It isn't every day that people who abuse their positions of authority are held accountable for wrongdoing. Actually, to be statistically precise about it, it isn't any day that happens, really. But there is some good news on that front, for a change: This week, in an Atlanta courtroom, some malefactors finally got nailed.
A group of former Atlanta educators convicted in a test cheating scandal were locked up in jail Thursday as they await sentences that could send them to prison for years.
In one of the nation's largest cheating scandals of its kind, the 11 defendants were convicted Wednesday of racketeering for their roles in a scheme to inflate students' scores on standardized exams.
Yes, that's right, in the most recent scandal of its kind, a group of educators, including one principal and a number of school administrators, were caught altering the results of one of those daffy standardized tests that now subsume the lion's share of all pedagogical opportunities in America's public schools. Only this time, some are saying that this is a huge story and the biggest development in American education law since forever.
From AP again:
"This is a huge story and absolutely the biggest development in American education law since forever," University of Georgia law professor Ron Carlson said. "It has to send a message to educators here and broadly across the nation. Playing with student test scores is very, very dangerous business."
There's really no doubt that those convicted did a Very Bad Thing -- like, you know, The Worst Thing "since forever" OMG -- if for no other reason than that their actions will scandalize other public school educators, who are currently described so frequently in media accounts as "embattled" it's like their homeric epithet. The only people more demonized by political elites from either party are sadists who attempt to set up demented death-cult caliphates.
And sweet fancy Moses, did they ever lay the wood to those folks they convicted! Per the AP: "Over objections from the defendants' attorneys, Superior Court Judge Jerry Baxter ordered all but one of those convicted immediately jailed while they await sentencing. They were led out of court in handcuffs."
They took them out in chains! That's hardcore. That's humiliating. That's a sight that will make other people think twice before committing similar crimes -- it's what real accountability looks like.
Or at least that's what a horrifyingly unequal justice system looks like when it plays out right before our eyes. Last year The New Yorker took a close look at the teachers and administrators involved in this scandal and, well, read the story for yourself and decide whether these are people who should be shackled; or if, rather, society should apologize for creating the terrible circumstances into which they and their students were thrown.
So while an Atlanta judge somehow found the courage to lock these educators up even before they've been sentenced -- again, not a thing that happens to white-collar criminals (with an emphasis there on "white") -- the justice system typically has little appetite for such accountability. These educators stumbled into one of the few areas of American life where a willingness to lower the proverbial boom on a corrupt actor actually exists.
Let me give you a blueprint for how this sort of thing would have gone down if the scofflaws were high-flying bankers. What if you had a situation where, say -- I don't know -- a big bank laundered money for drug cartels and aided and abetted the transfer of funds between rogue nations and terrorist organizations.
This is an actual thing that an actual bank -- HSBC -- actually did. They broke the sort of laws that, had someone like you or I done the same, we would be lucky to avoid being flayed alive in the town square for it.
But when an organization like HSBC gets caught engaged in these sorts of crimes, what happens next is that the authorities tasked with meting out accountability invoke something called "collateral consequences."
Collateral consequences is an idea that Attorney General Eric Holder laid out near the end of a famous memo that everyone initially thought was going to be a new, punitive guideline to disciplining bad banks. But "collateral consequences" encapsulates this notion that the state has much more important things to consider than "holding people accountable for their actions."
In the corporate context, prosecutors may take into account the possibly substantial consequences to a corporation's employees, investors, pensioners, and customers, many of whom may, depending on the size and nature of the corporation and their role in its operations, have played no role in the criminal conduct, have been unaware of it, or have been unable to prevent it.
As a theoretical construct, this is fairly reasonable -- don't wreck the innocent on your way to punishing the guilty. But the way this precept has been applied has been much different. As Dealbook's Ben Protess and Jessica Silver-Greenberg reported, it's the principle that got HSBC largely off the hook: "State and federal authorities decided against indicting HSBC in a money-laundering case over concerns that criminal charges could jeopardize one of the world's largest banks and ultimately destabilize the global financial system."
As punishment for directly aiding some of the world's most noteworthy sociopaths, HSBC was forced to pay $1.9 billion in restitution. That sounds like a big number! But bear in mind that this penalty amounted to "little more than half of the $3.5 billion in pre-tax profits the bank earned in the third quarter of 2012," and just a sliver of the $16.8 billion the bank netted in 2011. HSBC also earned a deferred prosecution deal (where you don't get prosecuted as long as you super-duper promise to stop laundering money for drug cartels and terrorists), and was made to apologize. "Our bad," said the bank's spokesperson, probably.
As Reuters reported, former U.S. Treasury official and University of Notre Dame Law professor Jimmy Gurule said that this settlement made "a mockery of the criminal justice system," and recommended that HSBC be subject to the same sort of treatment as these Atlanta educators:
In his view, the only way to really catch the attention of banks is to indict individuals.
"That would send a shockwave through the international finance services community," Gurule said. "It would put the fear of God in bank officials that knowingly disregard the law."
But the way we prosecute banks is actually designed to prevent such shockwaves. Matt Taibbi, whose book The Divide offers a thorough filleting of the way "collateral consequences" has become a promiscuously dispensed "Get Out Of Jail Free" card, explained how this works in an interview with Amy Goodman, "Of course it makes sense to not always destroy a company if you can avoid it. But what they've done is they've conflated that sometimes-sensible policy with a policy of not going after any individuals for any crimes."
And so you get Lanny Breuer, the Obama administration's alleged point man in holding Wall Street's feet to the fire, telling the New York City Bar Association that he adheres to a strict, "sit down, you're rocking the boat" principle:
We are frequently on the receiving end of presentations from defense counsel, CEOs, and economists who argue that the collateral consequences of an indictment would be devastating for their client. In my conference room, over the years, I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects. Sometimes -- though, let me stress, not always -- these presentations are compelling. In reaching every charging decision, we must take into account the effect of an indictment on innocent employees and shareholders, just as we must take into account the nature of the crimes committed and the pervasiveness of the misconduct. I personally feel that it's my duty to consider whether individual employees with no responsibility for, or knowledge of, misconduct committed by others in the same company are going to lose their livelihood if we indict the corporation. In large multi-national companies, the jobs of tens of thousands of employees can be at stake. And, in some cases, the health of an industry or the markets are a real factor. Those are the kinds of considerations in white collar crime cases that literally keep me up at night, and which must play a role in responsible enforcement.
Being too big to jail "is a good thing," to borrow a phrase of Martha Stewart's (who apparently wasn't big enough). Meanwhile, Breuer now works for the people he was supposed to punish, a fine reward for a job well (not) done.
In the case of the fraud committed by these Atlanta educators, dogged investigators and prosecutors were allowed to make their case and are now hailed public guardians of justice. In other words, they weren't treated as shabbily as former SEC investigator Gary Aguirre was by his own agency.
Aguirre joined the SEC in September 2004. Two days into his career as a financial investigator, he was asked to look into an insider-trading complaint against a hedge-fund megastar named Art Samberg. One day, with no advance research or discussion, Samberg had suddenly started buying up huge quantities of shares in a firm called Heller Financial. "It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller," Aguirre recalls. "And he wasn't just buying shares -- there were some days when he was trying to buy three times as many shares as were being traded that day." A few weeks later, Heller was bought by General Electric -- and Samberg pocketed $18 million.
After some digging, Aguirre found himself focusing on one suspect as the likely source who had tipped Samberg off: John Mack, a close friend of Samberg's who had just stepped down as president of Morgan Stanley. At the time, Mack had been on Samberg's case to cut him into a deal involving a spinoff of the tech company Lucent -- an investment that stood to make Mack a lot of money. "Mack is busting my chops" to give him a piece of the action, Samberg told an employee in an e-mail.
One would imagine that an SEC investigator, provided with evidence of brazen insider trading, would be given the opportunity to make a case. But what happened next will probably not astonish you. Aguirre was sandbagged by his superiors at the SEC and pressured by Morgan Stanley's lawyers -- among them several who'd spun through the revolving door between regulators and the regulated -- to drop the case. When the still-undaunted Aguirre continued anyway, he was dismissed from his job. The happy ending, I guess, is that the government was finally compelled to fork over $755,000 after Aguirre successfully sued for wrongful termination. (Mack was finally deposed by the SEC, conveniently "days after the five-year statute of limitations on insider trading had expired in the case.")
These Atlanta teachers were, astonishingly, prosecuted under Georgia's version of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act, the theory being that their actions were not some hasty, sloppy, misguided attempt to save their school from closing, but actually an elaborate criminal enterprise concocted for the purpose of securing teensy bonuses. The invocation of RICO -- which is more often used to bring down dangerous mafia families and much less often on dodgy schemes cooked up in a teachers' lounge with a busted microwave oven -- means that these educators face the prospect of decades-long jail sentences for crimes in which little money was at stake and resulted in the death of nobody. It really is something of a legal coup that prosecutors found it so easy to convince a judge that RICO was appropriate here.
Would that RICO could be successfully applied in banking cases! The very proposition is essentially treated as something of a fantasy. Prosecutors are currently attempting to apply RICO to a case in which Bank of America stands accused of "effectuating a captive reinsurance scheme that defrauded plaintiffs ... and compelled them to fund illegal kickbacks and referral payments in the form of purported reinsurance premiums to Bank of America," but it looks like the bank will dodge this on a technicality.
It's a pity the prosecutors in that case are unlikely to be as successful as bringing the RICO sledgehammer to bear as those who prosecuted these Atlanta teachers. And those teachers probably rue the fact that they were much easier to prosecute, as well. As ProPublica's Marian Wang describes, standard operating procedure for cases in which regulators actually put together iron-clad cases against Wall Street criminals looks something like: 1) go after the scofflaws with all the skittishness of a newborn kitten, 2) if at all, and 3) at best, secure financial settlements so teensy-tiny that the judge presiding over the case stands up in court and calls you a disgusting, quivering coward.
Yes, that happened, too. U.S. District Judge Jed Rakoff, who presided over the 2011 case Securities and Exchange Commission v. Citigroup, spent a sizable part of his opinion -- in which he refused to endorse the negotiated settlement -- lambasting the SEC regulators for their long-form imitation of an invertebrate.
But while such prosecutorial performances may stand out as gutless in the Southern District of New York, anyone who's spent time near Capitol Hill recognizes it as bog standard. As we've recently learned, if someone like former Rep. Aaron Schock commits the sin of fraudulently applying for a higher mileage reimbursement than that to which he is entitled, suddenly everyone in Washington becomes infused with the courage of Eowyn facing down the Witch-King at the Battle of Pelennor Fields.
And yet many of the same, serious people who talked so tough about the representative from Downton Abbey and his misdeeds, also consider it an open question as to whether skeevy financial advisors should be brought to heel for systematically defrauding their clients to feather their own nests. Why, such a move could imperil the entire financial sector of the economy! There could be collateral consequences!
In the end, I think that these Atlanta teachers have learned a lesson: Be a banker. Or a polluter. Or run a for-profit education scam. Or snooker people with predatory mortgage agreements. Or rip off people with penny-stock schemes. Or run a college sports cartel. Or create a super PAC. Or "torture some folks."
Just don't ever change the answers on a standardized test.
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