"The Damned are taken to Hell and received by Demons" by Luca Signorelli and his school (1499-1504); San Brizio Chapel, Cathedral of Orvieto, Italy (photo: Georges Jansoone)

The pretend prosecutors who work for Eric Holder and President Obama haven’t investigated the fraud that led to the Great Crash and the Lesser Depression, let alone charged anyone with a crime. All the best people think that is the way it should be.

It wasn’t always like this. Once upon a time, people saw corporations as instruments of great power, and very dangerous to the rest of us. Here is Senator John Sherman, author of the Sherman Anti-Trust Act, speaking in 1890:

These corporations do not care about your criminal statutes aimed at their servants. They could give up at once one or two or three of their servants to bear this penalty for them. But when you strike at their powers, at their franchises, at their corporate existence, when you deal with them directly, then they begin to feel the power of the Government.

That quote heads up an article by Harry First, an NYU law professor. Branch Office Of The Prosecutor: The New Role Of The Corporation In Business Crime Prosecutions, 89 N.C.L. Rev. 23 (2010) The article describes the destruction of Senator Sherman’s theory.

According to First, criminal prosecution for corporations is fraught with problems, such as the possibility that the corporation might be put out of business, harming the innocent, which apparently include employees not directly involved with the crime, and shareholders.

The great example, of course, is Arthur Andersen. The accounting firm destroyed documents related to its work for the thoroughly fraudulent Enron Corporation, both before and after the SEC started investigating. The criminal conviction of Arthur Andersen led to its dissolution. The Supreme Court was astonished that prosecutors asserted that a bunch of rich people were accused of knowingly corrupt behavior. It unanimously reversed the criminal conviction, saying that if these very smart and important people had any reason to believe that their conduct wasn’t corrupt then it wasn’t.

The Enron disaster, which caused enormous harm to thousands of innocent shareholders, to use Professor First’s term, and actually innocent people screwed over by the company, saw a couple of prosecutions, but the Supreme Court couldn’t find any criminals there either.

Congress was disturbed by Enron, and passed the Sarbanes-Oxley Act, which was intended to make it easier to prosecute at least the human part of the Corporate Person Borg. That was too much also. In 2006, we got an Interim Report from The Committee On Capital Markets Regulation, a group of very serious people from all walks of life. Well, not really all walks of life, a bunch of rich people and their tools. People like the head the chief legal officer of Lehman Brothers (bankrupt, not to mention Repo 105), and the president of CIT Corporation (bankrupt, lost $2.3 billion of bailout money). These luminaries thought it was unfair to prosecute corporations:

The Committee recommends that the Justice Department revise its prosecutorial guidelines so that firms are only prosecuted in exceptional circumstances of pervasive culpability throughout all offices and ranks.

Just ignore that conflict of interest. But wait, it’s even more complicated. As Professor First tells us, the Corporate Person and the Human Person may not have the same interests in criminal cases. The Corporate Person doesn’t want to pay a fine, so it wants to rat out the Human Person. Human Persons don’t want to go to jail, so they want to rat out the Corporate Person. The Corporate Person has some good leverage, though. It can refuse to pay for lawyers to defend the Human Person. That would be a problem for the Human Person, because a good defense might cost a million dollars, and the Human Person might not have stolen that much.

In U.S. v. Stein, 440 F.Supp. 315 (S.D.N.Y. 2006) Judge Lewis Kaplan says that the employer can’t coerce its employees into confessing their crimes by threatening to refuse to pay for expensive lawyers. In other words, if you commit a crime while working for a corporation, you get a really great lawyer at the expense of your employer, which was an innocent bystander, no doubt. You aren’t stuck with some overworked pro bono lawyer like those murder defendants in Texas. I’m just sure there is some difference here, but Judge Kaplan forgot to mention it.

So, it turns out that prosecuting Corporate Persons is really unfair, and it’s fair to make them pay to defend their criminal employees. The Human Person gets not just some firm that advertises on late night TV, but the best lawyers money can buy to prove just how innocent they are, in front of courts inclined to believe them, even when juries convict.

Professor First thinks all this is just great. He is apparently from the true believer school of law and economics, since his first and only concern is economic efficiency. He lauds the idea that prosecutors rely on corporations to police themselves, because it makes everything so very easy for everyone. He doesn’t seem troubled by the plain fact that his preferred outcome results in innocence for everyone.

In that he is joined by George Bush and his administration, Attorney General Eric Holder and President Obama, and the likes of Preet Bharara and Jenny Durkan, US Attorneys for New York and Seattle.

Next time we do one of these committees, can we put some tough on crime progressives on it?