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Corporate defense lawyers have adopted a new strategy that not even the mob considered. When facing litigation from the government, file misconduct charges against the attorneys bringing the charges.
A few days ago, it came out that the CEO of health care goliath UnitedHealth Group, Stephen Hemsley, sold $101.5 million of stock before a government antitrust probe of his company became public. Obviously there are unknown details, but trading on non-public information is a crime. Why would Hemsley do something so nakedly corrupt while under investigation by the Antitrust Division? The obvious answer is he doesn’t expect any consequences. Such an attitude is common among executives of prestigious companies, such as Boeing and Ticketmaster. They believe themselves above the law. And frankly, they usually are.
Why don’t they get prosecuted? There are many reasons, such as bad Supreme Court precedent, political corruption, and institutional sloth. But one little-explored problem is that the lawyers and cops at the FBI and Justice Department who go after the powerful can face serious career sanction. So that’s what I’m going to write about today.
Let’s dive in.
Plata O Plomo
In white collar prosecutor Neil Barofsky’s book Bailout, about the rancid behavior of the Obama administration during the financial crisis, one story stands out. Herbert Allison, a well-known Wall Street banker turned political appointee, asked Barofksy, who was then attacking the lack of guardrails around the use of public money, a question. “Have you thought at all about what you’ll be doing next?” He then added, “Out there in the market, there are consequences for some of the things that you’re saying and the way that you’re saying them.”
It was a threat, and Barofsky took it as such. Barofsky had a long career in white collar prosecution, having gone after both complex financial crimes and major drug dealers. And Allison’s comments were similar if less violent than those of Latin American drug dealers, who used the phrase “Plata O Plomo,” which translated as ‘the silver or the lead.’ That meant you cooperated and got rich, or you didn’t cooperate and got shot.
A few weeks ago, I wrote a piece for paid subscribers on how and why the new antitrust regime is different than the previous regimes, showing that FTC Chair Lina Khan and Jonathan Kanter take multi-billion dollar companies to trial routinely where their predecessors didn’t. Today I want to explain the cost of doing so, in antitrust or any other realm where the defendant is a politically connected or wealthy individual. And not the cost in terms of budget, but the cost to the specific careers of the government lawyers who take on the powerful.
We are all aware of the scenario that Barofsky cited above, where officials in government go easy on the powerful so they get good jobs after they leave public service. And that wasn’t just a financial crisis era dynamic; it’s pretty well-known among prosecutors that if they are aggressive in litigating against politically connected corporate targets, they will have a tougher time getting a job outside of government. Corporate lawyers argue otherwise, saying that corporations respect people who are hard-nosed litigators in government, and want to hire them when they leave. This theory is possible, I suppose, though it does not explain why so many officials hostile to enforcing the law get snapped up by big law and big tech firms.
I believe Barofsky, if for no other reason than ambitious lawyers who want to get rich aren’t stupid, and if they thought they could do so by bringing billion dollar cases while in government, they would. Instead, they have over the past four decades done the opposite. (The carousel from government to top firms is so routine that the wife of Supreme Court Justice John Roberts makes millions as a recruiter.) When you pull the trigger to block a big merger, good luck working in that industry later on.
What’s interesting is that this dynamic is no longer confined to the revolving door; because of increasing tolerance among judges for nakedly bad faith behavior by rich defense lawyers, line government attorneys can have their careers destroyed just for going after a criminal who happens to be politically savvy.
I’ll start with a story outside the realm of antitrust, a multi-billion dollar case of Medicare fraud in South Florida. And like most Florida stories, had a novelist come up with this, it would not sound believable.
Because Florida
The main villain is a man named Philip Esformes, a Miami nursing home kingpin, who in 2019 was convicted of the largest health care fraud scheme ever charged by the government, having stolen roughly $1.3 billion from 1998 to 2016 by making bogus claims to Medicare and Medicaid and bribing doctors and state inspectors. Esformes lived large, buying Ferraris, luxury watches, and prostitutes, as well as bribing officials at the University of Pennsylvania to get his son accepted.
There was plenty of evidence of his crimes, so you’d think going after this guy would be a slam-dunk, a career builder for ambitious prosecutors. But as you’ll see, Esformes managed to put Beth Young, the government lawyer who went after him, on trial, and nearly ruined her career.
Here’s how. In 2015, two conspirators of Esformes, Gabriel and Guillermo Delgado, were indicted for these schemes, with an added charge of drug trafficking. The Delgados, to ward off a stricter sentence, became informants for the government, and wore a wire, which revealed new crimes. Esformes, for instance, “offered to pay a significant sum of money to [Guillermo] Delgado so that he could flee the United States and avoid prosecution in the United States.” Soon Esformes was indicted, and the FBI raided his facilities, including where one of his lawyers had an office.
Enter Roy Black and Howard Srebnick, two celebrity South Florida lawyers known for defending high-profile cocaine dealers and famous people in disgrace. Esformes hired these men, as much because they are leaders of the clubby Miami defense legal establishment as for their legal acumen. They decided, as such lawyers often do, that the best defense was a good offense. And they got an opening when Young, the attorney on the case, used a document found in an FBI search in the office of a lawyer for Esformes, a lawyer the the government suspected was a conspirator.
Questions of which documents can be used come up a lot in document-intensive litigation, and usually the defense will say ‘you can’t use that document or any information from it,’ the judge rules, and that’s the end of the matter. The particular document at hand wasn’t important, since prosecutors already had records of systemic fraud, and tape recordings of Esformes seeking to bribe the co-conspirator. Moreover, prosecutors went by the book, asking superiors for approval at every step of the way; the FBI even established a ‘taint’ protocol to ensure they weren’t intruding on privileged information when they conducted their search.
But Black and Srebnick, financed by Esformes and his Medicare fraud money, alleged misconduct, asking the judge to dismiss the criminal charges under the silly premise that three lawyers and one FBI agent had perjured themselves so they could use a document they did not need. The judge, an Obama appointee named Robert N. Scola, sent the matter to an inexperienced magistrate judge, Alicia Otazo-Reyes, to figure out. With stars in her eyes from presiding over a procedure involving the legendary Black and Srebnick, Otazo-Reyes allowed the defense team to put the prosecutors on the stand for endless amounts of cross-examination.
I can’t emphasize how insane this procedure is, but it happened, to the point where the government lawyers had to hire their own counsel to defend themselves. Eventually, two out of the three prosecutors quit the case. (And Esformes’ team then had the gall to argue Young was now conflicted, because she was on trial.)
Magistrate judge Otazo-Reyes, who hadn’t really litigated before, ruled there had been misconduct, dishonesty, and bad faith by the prosecutors. Judge Scola, seeing the absurdity of what Otazo-Reyes had done, overrode her findings and let the trial go forward. In 2019, Esformes was convicted of 20 of 26 charges, with the other 6 involving a hung jury. The judge said these crimes were “unmatched in our community, if not our country” and that he “violated [our] trust in epic proportions.”
Enter the GOP Establishment
But that’s not the end of the story. In 2020, on his way of out office, President Donald Trump pardoned Esformes. As it turns out, the nursing home kingpin was well-connected; his clemency appeal had support from high-profile GOP establishment legal elites such as Reagan Attorney General Edwin Meese, Bush Attorneys General Michael Mukasey, John Ashcroft, and Alberto Gonzales, as well as former independent counsel Kenneth Starr. I doubt there was passionate devotion to the cause of criminal justice; more likely these men were paid for the use of their names.
Then, in 2021, the Department of Justice under Biden decided to go back and retry Esformes on the 6 charges that had never been resolved. Esformes tried to bring back the allegations of misconduct, which appeared in an Eleventh Circuit Court opinion. Ultimately, Esformes pled guilty on one count, and though he paid a fine, he didn’t have to go back to jail, able to enjoy the fruits of whatever ill-gotten gains he was able to keep out of the hands of the government. Meanwhile, Young’s name is in an 11th Circuit opinion, not as a lawyer who won a difficult case, but as someone who was alleged to have engaged in bad faith by a magistrate judge.
Now let’s look at the incentives. Rather than getting credit for putting away a politically connected billion dollar plus fraudster, Young got her names splashed across court opinions alleging dishonesty, misconduct, and bad faith, which made it hard to get a new job or go to a different part of government. She had to hire a lawyer, on her own dime, to defend herself, and the Department of Justice had to do an internal investigation simply because of the allegations. (She was cleared.) These kinds of allegations can have professional consequences, potentially holding up promotions, threatening bar licenses, and damaging reputations. It’s far easier to simply go after powerless supplement scammers or irrelevant small time crypto types.
There are a bunch of bad actors here. Clearly, high-level political officials willing to lend their names for money are gross. Defense lawyers who engage in a campaign of harassment towards litigators are also overstepping. The Federal rules of procedure bar motions meant “to harass, cause unnecessary delay, or needlessly increase the cost of litigation.” But another fundamental problem here is a judge who didn’t sanction these lawyers for what they did, but indulged it.
Is this Problem Systemic?
But still, one response to this story is, ‘so what?’ Esformes is just one guy. The answer is that increasingly, white collar defense firms are now alleging misconduct as part of a defense strategy.
A prosecutor might win, or lose on the allegation, but the point is to put the prosecutor on trial. Even when the accusers are the lawyers of a Medicare fraudster in league with drug dealing associates, somehow, judges take these allegations seriously. They shouldn’t. But because they do, because people think that if there’s an allegation of misconduct against a white collar prosecutor, then maybe there’s controversy, it creates an incentive to systemically file allegations of professional misconduct against white collar prosecutors. And so that’s what’s happening.
We’ve seen this in the antitrust realm when, say, Amazon demanded that FTC Chair Lina Khan recuse herself from overseeing it because she published academic work on the firm, or when Google asked a judge to force Antitrust chief Jonathan Kanter to withdraw from the trial over allegations of bias. Both failed, but the point was to gin up controversy.
Still, Khan and Kanter are well-known public officials, and there was reporting showing that the charges were part of a sleazy political and legal strategy. But when you get into the parts of the bureaucracy where lawyers like Young reside, it’s much lonelier and more difficult to be a line prosecutor. And judges are not picking up on the bad faith allegations from the defense bar.
Here are a few examples of how allegations of misconduct are now put forward by lawyers for wealthy clients, reported in the niche trade publication Law360, which isn’t a widely known outlet, but is obsessively read by the legal fraternity.
Note how all of these defendants are wealthy and charged with white collar crimes. Defense lawyers know that senior Department of Justice officials, such as Garland deputy Lisa Monaco and her team, read these articles in specialized trade publications and panic, worried about how they look. One former senior official told me he would read the headlines of Law360 every morning just to know what he’d get a call about. Pointing out it was nonsense didn’t matter, Monaco would put pressure on those down the ranks because of the fear of a bad headline. Corporate lawyers exploit this dynamic.
Judges have been slow to pick up on this trend, and are not sanctioning defense lawyers. Instead, the attempt to destroy the reputation and career of a prosecutor on frivolous grounds is becoming a legitimate grounds for courtroom discussion rather than something for which defense lawyers should be sanctioned or disbarred.
This dynamic is bad for several reasons. The first and most obvious one is that it puts an entire class of people above the law. As someone familiar with white collar cases told me, "When the defendants are wealthier the lawyers get more leeway." The second is that it creates a bureaucratic pull upward of mediocre risk averse lawyers, since those who are promoted are usually those with a spotless record, with spotless increasingly meaning willing to pick on poor people.
And that legitimizes prosecutorial misconduct towards the poor. After all, prosecutors will conclude there’s no point in trying to adhere to universal rules, since judges don’t enforce them equally. The only thing that matters is whether the target is rich or poor.
And that is why trying to put the CEO of UnitedHealth Group on trial for insider trading seems unimaginable. If a Florida nursing home kingpin with oodles of evidence of criminality can cause so much trouble, what kind of blowback are you going get from trying to get at a genuinely powerful corporate leader if you’re a government lawyer who makes $120,000 a year? It’s much easier to go after criminals without resources at this point than to risk the professional ruin from taking such a risk. It’s a low intensity version of the silver or the lead.
Ending the Chickenshit Club
One of the simplest ways to fix this dynamic is to just change the culture inside government, away from fearing a bad headline. We need political leaders who court controversy rather than avoid it. Donald Trump does this quite well, and so does Joe Biden personally, but embracing polarization isn’t unique to any political figure. For instance, when the Wall Street Journal editorial page published nearly 100 hit pieces on Lina Khan, that became a point of pride instead of fear.
So the response to the question ‘why did a rich guy allege professional misconduct against you?’ should be, “Because I’m doing a good job. Why hasn’t a rich guy alleged professional misconduct against you?” And political leaders should seek to fill their administrations with people willing to take such chances. There are many other obvious solutions, like educating judges, filing bar complaints, doing aggressive public relations on the issue, calling out defense lawyers who abuse their position, and changing the culture of the Justice Department.
But ultimately, if it doesn’t get fixed, the situation where white collar criminals can act with impunity is untenable. Americans no longer believe that our system delivers justice, but offers a form of legal amnesty for anyone with power. And while that’s not always the correct assessment, it’s right too much of the time.
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