Politics & Policy

The Solyndra Non-Investigation

Bankruptcy examiners aren’t prosecutors.

As Andrew Stiles reported Tuesday on NRO, House Judiciary Committee chairman Lamar Smith (R., Texas) has written to Attorney General Eric Holder to seek the appointment of a special bankruptcy investigator in the Solyndra case. The operative word here is bankruptcy. The bankruptcy process conducted under the supervision of a trustee is very different from a criminal investigation conducted by a prosecutor. For those hoping for a full accounting of the $535 million Solyndra debacle, there is less to Representative Smith’s request than meets the eye.

In my weekend column, I explained that if the Solyndra case came walking into a competent prosecutor’s office, the theory of the investigation would be fraud. We have the loss of over half a billion dollars in public money (in the form of government credits), which was pledged to back a company that had a hopelessly flawed business model and that was gushing losses with no realistic prospect of a turn-around. We have grossly misleading rosy-scenario pronouncements by key players (including President Obama and Vice President Biden) at a time when Solyndra backers were gearing up an initial public offering of stock — and when Solyndra’s independent auditors had issued a dire warning that it was doubtful the company could continue as a going concern. In addition, we have executive-branch officials renegotiating the loan arrangement so that corporate insiders, including Obama administration cronies, would be given priority over taxpayers in the liquidation of assets when the company inevitably went belly-up — a novation that appears to be as illegal as it is inexplicable.

But what is happening with Chairman Smith’s letter to Attorney General Holder is not what happens when a case comes in the door at a prosecutor’s office. Smith is not asking Holder for an ordinary criminal investigation in the sense of having federal prosecutors and agents pursue the case as they see fit.

To be sure, Smith would be delighted if that were an option. Alas, it is not, for three reasons. First, the deep and suspect involvement of the Obama administration in the facts of the case leaves the Holder Justice Department ineradicably conflicted when it comes to investigating Solyndra. Second, the conflict would not be cured if Holder were to appoint a quasi-independent counsel — i.e., one who would still ultimately report to Holder, or to other high-ranking political appointees in the Obama Justice Department if Holder were to recuse himself. Third, because prosecution is an executive-branch function, the appointment of a fully independent counsel would be legally dubious — and even if that weren’t so, independent-counsel investigations have a sorry history that we shouldn’t want to see repeated, regardless of which party is in power.

Representative Smith is obviously trying to find a way around this dilemma. His letter seizes on the happenstance that Solyndra is now a bankruptcy case. On the surface, bankruptcy law appears to permit some probing of fraud by an independent investigator. Unfortunately, when you dig a bit beneath the surface, it is not really very independent and it is far too circumscribed to be effective in a matter like Solyndra — where the fraud may have caused the bankruptcy but has little if anything to do with the bankruptcy process

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.


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