June 01, 2006
With all of the talk about evil corporate agents, we tend to forget about the agents the public uses to try the cases and decide what cases to try. Although it may be difficult to think of these heroes as merely human, they are. For many of them, Enron is far from a disaster – it’s a launching pad into lucrative big firm practice or political career. Who knows, you might even get to be thought of as a presidential candidate some day. Prosecutors have little incentive to abort the launch by deciding not to prosecute. And of course when they do prosecute, they want to win.
That’s good, isn’t it? Yes, but just as we want them, and our corporate agents, to win, we also want them to play by the rules. All the more because the results of their mistakes are so much worse than dented portfolios.
The problem is that what makes criminalizing agency costs problematic for the criminal justice system also makes corporate crime trials challenging for prosecutors. They have to get the jurors to see the criminal conduct buried in the accounting and and distinct from the run-of-the-mill unfaithfulness of their colleagues.
Corporate employees have the relevant facts, but don’t have a lot of incentive to disclose them to the prosecutors. So highly motivated prosecutors would like some shortcuts to get them where they want to go. They want to be able to choose who says what at trial. It’s helpful to let a whole bunch of peripheral players know that they, too, are potential defendants. Don’t indict them, just yet. But also don’t give them immunity for testifying. In other words, shut them up. Of course you need some people in the company to talk. You might threaten employees, and maybe even their family members, with hard time.
None of these people are hardened criminals – even a day in jail will be a big deal. They scare easily – just the pliable sorts prosecutors love to deal with. We may never find out if they actually did anything wrong, because they don’t go to trial. But they will help the prosecutors get the big splashy Lay/Skilling fish they’re especially interested in hooking.
It’s also helpful if you can get the company to cooperate. Tell a still-thriving firm, we won’t prosecute you if you do what we say. Tell your employees to cooperate or else. Don’t pay defense costs. It’s all in the Thompson memo.
The result is a potential prosecutorial agency cost problem that threatens to rival the corporate agency costs they're prosecuting.
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1. Posted by John Davidson on June 1, 2006 @ 21:06 | Permalink
reading this makes it pretty plain to me that the author has little, if any, real world experience in the criminal courts.
if prosecutors abuse anyone, it is not the Lays and Skillings of this world.
As for the agency cost bs, its not just about agency costs. Enron's stock, like the stock of any public company, is in many ways like a currency; it could be used to buy other companies, for example. Thus, everyone has a stake in whether Lay and Skilling were cooking the books.
2. Posted by Mary on June 1, 2006 @ 21:12 | Permalink
Mr. Ribstein is right on. When a citizen's liberty is at issue, the WHOLE story needs to be told. Witnesses who make a deal need to be sentenced before trial. Anyone not prosecuted within 4 YEARS after an event should not be forced to plead the 5th in order to save themselves. What were the prosecutors afraid of hearing from over 100 unindicted Enron employees who had indictments not so subtly held over their heads? The fact that Skilling and Lay were convicted was almost a given when the trial stayed in Houston. What is difficult to understand is why they will be serving more time than 90.3% of the federal prison population, according to the Bureau of Prisons web site.
3. Posted by DaveL on June 2, 2006 @ 22:26 | Permalink
Funny, I kind of thought prosecutors were human, had ambitions, and sometimes were more interested in getting a conviction than looking for exculpatory details even when it was only regular people who were being prosecuted. But you're right, it's pretty horrible to imagine that such things could be allowed to happen to sophisticated types who might look just a little bit like some of our clients, or, God forbid, maybe even some of us.