The government’s effort to put criminals in jail for the Deepwater Horizon disaster has ended predictably, though still fortunately, with the discovery that there are no criminals to jail.
Last week, a jury acquitted Robert Kaluza of charges for violating the U.S. Clean Water Act by ignoring warning signs leading to the 2010 explosion. Kaluza, who was the BP well site manager at the time of the Deepwater Horizon spill, initially faced an additional 11 counts of seaman’s manslaughter, which were thrown out earlier, and 11 counts of involuntary manslaughter, which the government dropped in December.
Prosecutors demonstrated that Kaluza, along with others, made consequential mistakes. But a mistake is not a crime, and jurors took only two hours to return a verdict, according to The Wall Street Journal. The verdict ended the government’s four-year attempt to hold someone criminally responsible for the disaster, with nothing to show for it besides 23 counts withdrawn before trial, 23 counts dismissed and three jury acquittals. Even the three guilty pleas that prosecutors secured, all misdemeanors, will almost certainly end with all the men involved receiving probation.
This is yet another case of the government attempting to criminalize mistakes for political reasons through prosecutions built on vague or contrived interpretations of the law.
While BP has been a target for years now, its case is far from unique in the search for scapegoats to satisfy the public’s hunger to hold someone responsible for unfortunate or tragic events. I have written before about the consequences of overzealous regulation in the wake of the 2008 financial crisis. But along with public policy that may or may not prove to be seriously misguided, there has been no shortage of efforts to pursue criminal charges, regardless of legal merit.
Consider, for example, the two Bear Stearns executives who were quickly acquitted when the government failed to prove they had committed fraud. Or consider the Justice Department’s reluctant admission that there was not enough evidence to charge Goldman Sachs or its employees with any wrongdoing in 2012. Nor have government agencies fared much better with civil fraud charges, such as those the Securities and Exchange Commission leveled against managers of the Reserve Primary Fund in the aftermath of Lehman Brothers’ collapse.
When these cases do not fail coming out of the gate, the courts have sometimes stepped in to correct injustices. The Supreme Court unanimously overturned Arthur Andersen’s conviction in relation to the Enron scandal, for instance. This was a rebuke to federal prosecutors but little comfort for the approximately 28,000 Andersen employees who lost their jobs in the wake of the original charge, which effectively doomed the company.
The Supreme Court has now said it will take up the question of insider trading. Is a prosecution valid if the tipster got no financial benefit from passing along the relevant information? Under current law, prosecutors must demonstrate that the tipster gained a “personal benefit” for the leak; the Court will step in to clarify that term, which appellate courts have interpreted in a variety of ways thus far. Prosecutors have attempted to interpret “personal benefit” as broadly as possible in the face of this uncertainty. It is very possible that the high court will rein them in substantially.
This case is relevant to, though separate from, the earlier Second Circuit decision in United States v. Newman, which reinforced the requirement that a defendant know that the original insider disclosed information in a breach of fiduciary duty. In dozens of insider trading convictions prior to this ruling, defendants charged with insider trading did not even know who the tipster was, let alone whether he or she personally benefitted from the tip, because prosecutors often went after hedge fund traders or executives who were three or four steps removed from the original leak.
Last fall, the Justice Department said it would make a point of coming down hard on corporations unless they effectively surrendered their executives and other individual employees. In other words, the public wants scalps, not just fines, when something goes wrong. Justice will try to oblige.
Not that financial professionals are the only ones to draw this sort of prosecutorial overreach. As I have written before, attempts to criminalize arguably normal political behavior have flourished in recent years. The Supreme Court will review the conviction of Robert McDonnell, the former governor of Virginia, and his wife, Maureen. And the Texas Court of Criminal Appeals has dismissed the last of the charges against former Gov. Rick Perry after 18 months of criminal proceedings.
All this in the name of accountability – which is, of course, purely a one-way street. Prosecutors are never held accountable for overreaching prosecutions. Their actions in the wake of the Deepwater Horizon disaster are a prime example. In Kaluza’s case and others, the courts had no trouble recognizing that the people involved were humans who had made mistakes that led to a disaster. Yet there is no way for the people involved to get back their lost careers or the years of their lives ruined by aggressive, politically motivated prosecutions that had no legal merit.
When David Rainey, the most senior BP executive to face charges, was acquitted last year, the judge said in court that he thought the jury reached the correct verdict. So why did the case even reach the jury? In nearly every criminal trial, after the prosecution presents its case, the defense will make a motion to dismiss on the grounds that the prosecutors failed to produce enough evidence to support a conviction. Judges almost never grant this motion. In the BP case, however, the judge should have done so based on his own later comments. Such a flimsy case should never have reached a jury, where the outcome may be decided not just on the facts, but on the jurors’ personalities or even how badly they want to get home for dinner.
When prosecutors bring unjust prosecutions, particularly those based on vague or novel readings of statues designed to turn mistakes into crimes, there ought to be a level of personal or professional accountability involved. If a judge will not enforce it, then bar associations should. We don’t want to stop law enforcers from doing their jobs, but if private citizens are to be threatened with fines, jail and ruined careers for their mistakes, prosecutors should be in the same boat.
Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book,
The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book
Looking Ahead: Life, Family, Wealth and Business After 55.
Posted by Larry M. Elkin, CPA, CFP®
photo by Mike Mozart
The government’s effort to put criminals in jail for the Deepwater Horizon disaster has ended predictably, though still fortunately, with the discovery that there are no criminals to jail.
Last week, a jury acquitted Robert Kaluza of charges for violating the U.S. Clean Water Act by ignoring warning signs leading to the 2010 explosion. Kaluza, who was the BP well site manager at the time of the Deepwater Horizon spill, initially faced an additional 11 counts of seaman’s manslaughter, which were thrown out earlier, and 11 counts of involuntary manslaughter, which the government dropped in December.
Prosecutors demonstrated that Kaluza, along with others, made consequential mistakes. But a mistake is not a crime, and jurors took only two hours to return a verdict, according to The Wall Street Journal. The verdict ended the government’s four-year attempt to hold someone criminally responsible for the disaster, with nothing to show for it besides 23 counts withdrawn before trial, 23 counts dismissed and three jury acquittals. Even the three guilty pleas that prosecutors secured, all misdemeanors, will almost certainly end with all the men involved receiving probation.
This is yet another case of the government attempting to criminalize mistakes for political reasons through prosecutions built on vague or contrived interpretations of the law.
While BP has been a target for years now, its case is far from unique in the search for scapegoats to satisfy the public’s hunger to hold someone responsible for unfortunate or tragic events. I have written before about the consequences of overzealous regulation in the wake of the 2008 financial crisis. But along with public policy that may or may not prove to be seriously misguided, there has been no shortage of efforts to pursue criminal charges, regardless of legal merit.
Consider, for example, the two Bear Stearns executives who were quickly acquitted when the government failed to prove they had committed fraud. Or consider the Justice Department’s reluctant admission that there was not enough evidence to charge Goldman Sachs or its employees with any wrongdoing in 2012. Nor have government agencies fared much better with civil fraud charges, such as those the Securities and Exchange Commission leveled against managers of the Reserve Primary Fund in the aftermath of Lehman Brothers’ collapse.
When these cases do not fail coming out of the gate, the courts have sometimes stepped in to correct injustices. The Supreme Court unanimously overturned Arthur Andersen’s conviction in relation to the Enron scandal, for instance. This was a rebuke to federal prosecutors but little comfort for the approximately 28,000 Andersen employees who lost their jobs in the wake of the original charge, which effectively doomed the company.
The Supreme Court has now said it will take up the question of insider trading. Is a prosecution valid if the tipster got no financial benefit from passing along the relevant information? Under current law, prosecutors must demonstrate that the tipster gained a “personal benefit” for the leak; the Court will step in to clarify that term, which appellate courts have interpreted in a variety of ways thus far. Prosecutors have attempted to interpret “personal benefit” as broadly as possible in the face of this uncertainty. It is very possible that the high court will rein them in substantially.
This case is relevant to, though separate from, the earlier Second Circuit decision in United States v. Newman, which reinforced the requirement that a defendant know that the original insider disclosed information in a breach of fiduciary duty. In dozens of insider trading convictions prior to this ruling, defendants charged with insider trading did not even know who the tipster was, let alone whether he or she personally benefitted from the tip, because prosecutors often went after hedge fund traders or executives who were three or four steps removed from the original leak.
Last fall, the Justice Department said it would make a point of coming down hard on corporations unless they effectively surrendered their executives and other individual employees. In other words, the public wants scalps, not just fines, when something goes wrong. Justice will try to oblige.
Not that financial professionals are the only ones to draw this sort of prosecutorial overreach. As I have written before, attempts to criminalize arguably normal political behavior have flourished in recent years. The Supreme Court will review the conviction of Robert McDonnell, the former governor of Virginia, and his wife, Maureen. And the Texas Court of Criminal Appeals has dismissed the last of the charges against former Gov. Rick Perry after 18 months of criminal proceedings.
All this in the name of accountability – which is, of course, purely a one-way street. Prosecutors are never held accountable for overreaching prosecutions. Their actions in the wake of the Deepwater Horizon disaster are a prime example. In Kaluza’s case and others, the courts had no trouble recognizing that the people involved were humans who had made mistakes that led to a disaster. Yet there is no way for the people involved to get back their lost careers or the years of their lives ruined by aggressive, politically motivated prosecutions that had no legal merit.
When David Rainey, the most senior BP executive to face charges, was acquitted last year, the judge said in court that he thought the jury reached the correct verdict. So why did the case even reach the jury? In nearly every criminal trial, after the prosecution presents its case, the defense will make a motion to dismiss on the grounds that the prosecutors failed to produce enough evidence to support a conviction. Judges almost never grant this motion. In the BP case, however, the judge should have done so based on his own later comments. Such a flimsy case should never have reached a jury, where the outcome may be decided not just on the facts, but on the jurors’ personalities or even how badly they want to get home for dinner.
When prosecutors bring unjust prosecutions, particularly those based on vague or novel readings of statues designed to turn mistakes into crimes, there ought to be a level of personal or professional accountability involved. If a judge will not enforce it, then bar associations should. We don’t want to stop law enforcers from doing their jobs, but if private citizens are to be threatened with fines, jail and ruined careers for their mistakes, prosecutors should be in the same boat.
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