is pretty flabbergasted by this, and says, "You go do your jobs," which is remarkable.

Sirota: So how do we go from the tough-minded Enron task force that goes after Enron executives to the current era where we’ve seen no prosecutions of Wall Street executives after the 2008 financial crisis?

Eisinger: What happens is, one of the first things that this Enron team or SWAT team of prosecutors does is focus on the accounting firm Arthur Andersen, which was the handmaiden to Enron's fraud as the energy traders' accounting firm. As the investigation started up, the accounting firm destroyed literally tons and tons of documents and emails related to the Enron audit. Prosecutors were outraged. This was a destruction of evidence. It looked like obstruction of justice. They tried to reach a settlement with Arthur Andersen. They can't, and so they prosecute them, and they win.

Anderson was not just Enron's auditor, but had been the handmaiden to numerous frauds, including Sunbeam and Waste Management and later Worldcom. This was a, I argue, corrupt firm through and through, and needed to be prosecuted because the previous regulatory settlements with the SEC had done nothing. It was a recidivist. If there's one thing that I can do in the book, it's to rehabilitate this prosecution, because stunningly enough, what happens is over the course of the next several years, there's this backlash between a great PR victory, and a corporate lobbying campaign, and a white-collar-bar lobbying campaign against the perception that the Enron team generally was too aggressive, and they were cowboys, and specifically that the Arthur Andersen prosecution was too aggressive, and was the wrong thing to do.

 They win this argument. They basically turn the story of Arthur Andersen from a corrupt firm that was shut down because of its corruption to a firm that was shut down by the government, and thereby throwing tens of thousands of people off the street. Because of that, the Department of Justice learns, Lanny Breuer who is the head of the criminal division under Obama, and Mary Jo White, who ends up being Obama's SEC chair, those people learn that prosecuting a company and having it go out of business is the wrong thing to do and they can never do it again, so they turn to settlements.

 Sirota: So a successful prosecution of Arthur Andersen becomes the justification for, "We shouldn't prosecute Arthur Andersens in the future because the prosecutors in theory were too strong, were too harsh, went after them too vigorously." Meanwhile, your book tracks the concurrent rise of the so-called “too big to jail” idea. How did that evolve?

 Eisinger: What happens is, there's a 1909 Supreme Court ruling [that says] if there is an employee who in the course of his or her job commits a crime, the entire company can be prosecuted. That is the power that the government has. It's essentially neglected. They don't really prosecute companies for a very long time.

In the 1990s, starting out, they're unsatisfied with this. They don't really want to prosecute companies all the time. They used to be focused on individuals, but they started shifting the focus on trying to root out the rotten cultures at companies. They hit on this haphazardly. Mary Jo White, as the U.S. Attorney in the Southern District, comes up with this settlement. Then, she sends her lieutenant and writes a memo that Eric Holder signs saying, "Here are the principles for how we're going to prosecute a company." One of the principles is, "We'll take into account collateral consequences." Eric Holder gets a lot of blame for this in retrospect, but he didn't really write it…

Then, Arthur Anderson happens, and they ignored these principles, quite rightly in my view, and prosecute the company. Larry Thompson updates them, and that becomes the locus for the lobbying, where they hit on one aspect of these principles to try to tear them all down. The aspect of the principles is that they attack the fact that the government can ask for companies to waive attorney-client privilege when they're doing investigations, so that the government can get access to all that's going on in their own internal investigation. If companies want to cooperate and they want to get leniency from the government, they have to waive attorney-client privilege.

Companies scream bloody murder, and so does the white-collar bar. Over the course of the next decade, those powers are completely rolled back, which really strip the ability for prosecutors to get inside companies to investigate. That has a whole cascading series of effects.

Sirota: Okay. Now let's move up to the Obama era. What could the Obama administration have done based on all of the trends you've just charted, and what did it do instead?

Eisinger: The first thing they could have done is created a task force, a big, giant task force to address a variety of financial crisis-era cases. People should remember, the financial crisis hits in the end of the Bush administration. The height is September. The election is in November. All the firms that collapse, the criminal investigations are going on, and the late Bush administration folks who are on their way out don't take a series of serious decisions and let the investigations start to percolate. That's the first mistake.

The Obama administration inherits that mistake, but they compound it by not doing anything about it. One thing they needed to do was create a task force where you figuratively lock 50 prosecutors in a room together to look at — five needed to look at Lehman Brothers, and 10 needed to look at the CDO business, and five needed to look at Citi, and six needed to look at JP Morgan, etc., etc. If you had, they would have found crimes.

In fact, what happens is they don't really look in a serious way. Whenever you hear Eric Holder or Preet Bharara or Lanny Breuer saying, "We looked seriously and nobody ever presented us a criminal case without a doubt prosecuting a high-level individual," the secret is that they didn't look. That was mistake number one.

Sirota: What are the continuing effects of the Justice Department culture that the Obama administration basically helped cement?

Eisinger: The day-to-day legacy now is that the Department of Justice has lost the will and ability to prosecute top corporate executives. This is the flip side. [We] know about mass incarceration and the scandal of that, and that we disproportionately punish mostly poor, mostly people of color, in this country. This is the flip side of that, which is that we allow the rich and powerful to commit crimes with impunity if they are in executive positions at major corporations. That is a scandal, and it undermines the fairness and justice of our system and the rule of law.

The Obama administration has contributed to it. What they do now is they settle with corporations rather than focusing on prosecuting individuals. They have lost the skill set to do with it, because settling with corporations is so easy and because of the way settlements come about, which is that we have outsourced and privatized investigations to the corporations themselves. It's basically like allowing Pablo Escobar to hire the major law firm of Medellin to investigate whether Escobar is dealing drugs or not. That surprisingly is an investigation that might yield a few street-level drug users but is not going to actually implicate Pablo himself.

We have corporations who have a scandal. They hire a law firm. The law firm does the investigation. The investigation is studiously incurious about going to the top levels, and worse than that, they negotiate, then they hand the results to the Department of Justice. The Department of Justice looks over it, and then comes up with some kind of fine that the shareholders pay. The executives don't pay it. The company, the piece of paper has to pay it, but that comes out of shareholder pockets. Then those prosecutors, many of them, go to work for those law firms themselves after a few years. That is a deeply corrupt process.