Under federal law, companies in bankruptcy are the domain of the Office of the United States Trustee. It is part of the Justice Department: The 21 regional U.S. trustees are appointed by, and removable by, the attorney general. In a bankruptcy proceeding, the business or person who goes bankrupt is considered an “estate,” and a trustee-in-bankruptcy may be appointed by the court to wind down or restructure the estate’s affairs. The U.S. trustee, however, does not actually participate as the trustee in individual bankruptcy cases. Rather, he monitors the court-appointed trustees to ensure that they conform to standard practices. So yes, the trustees appointed in bankruptcy cases are somewhat independent in the limited sense that they are not government lawyers — they are private citizens who need not be attorneys. But they are still overseen by a Justice Department official who serves at the pleasure of the attorney general.
When there are indications of fraud, bankruptcy law enables the U.S. trustee to appoint an investigator — who, like the trustee assigned to the case, is a private citizen, not a federal agent or a government lawyer. But the fraud that a bankruptcy trustee and examiner are principally concerned about is fraud in the bankruptcy proceeding itself
— e.g., hiding assets.
It is not the purpose of a bankruptcy proceeding to conduct a criminal investigation. Bankruptcy is about liquidating assets, settling debts, and wiping the business slate clean. In fact, when evidence of fraud or other crimes is uncovered in the course of a bankruptcy case, federal law requires that the pertinent information be referred to the Justice Department (specifically, to the U.S. attorney in the appropriate federal district). The reason for that is obvious: If you find criminal conduct, you want the officials who are trained to conduct criminal investigations — and who have access to grand juries, subpoena power, the ability to seek search warrants, etc. — to run the show. Otherwise, a prosecutable case can be botched, which only benefits the wrongdoers. (That is not a knock against bankruptcy lawyers — you wouldn’t want prosecutors running a bankruptcy case, either.)
So even if Representative Smith were to persuade the attorney general to appoint a special bankruptcy examiner for Solyndra, and even if that examiner were to find evidence of fraudulent conduct, we would end up right where we were in the first place: in need of someone to do a full-blown, credible investigation of the Solyndra fraud.
For political purposes, one can see why Representative Smith would want to highlight the fact that the current Justice Department is compromised. Doing so underscores the disturbing role of the Obama administration in the Solyndra chicanery and serves as a reminder of how politicized has been Eric Holder’s stewardship of the Justice Department. Nevertheless, seeking a special bankruptcy examiner does not further the investigation as a practical matter.
The issue here is not bankruptcy fraud. It is whether fraud of any actionable kind was committed by anyone while Solyndra was a going concern. A special bankruptcy examiner is not going to get to the bottom of that. We can hope that the Energy Department’s inspector general, who is working with the FBI, is sufficiently independent that investigators will follow the evidence wherever it takes them. But this is a situation in which Congress is going to have to stay on the case itself: pressing the administration for information, using its subpoena power, holding public hearings, and exposing any indications of stonewalling.
— Andrew C. McCarthy, a senior fellow at the National Review Institute, is the author, most recently, of The Grand Jihad: How Islam and the Left Sabotage America.
Editor’s Note: This column has been amended to give the correct value of the Solyndra loan guarantee, which was $535 million, not $535 billion.