Pulitzer-winner’s book shows how corporate execs became ‘too big to jail’

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Arthur Andersen deserved to die.

In 2001, the accounting firm was one of the “Big Five” auditors in the country with around 85,000 employees and a thriving consulting business.

But while it was named for a prickly and principled Chicago accountant, by the turn of the century Arthur Andersen had become an accomplice to some of the biggest cases of corporate corruption the country had ever seen — including Sunbeam, Enron and WorldCom.

In the Enron case, court records show the accounting firm, while its clients were under investigation, deleted e-mails and shredded thousands of documents in a bid to cover up crimes. In June 2002, a federal jury found the firm guilty of obstruction of justice. The verdict was a fatal blow — and Arthur Andersen was forced to close.

But three years later, in 2005, when the Supreme Court overturned the verdict because of faulty jury instructions, Arthur Andersen was thought of as the victim. Federal prosecutors, meanwhile, were cast as the bad guys — overzealous and responsible for putting thousands of innocent people out of work.

That’s too bad, says Pulitzer Prize-winning journalist Jesse Eisinger, who argues in his new book, “The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives,” that the prosecution of Arthur Andersen was “entirely justified.”

“The Department of Justice has mislearned the lesson of that prosecution — and not accidentally,” Eisinger told The Post in an interview.

A sustained public relations push by the company, Wall Street and the white-collar criminal defense bar cast the prosecution in a negative light, saying that government lawyers went too far and put innocent people out on the street, Eisinger said. No prosecutor, not even the high-flying big shots in the Manhattan US Attorney’s office, wants to risk losing another high-profile case.

Eisinger, in his dramatic and hard-hitting book, says the fallout from the Arthur Andersen case — and on
e or two other prosecutions — is the reason during the toxic mortgage fiasco no high-ranking banker or bank itself was prosecuted.

In the 1980s’ junk bond scandal, Eisinger writes, Michael Milken, the junk bond king, was investigated, found guilty and sentenced to 10 years in prison.

In the early 2000s, Ken Lay, in the wake of the Enron fraud, was also investigated, prosecuted and found guilty of securities fraud. Lay died before he was sentenced.

But that was then. In the mortgage scandal that grew out of the 2008 recession, no high-ranking bank executive was prosecuted — despite the fact that many banks paid billions of dollars to settle federal probes.

Wall Street executives, it has been written, have become “too big to jail.”

“I’m very angry about this,” Eisinger told The Post. “I’m outraged. The enormity of the rot in the system keeps me up at night.”

Corporate crime is rarely the provenance of high drama. And by the time most people hear the words “accounting scandal,” they’ve already tuned out.

But in Eisinger’s hands, the book is an infuriating, wide-angled take on how the government retreated from taking on boardroom bad guys, and how the business of defending them has only grown more lucrative — and prestigious.

“It is the most desired perquisite of the wealthy, to commit crimes with impunity,” Eisinger said. “What can be more unequal than that?”

The book is hardly an Erin Brockovich-type tale of brave lawyers looking out for the little guy. Regulators are expected to be tough, but not too tough — and those who cross the line get “blackballed” while corporate executives see minimal consequences, Eisinger argues.

By now, the 2008 financial crisis has proved to be fertile ground. Books like “The Big Short” by Michael Lewis and “The Seven Sins of Wall Street” by Bob Ivry have explained the widespread bank fraud and willful blindness from the US government that led to collapse of the global economy.

‘I’m outraged. The enormity of the rot in the system keeps me up at night.’

 – Jesse Eisinger

Eisinger, a former Wall Street Journal columnist who’s been with ProPublica since 2009, tells the story of what happened after. In his crosshairs are familiar targets like AIG’s Joe Cassano and Countrywide’s Angelo Mozilo, as well as the Bush and Obama administrations, former US Attorney General Eric Holder and former US Attorney Preet Bharara.

The Justice Department has notched some victories. A few mid-level bankers have gone to jail. And banks have paid $321 billion in fines to regulators all over the world since the financial crisis, according to a report by Boston Consulting Group earlier this year.

But, Eisinger argues, that has hardly been enough.

The book takes its provocative name from a 2002 speech by James Comey, who was recently fired as FBI director by President Trump.

At that time, Comey was the newly appointed Manhattan US Attorney — an office that is so powerful it’s been sarcastically nicknamed the “Sovereign District.”

“Who here has never had an acquittal or a hung jury?” Comey asked the lawyers in the audience, according to the book.

Hands shot up. These were some of the best lawyers in the country, and they were bringing some of the biggest cases against the Mafia, terrorists, and corporate criminals.

“You are members of what we like to call the Chickenshit Club,” Comey said.

Jeffrey Stein was booted as deputy chair of KPMG in the wake of a scandal — but still got a golden parachute.

Those hands quickly disappeared.

Comey’s view was that government lawyers needed to be more aggressive and creative, and not just rely on slam-dunk cases. If they won, great. But if they lost, he said, they still made “the right decision for the right reasons.”

Ironically, Comey himself became a card-carrying member of the club two years later by undermining a criminal probe of the KPMG case, according to Eisinger.

In 2004, just two years after Arthur Andersen had been leveled, the Justice Department started to close in on how KPMG hid taxes for its ultra-wealthy clients — a practice headed by its then-deputy chairman, Jeffrey Stein.

In a gesture of cooperation — but really, only a gesture — KPMG would show Stein the door. He didn’t leave without a golden parachute, of course — which included the company covering his legal fees.

One prosecutor, Justin Weddle, told the company that the perk would be looked at “under a microscope,” according to notes from one meeting. KPMG quickly capped Stein’s legal fees at $400,000.

Comey, by then promoted to a deputy attorney general in Washington, would quash an indictment, the book reports. Weddle would see career exile to Romania for his “microscope” comment — which a judge interpreted as unduly pressuring the company, according to the book.

Stein — a multimillionaire — would see his legal fee perks taken away and then restored after that same judge ruled a $400,000 cap violated his Sixth Amendment right to counsel.

The ripple effects are still being felt today, Eisinger said.

The tepid response by the Obama administration, and Attorney General Holder in particular, led to widespread mistrust in the government — and, perhaps, even helped pave the way for Donald Trump to take the White House.



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