The Corner

Re: When the President Does It, It Isn’t Illegal

Kevin, I doubt anyone has done as much as you have to demonstrate that Washington holds itself to a much more forgiving standard than the one it imposes on American business. If a corporation that had over $100 trillion in unfunded liabilities, kept most of those obligations off-budget, and tried to pretend in its disclosure statements that its debt was a “mere” $14 trill, a lot of corporate officers (and probably some of their outside accountants and lawyers) would be looking at prison time that made Bernie Madoff’s look like a slap on the wrist. On the Obama administration’s attempted sleight of hand with S&P, we see the same thing.

Actually, the securities laws that everyone else but Leviathan has to follow are even more draconian than your question suggests. To prove someone guilty of this type of deceptive scheme, a prosecutor would not have to prove either that the scheme was successful (i.e., it wouldn’t matter whether the securities-rating firm obliged) or that you had even had an interest in the corporation. Rule 10b-5 (the prosecutor’s favorite when it comes to insider trading or other “manipulative and deceptive devices and contrivances”) criminalizes (a) “any device, scheme, or artifice to defraud”; (b) “any untrue statement of a material fact or . . .  omi[ssion of] a material fact necessary in order to make the statements made, in the light of the circumstance under which they were made, not misleading”; or (c) “any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.”

The law requires only that these broadly defined deceptive practices be undertaken “in connection with the purchase or sale of any security.” It doesn’t matter who engages in the fraud or whether such a person had an interest in the corporations involved.

I would have to double check this, but my recollection is that my old office prosecuted Martha Stewart for false representations about her company that were made in a press conference — the theory being that these statements affected the market price of the stock (i.e., masked the deteriorating financial health of the company) even though they were not required disclosures in official SEC disclosure statements. That is to say, when corporations are involved, the government can be very aggressive about policing and punishing fraud — even though what is involved there is a pittance compared to what Kevin is talking about.

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