Episode 84

The Presumption of Innocence - Episode 84

Host Matt Adams sits down with former Enron Task Force lead prosecutor and Duke Law Professor Samuel Buell to trace the arc of corporate fraud enforcement — from the historic conviction of Enron's top executives to the challenges facing regulators and prosecutors today.

Buell offers a candid look at how the Enron prosecution came together, including the pivotal decision to flip CFO Andrew Fastow, the controversial case against Arthur Andersen, and why holding individuals accountable in America's boardrooms remains far more difficult than the public tends to assume.

Buell makes the case that criminal prosecution alone cannot prevent the next corporate crisis — and that strong regulatory infrastructure may matter more than any single perp walk.

With the Department of Justice closing over 23,000 cases, the SEC losing experienced staff, and career prosecutors stepping away, Buell reflects on what happens when enforcement capacity erodes.

The views expressed in this podcast are those of the participants and should not be considered the views of Fox Rothschild LLP or its attorneys. This podcast is for informational purposes only, is not legal advice, and does not create an attorney-client relationship.

The Presumption of Innocence - Episode 84

The views expressed in this podcast are those of the participants and should not be considered the views of Fox Rothschild, LLP, or its attorneys. This podcast is for informational purposes only, is not legal advice and does not create an attorney-client relationship.

Matt Adams: Welcome back to The Presumption of Innocence, a podcast brought to you by the White Collar Criminal Defense & Government Investigations practice at Fox Rothschild, LLP. To say that Samuel Buell has had a distinguished career in the field of white-collar crime would be an understatement. He worked as a federal prosecutor in New York, Boston, Washington and Houston.

He was responsible for bringing charges against some of the Enron scandals biggest names like Jeffrey Skilling, Andrew Fastow, Kenneth Lay and the Arthur Anderson firm, at the time, one of the quote unquote Big Five, which dwindled it down to only four. These days he is the Bernard M. Fishman Distinguished Professor of Law at Duke University Law School and a prolific author on white collar crime, including an eponymous hornbook entitled "Corporate Crime: An Introduction to the Law and Its Enforcement" and "Capital Offenses Business: Crime and Punishment in America's Corporate Age."

But today, he's our guest on the Presumption of Innocence. Professor Buell, thank you so much and welcome to the program.

Sam Buell: Thanks. Good to be here.

Matt Adams: So, professor, there's so much that I want to cover with you today, but I want to start with your work on the Enron Task Force during your time at DOJ. From my examination of your scholarship, it's clearly colored your work in academia.

So let me set the table for our audience, if I may. Enron was originally an energy trading and utilities firm in Houston. It transformed over time into a wider-ranging trading firm, dealing in energy contracts, derivative and even broadband capacity. It's one of the most prolific scandals in U.S. history and it is studied in virtually every law school and business school in the United States these days.

Sam Buell: Yeah, so the Enron scandal followed very shortly on the heels of the so-called dot-com bubble, you know, which was the first big modern era tech explosion in financial markets in the U.S. And we all know stories about companies that got big on paper and failed quickly. There was a certain amount of, you know, frothy optimism in the market about tech products. And, stock valuations were rising at levels that hadn't been seen in our lifetimes in the market.

And you had a CEO of that company who was a very bright man from Missouri by the name of Kenneth Lay, who I believe also had some technical accounting expertise. And he became enamored of the idea that this company needed to expand and diversify into a lot of new cutting-edge businesses, you know, had the potential to become a Fortune 100 company.

It ultimately was a Fortune 10 company before it went bankrupt. And one of the key players who really led Ken Lay into that strategy and, and concocted a lot of it was a guy by the name of Jeffrey Skilling, a very smart Harvard Business School graduate who had been a McKinsey consultant. And he was hired as a McKinsey guy to come in and make recommendations to Enron.

And, and he really got going with the idea that this company should start to create major trading platforms around energy assets, first natural gas, then electricity. And as you pointed out, they got into other trading platforms with things like broadband capacity and even weather. You know this was kind of a financialization strategy for a company that had been a sort of a hard assets company and it was as presented to Lay and others in the leadership of the company, a really exciting set of ideas. And one of the things that was of many factors that kind of propelled this forward was some decisions that were made by the SEC around accounting rules at about that time, which Enron had itself been actively involved in lobbying for, and particularly the expansion of the use of mark-to-market accounting for lots of novel assets that didn't have clear pricing mechanisms in the market.

So this gave companies like Enron the ability to mark on their books essentially their own judgment of what trading positions were worth that they held. And this became a way as they expanded these trading platforms to begin to report much larger earnings than they had produced in the past.

And we were in that era again where quarterly earnings reports and the effect they had on stock prices, and the way in which that drove the market, was really taking off at a level that we had never seen before. And, you know, this kind of cycle developed around the stock price and all the ways in which they could use financialization to boost the stock price.

But that's what we have to do to keep this company on track. The long run. And nobody in the company was willing to do that. And they just kept going down this financialization rabbit hole with devices that were designed to keep that stock price up and along the way, you know, not all of it was fraud, but a lot of it was, you know, poor risk management.

But some lies were told, some fraud was committed in the old, you know, story of, well, if we can just get this thing through the next couple of quarters, the fundamentals will bounce back and the stock price will be supported by reality. And so if we have to cut some corners and tell some fibs for a couple of quarters, well, gee, you know, in the long run that's good for the company and good for the shareholders.

And then,

Matt Adams: and lo and behold, it cratered and it didn't work

Sam Buell: Well, yeah, I mean the, the devices that, you know, some of the outside critics who had been sort of drinking Enron's Kool-Aid when the stock was going up, they went from, I don't know, 20 bucks a share to over a hundred in a fairly short period of time.

And in those days, that was a huge increase. Some critics on the outside, couple short sellers, some journalists, started asking, you know, some analysts, started asking some questions about the fundamentals. And that began to put pressure on the story. Then I think part of what sort of, you know, kicked them to the curb was 9/11.

So right when they were at the most vulnerable point, this was the point right after Skilling had suddenly resigned from the company, essentially without explanation. And the theory, although it was never proven because he kept his mouth shut about it, was that he wanted to get out before the, you know, house fell down.

And it was shortly after that, that 9/11 happened, which was a external shock to the markets and generally, you know, knocked prices down on a temporary basis. But enough that some of the financial vehicles that Enron had set up were very quickly underwater. And then, you know, that's when the momentum shifted against them and the critics really started digging in and, and they realized that this company, you know, didn't have what they thought it had.

And the stock starts trading downward and some of the financial vehicles that were propping up the company and allowing it to hedge the value of some very questionable and volatile assets, those financial vehicles were themselves capitalized with Enron stock. Which in and of itself wasn't a fraud, although one might argue it should be.

And then that just burst the bubble. And everybody started running for the exits, their creditors, their counterparties. And by December 1, the company was bankrupt.

Matt Adams: And so the proverbial house of cards begins to fall, and DOJ loves a good task force. So, lo and behold, the Enron Task Force of which you were a member as I said at the outset, you were one of the lead prosecutors for the task force and DOJ formulates this task force.

Tell us a little bit about the composition of the Enron Task Force.

Sam Buell: Yes, a really interesting story. You know, as these things go, as you know in the lifetime of a practice career, it's all about where you, right place, right time, who you've worked for before, relationships, you know, and a lot of this stuff is very random in how it happens.

So, Mike Chertoff was the Assistant Attorney General for the Criminal Division. John Ashcroft was the Attorney General and Larry Thompson was the Deputy AG. The Bush administration had only been in office for less than a year. If, if there was one issue on which George W. Bush might have been worried at that point, certainly before 9/11 eclipsed everything in terms of his political vulnerability, it might have been the accusation that I think was made when he ran against Al Gore that he was kind of a, you know, big business, Texas corporate guy and that they, they kind of had him in, in, in their pocket. And in fact Lay and Skilling and the Enron folks had been major donors to Bush's gubernatorial campaign and his presidential campaign.

So, I don't know this for sure, but just, you know, reading the tea leaves from what I could see, Carl Rove, of course, you know, is running the political operation in the White House, and I think immediately recognizes wisely that this is a potentially radioactive situation for Bush politically. So let's not get involved in this at all.

I mean, this is the 180-degree opposite of what we see happening in the current administration around issues like this. Let's not get involved in this at all. In fact, John Ashcroft recused himself because he had taken Enron money when he was running for Senate in Missouri. So Larry Thompson becomes the head of the whole thing. And then Chertoff says, you know what? Why are these things always in the Southern District of New York? You know, why, why don't we have more main Justice leadership on complex corporate crimes? So I think he thought that and, and also it was believed, quite correctly I think, that the Houston U.S. Attorney's office could not handle this case, for two reasons. One, Enron was the number one employer in the city of Houston. So almost everybody in that office would've been related in some way to someone who was an Enron employee. And the bankruptcy had devastated the city, the ranks of the city's upper middle class and white collar workforce.

Also the U.S. Attorney's office in Houston had never done a case approaching anything like this. They didn't have a tooled-up securities fraud, white collar unit. So Chertoff decides to do a task force out of Washington. And, Bob Mueller has recently become, you know, the famous Bob Mueller who just passed away, has recently become FBI Director.

And he's a obviously a career DOJ guy. Chertoff and him knew each other very well as federal prosecutors. Chertoff says to Mueller, we're going to do a task force. Who do you think should run it? And he goes, oh, the woman, when he had been serving as US attorney in San Francisco during the end of the Clinton administration, Mueller had. And uh, he said, oh, I have this great woman who did my white collar unit out there, Leslie Caldwell.

You should appoint her. So Leslie gets appointed a former Eastern District of New York AUSA and, uh, San Francisco AUSA. And Leslie immediately has to put together a team. So she starts calling people she's worked with before that she really likes. And there were a couple people from the San Francisco U.S. Attorney's Office, and there were two or three of us who had worked for Leslie when she was in the Eastern District.

So Leslie was my mentor when I started as a federal prosecutor. She taught me how to do RICO gang cases. I had moved on to the Boston U.S. Attorney's Office when she headed out to San Francisco. And I was actually had spent three or four years in Boston working on the Whitey Bulger prosecution and uh, which was the most famous, like organized crime case in Boston history.

And a very unique case in many ways. And I was in the midst of that and I got a call one evening from Leslie and she said, I got the Enron case. There's a meeting in Washington on Monday if you want to work on it, be there.

Matt Adams: Just like that it happened.

Sam Buell: I, I went home that night and I, we had just bought our first home.

We had our first child. It was less than a year old. We were both working in Boston, commuting into Boston. And I said to my wife, you know, you wouldn't believe Leslie called. And, and, and my wife is a corporate lawyer, so she was actually more attuned to what was the Wall Street Journal was saying about Enron than I was.

I was enmeshed in this organized crime case. And I said, oh, Leslie got the Enron case because of Bob Mueller and she wants me to come do it. And probably to her, to her regret, my wife said, oh, this is a chance of a career. You got to go.

Matt Adams: And just like that you were part of the team and what was your specific role?

Sam Buell: Well, first we did the Anderson case. So, so we went down to Washington and we were, you know, consulting with the SEC, which had a little bit of a head start. They'd been looking at Enron for a couple months and we were told, look, this accounting firm has been involved in records destruction.

There's been a congressional hearing about it. There's questions about obstruction of justice. They're already in a probationary status with the SEC because they were sanctioned for a bad audit on a company called Waste Management. And their management and their counsel are asking us if possible, to resolve the question about their obstruction liability first, because they're losing clients.

And as an auditing firm, uh, you know, this is kind of a huge cloud hanging over them that, you know, has to be resolved one way or another. And since the accounting issues are so complicated with Enron, let's start with the Arthur Anderson piece. It might also be, you know, by going and doing that investigation and talking to all the auditors, we'll also be gathering critical evidence when it comes around to Enron about what the involvement of the auditors were in these transactions and so forth.

So we did a, at Arthur Anderson's request, we did an accelerated investigation between January and March, focused almost entirely on the obstruction of justice issues. There were a couple of lawyers who got assigned to begin to look at one or two of the Enron transactions while we were doing that, basically working off of something that was called the Powers Report.

So Bill Powers, who has passed away now, but was the dean of the law school at the University of Texas and became the president of UT Austin, had been appointed by the Enron board to chair the special committee after the bankruptcy to look at what happened. And working with Deloitte, he did a couple hundred page sort of first-cut report on the accounting.

And, that was at least something that folks could, could, could begin to work off of in terms of, you know, the Powers Report was not looking at criminal liability. They were just trying to do an autopsy. And, but the Powers report was a way for a couple of the lawyers to begin to look at a couple of the problematic transactions.

Matt Adams: So from there, you know, I think the history books would reflect that there were a number of prosecutions of individuals. Arthur Anderson itself was basically forced out of business, as I said at the outset. The Big Five really whittled down to the Big Four by virtue of its involvement in this major scandal.

As a byproduct of that prosecutorial effort, that task force, what would you say was the biggest success of the Enron Task Force?

Sam Buell: Well, undoubtedly it was convictions of Jeffrey Skilling, Ken Lay after trial four years later, and Andrew Fastow and Ben Glisan and Richard Causey by way of plea agreements along the way.

So that's five, effectively C-suite managers of the company convicted of serious securities fraud, all of whom except Lay who died before sentencing served time in prison. I would argue that from an historical perspective, that may have been unprecedented in American law. I'm not sure there has been another case where a reputable company in the sort of Fortune 10 or 50 level category has had its C-suite convicted of crimes.

Not every single person, there were issues about proof as to some individuals, but we're talking about a former CEO and chairman, a CEO, a CFO, a chief accounting officer and a treasurer. And one can see how, you know, in the years since Enron, critics of the Justice Department, the financial press, to some extent, the public, have been howling, continuously as each corporate scandal comes and goes, and you don't have an equivalent level of personal criminal liability.

So I think that was clearly without question the most significant aspect of the case. I mean, as far as Arthur Anderson goes, obviously it was a signal event in the development of corporate criminal law because you had a major firm, not a corporation, a professional services partnership, but a, a major international firm actually go to trial.

Right, very few corporations take the government to trial either before or after Arthur Anderson. And you had a, a jury conviction. Now the case was very controversial as a matter of prosecutorial discretion in the wake of it. But I think a couple of things for reasons I'm not sure I understand, have been completely lost in that story.

Except when those of us who were there tell it. One is that, Arthur Anderson was losing, uh, clients at a very rapid rate before the government made a decision about whether to charge them criminally in the case, for obvious reasons. And including that, that is just the nature of a professional services firm as you know.

You know, people can up and pack their briefcase with their book of business and go and, you know, the assets of the people. And so, Anderson was in a, arguably a potential death spiral before the decision whether to indict. The other thing people don't realize or appreciate fully is that even though many of us involved have since told the story publicly, they were offered a nonprosecution agreement and turned it down.

The, the reason they turned it down was that the government was requiring, as it consistently has for decades, an admission of wrongdoing as a condition of the nonprosecution agreement. In other words, DOJ is not going to do SEC-style, neither-admit-nor-deny settlements, particularly with a company that's under probation with the SEC, from a neither-admit-nor-deny settlement. So there was going to have to be some admission of wrongdoing. And the lawyers took that to the management of the firm and the management of the firm said that is a deal breaker for us. If we put in a public document that we destroyed evidence to keep it away from the SEC, that's the same thing as being convicted of a crime.

Our clients will all leave. At that point a decision was made to indict, not just because they turned down the the NPA, but because of what we had discovered in the investigation and their, their recidivist status. And even after the indictment, we tried to negotiate a deferred prosecution agreement and that was also rejected.

So I actually have a belief that it may have been the case that they were losing so many clients and partners that they sort of had a, why not go to trial attitude at that point? Maybe we can at least prove a point. Um,

Matt Adams: Yeah,, they were, they were no longer financially viable it, it, it seems.

Sam Buell: So, it's a really interesting story because, you know, we of course were in the weeds of a litigation and you're not thinking about how things are going play out historically.

But, you know, as you know, the fact that they were convicted, that the conviction was ultimately overturned by the Supreme Court because of a arguably flawed jury instruction on an issue that was very close to the line and we could get into, but it's not that interesting anymore. Has created this story of, oh, the government shouldn't indict companies if it means that they'll be put out of business and they'll, employees will lose their jobs.

Matt Adams: Some really recent high profile ones as well.

Sam Buell: Yeah, I mean, I, I most of the major financial institutions have felony convictions.

Sam Buell: That was a hard question to answer when you're you're in the group of people who invested as much of our lives as we did, you know, and there were real strains on our families and, you know, you know how that goes. So, looking back, I mean there were certainly a lot of people in the media who criticized us for moving too slowly.

So, at that time Lou Dobbs, who later became a Fox News personality, was a financial journalism personality on CNN. He had a Wall Street show every evening on CNN, and every night Lou Dobbs would put up a counter of how many days had gone by with nobody being indicted yet in the Enron case. And, you know, we didn't think that two years from bankruptcy to indictment of the senior executives was an inordinate amount of time as these cases go, and this case was certainly an extra complex one.

In retrospect, could there have been other strategies that we could have pursued that would've made that happen faster? I don't know. I mean, the, the key in these cases, almost always is the cooperation of senior officials, right? Who can testify. So you don't just have the documents, you have the testimony about what would happen and why.

And it just took a really long time to, you know, get those people to agree to testify for the government. And particularly Andrew Fastow, who was the chief financial engineer of the whole thing. He knew where all the tricks were and all the bodies were buried. He didn't cooperate until the day before his wife was scheduled to go to trial on tax charges.

We were criticized severely by some people for indicting his wife. It's not illegal to indict a target's family member and then negotiate over that. It may feel unseemly to a lot of people, but it, it's not illegal. She was actually a former investment banker. He had used her as a key figure in one of the personal financial transactions that he had engineered to make money off of dealings between Enron and a partnership that he had created. So

Matt Adams: So you squeezed her.

Sam Buell: Yeah, and eventually he, he agreed to cooperate and then, you know, that was a year in, and then you've got to spend weeks debriefing and figuring out what all the things are that you're going to chase down. You know, I was a little bit disappointed in a couple of the sentences.

Rick Causey, who was the Chief Accounting Officer, he was as, nearly as culpable and involved in the mechanics as Fastow. He was a former Anderson partner who had gone in-house with Enron, and we really projected from the beginning that he would be a government witness. He had not profited personally from side deals with Enron the way that Fastow had.

And uh, he was represented by Reid Weingarten, a great criminal defense lawyer. And you know, Reid told us very early on, Rick isn't going to testify, he's just not going to do it. And you know, he didn't put it this way, but I, the sense I got was like, this guy is just not going to sit on a witness stand in a courtroom in Houston before family, friends and God, and say he was responsible for what happened to Enron.

But he'll plead. He doesn't want to go to trial, he'll plead. So a risk calculation was made and he ended up with a five-year sentence. Fastow's sentence is still a objectionable matter from my point of view. And we did a deal with him that was very unusual, at least in the U.S. attorney's offices where we had all come from.

You know, typically in a cooperation agreement, the defendant pleads to a number of charges. There's a large maximum sentence and there's a promise if he complies with the agreement to make a 5K motion, and then the sentence will be entirely up to the judge. We generally would not do so-called 11(e)(1)(C) pleas with cooperating witnesses. That is a plea where the parties agree to a specific sentence. We did do that with Fastow, in part because defendants would always prefer to know definitely what the sentence is going to be, but also because we really just wanted the jury to know that he was going to get a very significant sentence.

We knew that he would be portrayed as the mastermind of the case. So we were able to negotiate with Fastow, a C plea to a 10-year sentence. Ten years for a CFO of a major company, you know, that was a big deal. That was a long, sentence. After all was said and done, the case was tried. Most of us had left the task force.

I did not stay for the trial. Other lawyers had come in to do the case. When Fastow came before the judge who had taken his plea for sentencing, his defense lawyer said to the court, well, judge, it's a C plea to 10 years, but I mean, you can give him five. And, I wasn't there, but I heard that essentially what happened was the judge turned to the government and said, what do you have to say about that?

And the government said nothing. So he ended up with a five-year sentence after a plea agreement that was presented to a jury as requiring him to do 10 years in prison. I don't think anybody lied or misrepresented anything. But if you're going to do a deal like that, you got to stick to it. And I was very unhappy about that.

Matt Adams: So that really is a perfect segue to where your scholarship has brought you because i t's clear to me, and if you take issue with it, I you're free to object, but it's free to me that the, the Enron scandal has taught us so much about corporate accountability and in, in particular the use of the criminal law, federal criminal law to police America's boardrooms and C-suites.

It's entitled, "The Limits of Individual Prosecutions in Deterring Corporate Fraud." And you're, you're examining this idea that the criminal law is supposed to have this deterrent effect, but when you're talking about corporations it just doesn't work. You, you argue, quote, that relying on individual prosecutions to deter the most significant corporate crimes, especially those involving fraud in the financial sector, is less promising than believed.

In that same paper, you further state, quote structural features of crimes in the largest corporate organizations have made securing individual convictions and imprisonment, especially at senior levels, a chancey project for prosecutors. If not perp walks professor, then what? How do you clean up the C-suites, the boardrooms, the Wall Streets of this country using other law, sources of law than, than criminal law?

Coming from the guy who just, uh, kicked off a very significant body of work as a prosecutor, putting individuals in prison.

Sam Buell: Yeah. And I mean, ironically, Enron sort of created unrealistic expectations, I think, among the public and legislators, politicians, about the frequency with which the government would be able to do that successfully.

I mean, the, the nature of activity in the, in the business world, just like, you know, in any regulated space is that you're dealing with actors who pay attention to the legal system. They're not just out there doing whatever they do, and then, oh, here comes the law. We don't know what that, you know, it's, it's, everything is designed with an eye towards liability of all sorts and how to manage that risk, how to minimize it.

Either an inability of the prosecutors to succeed in proving the key mental state issues that really incriminate people in these cases at a senior level and will, will support jury verdicts and, and appellate affirmances. And, you know, sometimes those are proven with smoking gun emails. Sometimes they're proven with cooperating witnesses.

But it, it, I think it got harder over time for the government to acquire that kind of evidence. Um, and I say particularly in financial market cases, because I think those tend to be the most sophisticated actors in terms of thinking about legal exposure and how, how to avoid it. But also in some of these cases I, I, I talk about in, in the article, you know, there's genuine debates about whether the activity was in fact criminal, because not that it wasn't problematic or harmful, but whether it actually met, you know, existing criminal law definitions or was something else entirely like, stupid management of risk in certain product markets that then blow up and cause all kind of downstream harms.

But you know, we don't have crimes in our federal criminal law of, you know, being reckless in the management of a financial institution or something like that. So some of it has to do with how corporations are structured and the kind of diffusion of responsibility and the size and complexity of these organizations, which is not something that the law can change. What the law can do, and this goes sort of, you know, outside my expertise because it ends up becoming very specialized depending on what industry you're in, what the law can do is that it can try to build regulatory structures that put guardrails on this stuff in real time. And not rely on, oh, let's wait and see what the next scandal is that blows up in our face. And then we'll bring in a task force of prosecutors to do a forensic, you know, analysis. And we'll put a bunch of people on trial and that will deter the next one. I mean, part of the problem with that is, again as I said, the difficulty in actually succeeding in bringing these prosecutions.

But also when you're doing that, you're fighting the last war. I mean, it's like whatever comes along next is going to be some completely different array of behaviors and facts that people are going to be engaging in. And they're not going to be thinking, oh, I better be careful because those Enron guys went to prison, because they're thinking what I'm doing is a completely different thing.

And we've actually figured out a way or an argument that this works in the regulatory scheme, or it gets around the regulations in some fashion, or I think more importantly than anything else, the regulators are asleep at the switch. So, I mean, I'll just mention two glaring examples in that regard.

Volkswagen and Boeing, right? Volkswagen was one of the most flagrant, you know, corporate crimes we've seen in the last 20 years. You have, you know, people in the C-suite of a company basically saying, if we want to sell our cars in the U.S. there's these rules we have to follow about how we design them for emission systems.

What we're going to do is design and install a software system in our cars that deceives the U.S. regulator into thinking that our emissions are better than they actually are. And let's do it, they said, you know, in Germany. And they got away with it for a really long time because the EPA testing system was just so easily gameable.

And they actually got caught by like some graduate students at West Virginia University who decided to test a couple VWs with like a device they had hacked and were like, there's something wrong here. And then Boeing, you know, the, the way in which they got the regulators at the FAA to approve this totally inadequate training procedure for the new 737 MAX knowing that the software system in the airplane was causing it to do something that could be very dangerous if pilots didn't know how to react to it properly.

And they persuade the FAA because there's a mandate to you know sell these planes at lower training cost. These airlines aren't going to buy this if they have to pay to send their pilots to train in simulators, which is very expensive. So we'll persuade the FAA that that's not required. And then lo and behold, two different times the software system kicks in.

The pilots don't understand what's going on, and the planes crash and they kill hundreds of people. You go through the details of both of those cases and you just can't help but shake your head at the toothlessness of the regulatory systems that are supposed to be ensuring safety in these industries.

And so, you know, I, I don't disagree with the, you know, complaints that we have too much regulation on the books in this country. And it's all way too complicated and a lot of it's wasteful and it just creates work for lawyers and so forth, but there's an enforcement component to what these regulatory agencies do.

And, you know, you've got to arm them with the people and the resources and the tools to do real enforcement to be on top of things in real time so that we don't get these explosions that happen down the line. And, uh, it's sad to say that what's happening right now in, in our federal government is the opposite.

We are disarming the regulatory agencies at a staggering rate right now. And, most significantly, I think just in the loss of personnel that you're seeing. And if there aren't people watching what's going on, we're going to have problems. You know, it just, it'll be something new. It, it won't be mortgage-backed securities.

It won't be Enron's crazy, you know, trading platform financialization, you know, I don't know. It'll have something to do with AI or it'll be the private debt markets or whatever it is people are looking at right now and saying, gee, there might be something going on here that could blow up in our face.

It's the job of the regulators to get ahead of that, right. Like they're supposed to be like the TSA. Bombs don't get on the plane.

Matt Adams: In another earlier piece that you wrote entitled, " Retiring Corporate Retribution," you posit that corporations cannot be retribulatively punished. What did you mean by that?

Sam Buell: Well, in criminal law, you know, we basically, everyone learns in first-year criminal law that the Anglo-American tradition going back to, you know, hundreds of years of philosophers like Bentham and Kant, you know, have basically come up with two lines of argument to justify the practice of criminal punishment.

One is to send a message that deters future crime and the other is to punish, that is essentially harm through painful experiences like loss of liberty, wrongdoers, in order to do what is morally right to sort of even the moral scales for their wrongdoing. The practice of corporate investigation and prosecution in this country, especially as organized over the last few decades by DOJ, is very much a practice that is in the deterrent tradition, right? It's deterrence and prevention. It's all about, you know, the Holder memo, all this stuff. The way in which the defense bar and the government practice in this field is all organized around the idea of, look, corporations aren't people, they're legal entities.

Let's just be very utilitarian about this. What can we do to corporations to use them as a vehicle to reduce crime and get them to engage in compliance efforts, get them to remediate, get them to fire wrongdoers, you know, basically make them sort of private cops. If you try to take the other moral tradition in criminal law theory and apply it to corporations and say, no, a corporation is really a moral agent and when it does something wrong, it needs to be punished just for the sake of restoring the moral order. It doesn't really work because it's not just that they're, the corporations are not people.

I mean, I do believe that organizations can be appropriately blamed for criminal wrongdoing. I mean, it's, it's just the way we speak. I mean when we say that Boeing caused those planes to crash, we're not making a mistake. It's not, oh, no, no, no. You shouldn't say that. It was actually the engineers at Boeing who did it.

No, it was the whole company. They had systems in place, they had incentives. All of that had a lot to do with why the people did what they did or didn't do what they should have done. So I think it's appropriate to blame Boeing. But then you can't put Boeing in prison and all you can really do is fine Boeing.

And fining Boeing is just a way of getting Boeing to do things differently. You can make Boeing have better compliance. You can do all of those things that are designed to reduce crime in the future. But Boeing is not experiencing that as a punishment in the retributive sense. It's just simply illogical to say, oh, we should prosecute and, and sentence corporations, uh, because we need to make them internalize and feel bad about the bad things they've done to people.

I just think from a philosophical and theoretical standpoint, that doesn't make sense. Now that article was written to law professors. I mean, I, I, where there is a debate about this. I don't think the public, you know, or lawmakers really think about corporate punishment in the retributive sense.

I think when they say, you know, companies are getting away without being sufficiently punished, I think what they really mean is that the individuals who run those companies are getting away without individual punishment. And we saw what happened, right? Post-financial crisis where the public anger about that just rose and rose and rose to the point where DOJ finally said, you know, in the Yates memo, okay, okay, what we really, really want from corporations is that they give us all the evidence that we need and can use to punish the individuals. Because that's what we really should be doing to create deterrence and to punish wrongdoers is making sure we get individuals convicted.

Matt Adams: So, do you regret DOJ prosecuting Arthur Anderson?

Sam Buell: No, I don't think we had any choice. The ins and outs of how that case was investigated and negotiated, ultimately left the government in a position where Arthur Anderson was asking us to do something we could not do. I mean, at, at one point they said, we said, what do you expect us to do here?

And they said something to the effect of, well, we're losing clients. We need you to go out publicly and say we didn't do anything wrong. And Mike Chertoff was like, um, we don't do that. We don't do that. we, you know, we're not in the business of giving people clean bills of health. And so we can either do a settlement here and if you're going to have to agree that there was wrongdoing, which there was.

The fact that the jury instruction created an issue for the Supreme Court doesn't change anything about what. They were destroying evidence to keep it away from the SEC. So you're going to have to say that's what you did. No, we're not willing to do that. Okay, here's an indictment. What do you want to do now?

How about a deferred prosecution agreement? No, we're not doing that. And so at the end of the day, it was their decision to go to trial. I mean, what, what are you supposed to do as a lawyer in that situation? Just say, oh yeah, we were just bluffing. Don't worry about it guys. See you later.

Matt Adams: Yeah.

Sam Buell: Um, I, I think they knew the firm was toast at that point, and they were looking for a moral victory of some sort.

Matt Adams: So if your central thesis is that the regulatory structure is essentially the frontline defenses in this world. Let's go to current times. You alluded to it earlier. Over the course of the past year, we've seen a sea change in the way that white collar enforcement is being done. I recently attended the ABA White Collar Institute in San Diego.

It was widely reported that somebody remarked if anybody's a white collar practitioner in this room saying that they're busy, they're lying. And t he second iteration of the Trump administration has effectively created policies that have, for example, read the FCPA out of existence.

There's anecdotal evidence of a dramatic shift away from white collar criminal enforcement, just generally. A ProPublica report from late last month indicated that DOJ quietly closed more than 23,000 criminal cases in the first six months of President Trump's second administration. What are the long-term implications of this recalibration away from white collar enforcement for our economy, for our country, for the rule of law?

Sam Buell: I don't know. I mean they could be profound. You know, there, there is one view of this that okay, this is one four-year administration, who knows what's going to happen? Uh, next administration, whether Republican or Democrat, it could be a president, an attorney general who have a different philosophy. Obviously, a corporate enforcement program that DOJ developed over several decades was pretty consistent across Republican and Democrat administrations.

So, it's not strictly a party issue. It has something to do with this particular administration, this president and, and this particular senior executive branch personnel. Whether that carries forward, you know, I don't know. I mean there's a chance we go back to where we were, but even if we do what I worry about the most is that they fired a lot of people and they've driven a lot of senior people out.

Some of them very high profile people resigning because they've been great career prosecutors resigning because they've been asked to do things that they feel they cannot ethically do. That's got to be incredibly demoralizing to the more junior ranks to see happening. And then I think you do have a lot of people in the more junior ranks just quitting for morale reasons.

I have found a huge shift in the extent to which my students are coming to me and asking what's my path to get into an executive branch enforcement job? People are much more of the thought, oh, I'll do something else for a couple, three years and see what happens. I'm worried about going into Washington and being in a position where I might be asked to do some things that I profoundly disagree with.

So it will take regardless years to build it back because, you know, I didn't do the Enron case until I'd already been a federal prosecutor for eight years and I had done complex organized crime. I'd done some small white collar stuff, but I'd done, you know, in New York, I did RICO gang cases in Boston, I did organized crime.

I mean, I was doing complex federal litigation for six to eight years before I even tried to take on the Enron case, and I wasn't even the most senior person, you know, on that task force. So the learning processes takes years and so you have to rebuild the, the staff regardless of what the policy is that's coming from the top.

I worry, frankly, not so much about, you know, a a I do worry about some sort of explosion in the corporate space and in the financial markets that could have systemic consequences to our economy. And, you know, and that I worry about that from the standpoint of what the regulators are or aren't doing.

They've also cut the SEC staff by a large amount. And I worry about all of that. That said, I, there's things I worry about more from the standpoint of whether the government is on top of what's going on. You know, I worry a ton about cybersecurity risk. I worry about, you know, large environmental risks.

I worry about pandemics, you know, and how we would respond to that. I mean, there's a lot natural disasters. You know, there's so many things the government does that require competence and personnel, and there's been a huge reduction in that. So it's hard not to think that, as our politics go, something's going to happen and then there's going to be a huge backlash.

Why wasn't the government on top of this? What did they know? When did they know it? Where were the regulators? And yeah, I mean, when you have the government saying that they're basically withdrawing from entire sectors, like essentially we're not going to worry about the crypto markets and really not do anything about that, it'll all be fine.

We're not doing FCPA anymore, or we're only doing it, you know, when we have national economic interests in mind, which the treaty we're a party to says we're not supposed to take into account. So, it's been profoundly discouraging to me, you know, to hear the stories from lawyers who've left the DOJ about what was going on and why they left.

And to see major offices like the District of Columbia and the, the Central District of California losing, you know, large numbers of lawyers. I won't gild the lily. I mean, I, I've, in the last year I've had a hard time figuring out what I should be writing about. What is the intervention into this right now, from a scholarly standpoint that can actually be relevant. And because it's, you know, Jack Goldsmith, who the famous DOJ lawyer from the Bush administration who teaches at Harvard, brilliant guy, you know, was on a panel a little while ago and said as a Republican lawyer, he said, this administration has dropped an atom bomb on top of the Department of Justice.

The work that you do for that book tries to grapple with the question of why Wall Street didn't go to jail. Essentially that hypothetical, for its role in tanking the, the economy with risky bets and why instead the taxpayers came to the rescue of the firms that created the mess. Are we headed for another one of those reckonings?

Sam Buell: I mean, I can't crystal ball that because I'm not an economist, right? And I mean, I can, once it blows up, something blows up. I can do the forensic lawyering part. I can look at what the facts are and measure it against the legal rules and opine about potential criminal liability. But in terms of where the activity is in markets that poses the greatest amount of systemic risk right now, I don't have the expertise to answer that question. All I can say is there sure does seem to be a pattern in the modern economy that I've grown up in of these cycles where, dangerous products and risk-taking in the financial markets metastasizes in some sector in a way that ends up when it fails causing damage well beyond the particular sector in which that activity was taking place.

And it's almost always by definition a sector that we hadn't really been focused on or looking at before. Because usually what happens when you have a blow up is you get legislation and regulation that's designed to try to make sure that that blowup doesn't happen again. So, like, you know, after Enron we got Sarbanes-Oxley.

After the NBS fiasco, we got Dodd-Frank, but every time you do one of these legislative projects, you know, it partly has the effect of making those sectors of the financial markets a little less appealing and a little less potentially profitable to folks, and they start looking for other places to go, right? So, uh, where is it that, where, where is it that the money is flowing right now, where the regulations are inadequate and the risk might be high. I mean, the other thing you have to worry about is just external shocks, right? So, I mean, we've got a very, I mean, I guess, I don't know what the term is, inflated, I mean, that's a little bit pejorative. I don't really mean that, but we, we have a very elevated stock market right now, and, and it, as I understand it, the elevation of that market is heavily concentrated in a small, a very small number of firms, more so than it has been historically. And you know, what kind of external shock, whether it be, you know, some kind of a cybersecurity crisis involving AI or not involving AI, a natural disaster or environmental kind of crisis, something that impacted our infrastructure in a really profound way, whether it be the communications grid or the power grid. You know, the follow-on effects of that on markets in the economy could be quite, q uite severe. But that's all way above my pay grade.

Matt Adams: So if

Sam Buell: I'm just a criminal law professor.

Sam Buell: Well I don't think the companies can't be held criminally responsible. I mean, I, I just, we were talking before making the argument that if you're talking about the justification for holding them criminally responsible, you should be thinking about crime prevention and deterrence. And I do believe, maybe I didn't have a chance to mention this.

I mean, in our earlier discussion, sometimes a company should be put out of business with a criminal prosecution. I mean, they're, you know, there, so the too-big-to-fail problem is a huge problem, right. In some circumstances I'm not really sure how to solve it though. I mean, Boeing is a great example.

Like I think it's, I'm again, I'm not an economist but I think it's really hard, would be really hard to argue from a standpoint of, you know, a presidential administration that's tasked with managing the national economy for the betterment of the American people and for national security and all of that.

That we could or should put a company like Boeing out of business. I mean, there's only two companies in the world that are making large commercial aircraft and there's only one in the U.S. Y ou know, there's companies that we are so heavily dependent on as a society that the too-big-to-fail problem is, you know, is real.

I, I, I think that, you know, a slightly smaller version of that question that has not been worked out in the scholarship around this and certainly has been worked out by the government, is how do we figure out what the right level of financial penalty is to impose on companies in these cases? What is the amount of money that is A) sufficient to create a real genuine deterrent effect as to that company and other companies in its industry, but B) not too large as to put the company out of business.

And is there in fact a number between A and B? Or is it just a conundrum where the, the reality is that for the government to ever threaten or impose a fine that's sufficient to have a real bite. It almost has to be an out-of-business level penalty, but it just doesn't seem like that should be true. You know, and I, and I, I, I feel like in a lot of these cases, the penalties that get imposed are almost by definition cost-of-doing-business numbers.

Because you have folks from your profession on one side of the table, and you have government lawyers on the other side, side of the table. And it's a negotiation to get at a number the company can live with. And if the company can live with it, maybe it's not high enough, you know? And so, maybe in some of these cases, it shouldn't be a conference room table negotiation on a number that everybody can live with. It should be a conviction at trial and a judge deciding and imposing a sentence.

Matt Adams: So in our waning moments, professor, I want to ask a question I ask of all my guests on this program, and that is I'm asking you to take out your crystal ball, even though you said you're not inclined to predict the future.

But I want to, I want to have you look into that crystal ball anyway, and, and, and I, and I posit this to you, you know, these, these clearly shifting priorities at DOJ and the regulatory structure writ large in our government right now. Okay. What do you see as the next trend in white collar enforcement and mindful that it may be very well reactionary to the lax enforcement we're seeing.

Sam Buell: Yeah. So what would happen after this phase? I mean, I, I think what we're seeing currently in this phase is an effort to, uh, redirect resources towards what we might call retail white collar crime. You know, I mean, to me, corporate crime and white collar crime are not the same thing. So corporate crime is white collar crimes committed in the setting of large business firms, bringing in all the issues that that involves legally and, and factually.

And that's what I've spent most of my career focused on because I find it the most fascinating thing. But of course, there's tons of white collar crime that's committed by individuals, acting for their own reasons, either in their personal capacity or in the context of small businesses or closely held firms.

It seems that the government has an idea that there's sort of just, you know, tons of fraud going on out there at the retail level, mostly against government programs, and they want to put personnel on that. There's always been that level of cases, but is there going to be a boom in that level of cases?

Are they, you know, is this sort of like voter fraud? Are they imagining that there's tons of stuff out there when there's actually fairly little? We'll, we'll have to see. Uh, you know, so that's a short term kind of, development and that, that becomes a very different debate about the value of doing those cases, the purposes of doing them.

And it involves very different lawyers, right? Like the large law firms are not going to be involved in those, cases. As far as after this administration, I mean, if there is a reactive election in '28, which includes, reaction to a, let's say there's no big corporate scandal that blows up in the face of this administration.

I mean, there may be, but let's say there isn't. Right? And they just kind of plug away doing whatever they're doing and they're, they pull out of all these areas. A nd so we suspect that there's lots more crime going on, but it's not getting detected. So we don't really know about it. You know, how much insider trading is there?

How much FCPA bribery is there? I mean, with no enforcement we won't really

know. it will take years for that to really gear back up. You know, it's not something that's going to happen overnight.

And I, I, I wonder what's going to happen in the Big Law space in the meantime as lawyers have to figure out how to maybe retool themselves into other areas of practice. And I know my students ask about that, who are, you know, at Duke we, for good or ill, send a very large percentage of our students, over 80%, to the hundred largest law firms in the country.

So most of my students are going into this kind of work and they don't really know what they're getting into because they're young and a lot of them came straight out of undergrad and they're trying to figure out like what should they be doing? And uh, it's hard for me to know what to advise them when I'm aware that this field that I've been teaching in for the last, you know, decade and a half is undergoing this massive shift.

And it's like, I, you know, I can't predict or tell them like, you know, and I'm not going to tell them like, oh, you should be a bankruptcy lawyer or you should be a tax. You know, it's like, if you're interested in government and how government interacts with the world. Then like, you know, if you're going to Big Law you should try to get into some kind of enforcement space of one or short sort or another.

Maybe there'll be state AG activity that will fill some of these gaps. That would be interesting to see. There are resource issues for them, of course. They just don't have the, the size of the, you know, bureaucracy that the federal agencies have.

Matt Adams: Well, certainly professor, your comments about the DOJ's focus on at least the retail white collar space are bearing out.

In recent weeks, we've seen the announcement of the National Fraud Enforcement Division. My colleague here at my law firm, Marissa Kingman, has put out an alert about that, which you can find on our website and on social media. It has been an absolute honor and a pleasure to speak with you over the course of the last hour or so.

We've covered a lot of ground. Professor, please do promise me you'll come back because I think we could spend another couple of hours talking about some of this really dense stuff, and maybe by then we'll have the benefit of some hindsight on how some of these issues are going to play out. But that's all the time we have for this episode of The Presumption of Innocence.

I'm your host, Matt Adams. I've been with Duke Law Professor Samuel Buell for the last hour or so, and it has been just a, a wonderful conversation. Until then, take care.

Sam Buell: Thanks, Matt.