Posted 11:06 PM by Robert

Yes, and you know what that means …

In the fetid days of the late Clintonian era rumors rose like vapors from a marsh that some, including even the President and First Lady, might yet be charged by the Independent Prosecutor with “obstruction of justice.” At that time the Man Without Qualities dined with a close relative, a woman who toils selflessly for the good of the Republic in an antifraud division of one of the Federal intelligence services, frequently and with casual elegance referring the fates of ambitious business executives to United States Attorneys for prosecution. After some rehearsal of the “obstruction of justice” rumors over portions of either Bouillabaisse or Bourride (memory fails), this relative smiled most winningly across the candle-lit expanse of linen and silver and crystal, and opined with unerring judgment: “Yes, and you know what that means, don’t you? It means the prosecutors have nothing, absolutely nothing – and they know it.” I believe we enjoyed pears poached in wine for dessert.

And, of course, she was absolutely right. Especially in a politically charged, high profile case, any prosecutor would prefer to indict on the basis of the principal wrongs alleged - not some paper shredding rap. That the Independent Prosecutor was driven to dependence on obstruction of justice charges was a very serious sign that the President and First Lady – indeed, everyone of significance not then already charged – was unlikely ever to be charged.

My relative's insight came back forcefully when David B. Duncan, the Arthur Andersen partner in charge of auditing Enron, agreed to plead guilty to a charge of obstructing justice. According to some observers, the Duncan plea was a great blow to Andersen, and might provide the government with needed leverage against Enron.

Is the Duncan plea significant? As my relative might say: “Yes, and you know what that means, don’t you? It means the prosecutors have nothing, absolutely nothing – and they know it.”

Or, put another way, Duncan’s plea is significant, but not primarily for the reasons described in the media articles linked above. Recall that according to Enron’s critics the company’s frauds were supposedly “obvious” and “egregious,” at least once the basic data were obtained – and nobody in the Justice Department (or even the financial pornographer Lerach!) has said Duncan or anyone else succeeded in actually denying material information to investigators (as opposed to destroying material documents). Yet, despite all that investigating and the supposedly “obvious” and “egregious” frauds not one individual at Enron or Andersen has even been indicted or agreed to plead guilty to accounting, securities or bank fraud. NOT EVEN THE DEMONIC MR. FASTOW, THAT INCARNATION OF EVIL HIMSELF, HAS BEEN INDICTED AFTER MORE THAN FOUR MONTHS OF INVESTIGATING.

Further, the terms of Mr. Duncan’s plea bargain hardly suggest that the government has been deluged to date with evidence of “obvious” and “egregious” fraud – or, for that matter, any fraud. As the New York Times described Mr. Duncan’s plea bargain:

“[T]he government made concessions that are unparalleled in a corporate criminal prosecution in which charges have already been filed. Under the terms, the government will defer prosecution of Andersen — and ultimately drop the obstruction charge without trial if the firm follows the terms of the deal. The terms, legal experts said, are surprising, given that the government seemed to be holding the best cards. ‘If the government agrees to defer this prosecution and not make them plead guilty, it's a huge victory for Andersen,’ said Stephen M. Ryan, a former federal prosecutor and a partner at Manatt, Phelps & Phillips. ‘But it's a very curious result.’”

And, of course, the Duncan plea agreement admits only “obstruction of justice” – not accounting crimes. Even the plea bargain Andersen itself is negotiating is not reported to go beyond obstruction of justice.

The entire proceeding highly suggests that despite four months of intense work and full access to Enron’s and Andersen’s records the prosecutors have nothing – and they know it. They are hoping that Mr. Duncan will be able to provide the evidence that is lacking to date.

So much for “obvious” and “egregious" accounting fraud.

Now, it has always been the position of the Man Without Qualities that Andersen’s document destruction was serious business. Moreover, there are individual cases – especially the uber-knowledgeable Robert Rubin’s sly attempted intercession with his former Treasury subordinate on behalf of Citigroup (including its investment bank subsidiaries) – where I have been rather hard in suggesting the likelihood of shady practices. I have also made quite clear that investment bank analysts may have a good deal of shoddy work to explain in this case - there is no shortage of villians. But document shredding is not obvious and egregious fraud - and individual cases do not support the nearly universal sliming of “Wall Street” implied by the sustained or “cross-country” accusations contained in, say, the Lerach complaint, or the more airless reaches of New York Times coverage of the matter, for example. Such a universal sliming amounts to assertions of a "vast conspiracy" for which there is grossly inadequate support - no matter how fulsome the rhetoric may become.

Perhaps evidence of widespread “obvious” and “egregious” fraud may come. Perhaps there was even a vast conspiracy. But we’re still waiting after four months – and the signs are not auspicious.