The class will please settle down. If you registered for Corporate Crime 101 you came to the right place. Today's lecture will focus on two cases that arose just before Memorial Day. Those of you who are taking this course as part of the Core Syllabus, preparing for careers in Applied Crime, should pay close attention. The alleged criminals we are examining today -- Kenneth Starr and Arthur Samberg -- provide wonderful examples of the right and wrong way of engaging in white collar criminal wrongdoing.
Let us begin by analyzing these cases from the standpoint of Leading Indicators of Criminal Success, or LICS as they are known in the trade. One recognized LICS is the number of words one needs to describe the alleged perpetrators, and to delineate what they allegedly did. Criminal failure is usually described briefly, as in "Joe Doaks was a bartender and he stole from the till."
Thus, we can say that "Kenneth Starr was an investment advisor, and he is accused of running a Ponzi scheme." Compare that to "Arthur Samberg used to work at a hedge fund called Pequot Fund Management, and he has settled
Securities and Exchange Commission
charges that he engaged in insider trading, neither confirming nor denying the
Another LICS is physical appearance. Both men are in their late sixties, so they can be fairly compared. Samberg is usually shown with a cheerful, prosperous, devil-may-care, squinty smile. Starr is scowling in the pictures I've seen, and he bears an uncanny resemblance to
CEO Lloyd Blankfein .
There are many other indicators that point to the failure and success of these persons in their alleged criminal ventures. Spousal Indicators, for example: Mrs. Samberg is found with the mister on various distinguished philanthropic donor lists; Mrs. Starr can be found in the tabloids, where her
career as a stripper
I think the best LICS is the current residence of each individual. Starr currently resides in jail, and he is facing trial. If convicted, he very likely will exit prison via what has become known as the Bernie Madoff Prison Release Mechanism, which is a pine box. Samberg currently resides in Palm Beach, or Southampton, or one of the other places where hedge fund managers can be found when they've retired and don't have a care in the world. He is facing bubkis. It's all over for him. He got away with whatever it was that he was alleged to have done.
Arthur Samberg had some exceptionally good luck. He wasn't facing the FBI, which arrested Starr. He had the good fortune to face the Keystone Kops of the federal government--an agency whose enforcement division has been crippled by nearly a decade of mismanagement under George W. Bush's SEC chairmen, beginning with Harvey Pitt and ending with Christ Cox.
There was a guy at the SEC who thought that Samberg was getting away with murder. His name was Gary Aguirre. He pursued the case aggressively -- this was, after all, insider trading, a criminal offense. He was fired for his trouble. With Aguirre gone, and his colleagues more interested in watching porn or writing their resumes than doing their jobs, Samberg was able to settle the charges by writing out a check for a token sum--a measly (for Arthur Samberg) $28 million. Bloomberg reported at the time of the settlement with the SEC that his alleged insider trading of
Excuse me, but is anyone in this classroom seeing a "downfall" in any of this? Any of you would be expelled for cheating on a test or plagiarism. That's a downfall. All I see is a rich guy writing a check in a sum that he can afford, not admitting anything, and facing bubkis. The very fact that I have to say "alleged" is an indication of the success of his alleged criminal activity.
Remember in your future criminal careers to pursue a "victimless crime" like insider trading, in which abstract concepts such as "market integrity" are the casualty. It takes a Rudy Giuliani to
slap on the handcuffs
when that's involved (even though he eventually had to dismiss the charges). Ken Starr is accused of ripping off actual, identifiable victims, celebrities like Uma Thurman, Jack Nicholson, Martin Scorsese and Wesley Snipes.
On the other hand, if you are a celebrity yourself, you may well become so tempting to prosecutors that you will wind up behind bars.Martha Stewart of the eponymous
Martha Stewart Living
is the best known example of the application of that principle. Her eminence was such that she swept into prison her otherwise easily ignorable codefendants,
CEO Samuel Waksal and
broker Peter Bacanovic, who by all rights should have gotten off with an SEC "I don't admit a thing" settlement.
It also helps tremendously if you are
too big to jail
(or even severely chastise). By the standards of their profession, Starr and Samberg are both pikers -- sorry, "alleged pikers." American International Group walked away with $182 billion in taxpayer bailout money, which it has lavished on Goldman Sachs, European banks and bonuses. British Petroleum just
, and its chief operating officer gives briefings with the Coast Guard. On Thursday, British authorities found that
had commingled billions of dollars in client money and the firm's accounts. JPMorgan said it was all an accident. The U.K. Financial Services Authority said it was all OK, and levied a
That's another sign of successful criminal activity: it's large, lavish and brazen, the more brazen the better. When performed on a small scale, it would result in jail time, or at least disgrace and humiliation, but when billions are involved -- well, it's no big deal. When bank tellers commingle customer funds with their own, they call it "embezzlement," and no amount of excuses, or absence of customer losses, will prevent that teller from being fired and, probably, blackballed forever from banking.
To sum up our lesson for today, I quote Jimmy Cagney, "Never steal anything small."
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Gary Weiss has covered Wall Street wrongdoing for nearly two decades. His coverage of stock fraud at BusinessWeek won many awards, and included a cover story, "The Mob on Wall Street," that exposed mob infiltration of brokerages. He uncovered the Salomon Brothers bond trading scandal, and wrote extensively on the dangers posed by hedge funds, Internet fraud and out-of-control leverage. He was a contributing editor at Cond?ast Porfolio, writing about the people most intimately involved in the financial crisis, from Timothy Geithner to Bernard Madoff. His book Born to Steal (Warner Books: 2003), described the Mafia's takeover of brokerage houses in the 1990s. Wall Street Versus America (Portfolio: 2006) was a hard-hitting account of investor rip-offs. He blogs at garyweiss.blogspot.com.