Man Without Qualities

Tuesday, July 23, 2002

Robert Rubin and the Federal False Statement Act

The False Statement Act applies to every matter within the jurisdiction of every executive, legislative and judicial agency of the U.S. government. Under the act, it is a crime for any person:

* To knowingly and willfully falsify, conceal or cover up by any trick, scheme or device any material fact.

* To make any materially false, fictitious, or fraudulent statement or representation.

* To make or use any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry.

Punishment for a violation may include fines and imprisonment for up to five years.

The False Statements Act applies to every matter within the jurisdiction of every executive, legislative and judicial agency of the U.S. government.

So the False Statements Act probably applied to Robert Rubin's bizarre and notorious telephone call to Peter Fisher, in which Mr. Rubin reportedly asked Mr. Fisher to pressure the bond rating agencies to delay the then-expected downgrade of Enron debt. It applies to any statements Mr. Rubin has made regarding his knowledge of Enron to federal bank regulators or to the Securities and Exchange Commission or to Congress

Mr. Rubin should be carefully investigated for violation of the False Statements Act.

Right now, his more intellectually dishonest apologists are able to charicature the increasing disturbing circumstances surrounding Mr. Rubin's Citigroup dealings (such as Andrew Sullivan's suspicions) as "string[ing] together a bunch of Rube Goldberg assumptions and implications to make his argument, rather than facts."

That should not be allowed to continue. It is not fair to Mr. Rubin or to the public. Mr. Rubin should be called to Washington, placed under oath and made to provide clear explanations for all of his Enron/Citigroup dealings, including the telephone call to Mr. Fisher. If he chooses, he may exercise his Fifth Amendment rights. Files should be opened, if that has not yet been done, at the Department of Justice, the Securities and Exchange Commission and the Federal Reserve (which is the chief regulator of Citigroup as a bank holding company). Mr. Rubin's statements should be carefully investigated and he should be charged or cleared as quickly as possible, as the evidence indicates.

Mr. Rubin is entitled to all that.

And so is the nation.

As most people now know from the Andersen trial, if Mr. Rubin violated the False Statements Act, then his guilt can be imputed to Citigroup.


UPDATE: Glenn Reynolds says that if Mr. Rubin is at risk, "this is probably a testament to the excessive reach of the False Statements Act." I completely agree that the False Statements Act is too broad - and the recent certification rule imposed by the SEC is broader still with respect to SEC filings. Although a man who has violated that Act arguably shouldn't be occupying the position Mr. Rubin does at Citigroup, the main benefit of employing the False Statements Act here would be to obtain whatever additional information Mr. Rubin may have regarding the Enron/Citigroup connection, a connection which now appears to be every bit as substantial as the Man Without Qualities has suggested might be the case. Mr. Rubin's information (if it exists) might be damaging or exculpatory to Enron or Andersen or their operatives or to Citigroup - or to, say, their respective lawyers, including the two partners at Shearman & Sterling (Citigroup's long-time counsel) who granted Enron critical waivers while employed at the SEC. As noted here previously, Citigroup should have no difficulty waiving attorney-client privilege.

Mr. Rubin has made a career of possessing lots of information that he shares only when and to the extent he chooses. The False Statements Act might help to shift that choice to federal investigators. It might even help out the Enron task force at the Department of Justice, who seem stalled at the moment.


FURTHER UPDATE: The extent of the sweeping anti-business mindset now prevalent in the less responsible quarters of the American left can be seen in Atrios' assertion that the False Statements Act to him "sounds like an EXCELLENT basis for prosecuting just about everybody involved in the energy trading business who communicated with FERC during 2001."

It is certainly true that False Statements Act applies to communications with the FERC - and Justice Department prosecutors should consider enforcement actions under the Act in the energy sector if evidence supports such actions.

But Atrios' assertion that "just about everybody involved in the energy trading business" violated this federal statute if they spoke to FERC indicates just how sweepingly hostile towards business whatever part of the left it is that includes Atrios has now become. It is likely that the costs of such hostility on the national scale will be huge.

For example, Atrios' inclusion of just about the entire energy business among the criminal class certainly makes a mockery of the explanation of Erik Smith, Mr. Gephardt's spokesman, that the Minority leader's agenda has "drawn strong support from corporate officers".

Mr. Smith said: "What Mr. Gephardt and Democrats are saying is not anti-business, it is anticriminal behavior." But, refreshingly, Atrios' is having none of that Gephardtian double-speak. No "few bad actors" or "a small, corrupt minority" evasions for Atrios. He says "just about everybody involved" could be prosecuted for this federal crime. Atrios doesn't seem to think the distinction Mr. Smith is trying to draw means very much to Atrios, who - like many on the left - doesn't even understand, or at least admit, how generally and obviously hostile he is to business. Mr. Smith understands the need to cover the tracks Atrios brazenly leaves behind.

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