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Loophole Nation

June 24, 2010

Here’s the Pacific Legal Foundation likening “public nuisance” laws (such as Baltimore’s “padlock ordinance”) to the “honest services” statute hobbled today by the U.S. Supreme Court. Both laws are impermissibly vague, the foundation says.

Pacific’s key argument seems logical enough: Laws that are too vague are handy tools for tyrants bent on oppressing the innocent. Pacific, being a pro-corporate think tank, naturally wants to protect corporations from such oppression at least as well as humans—and the Supremes have already agreed that corporate personhood is basically inviolate,  its fundamental absurdity notwithstanding.

But the real key to Pacific’s argument, and its real merit, lies elsewhere. Given the inability of modern CEOs, governors, and others in prestigious or authoritative positions to distinguish right from wrong, Pacific (and its ally the libertarian-corporate Cato Institute) take the refreshingly honest position that any law that cannot be gotten around with the help of a clever lawyer is fundamentally unsound:

[I]n a case like this, even the experts have no idea what the statute actually means. The federal circuit courts are in disarray as to what it means. And nobody should be convicted under a statute that is so broadly and vaguely worded, that even the prosecuting lawyer can’t tell you what that law actually means. What’s more, certain common law theories, such as “public nuisance” are so vague that no lawyer can tell you what they actually mean. Yet businesses are frequently sued for committing “public nuisances,” even for perfectly legal activities.

The phrase “perfectly legal” is apt. Let’s unpack this so that we may understand where it fits in our declining civilization.

Jeff Skilling was paid something like $100 million or $200 million* during the last few years of Enron, when the company was primarily engaged in two endeavors:

1) Cornering the trading market in electric power distribution in order to gouge California retail customers, leading to rolling blackouts and electricity price spikes up to 300 times the normal rate.

2) Using “off balance sheet” accounting for “special purpose vehicles,” to transmute its unsustainable debt into “revenue” and “profits” each quarter, which was then held as the basis for bonus payments and stock options that yielded Skilling and other bigwigs tens of millions of dollars.

In other words, as the public record shows, Enron was both a massive extortion scheme and an exemplar of the fraudulent (yet “perfectly legal”) accounting techniques large financial and other corporate institutions were even then adopting wholesale. From a public policy standpoint the only problem with Enron’s cheating and stealing was applying an existing law to the things that could be easily proved and explained. Like Al Capone dispensing bon mots to adoring newspapermen, Skilling (or the late, great Kenny Boy Lay) could recline in his barber’s chair and receive a professional shave in peace, knowing that he personally never touched any bootlegged booze, bribed any police chiefs, or supplied any mayors with ladies of the evening.

This is why Skilling and his supporters are so aggrieved by his conviction and 24-year prison sentence.

As it must, the law puts the gangster on equal footing with the law-abiding community, represented by the prosecutor. Every case must then turn on legal technicality rather than moral rightness. Thus the gangster, who has recourse both to the best legal advice and extrajudicial techniques both violent and corrupt, wins the advantage. You see this attitude in Baltimore’s Circuit Court on any weekday, as the mothers and sisters of thugs detail the alleged holes in the prosecution’s case without ever acknowledging the central and often indisputable fact that their loved one actually did the crime. In practice the law does not merely allow the weaving of a scenario—however implausible—in which the cops or prosecutor or the mayor developed a vendetta against the defendant, fabricating evidence and “testilying” to its authenticity; the law (despite the perjury statute) gives these theories equal standing with the facts. Defendants then act as if they believe that if the prosecution cannot convict them, then they really didn’t do it.

The upstanding businessmen of today display the same mindset, employing lawyers at every step in order to comply with the letter of the law while violating what we quaintly used to call its spirit.

So, it is perfectly legal to entice people into taking out mortgages they cannot afford, so long as you get their actual signature on the documents. It is perfectly legal to bundle those loans and sell them for billions to people who have no way of knowing that they’re worthless. It is perfectly legal to rape public subsidies and avoid the income tax (if you are a multimillionaire). And it is perfectly legal (or should be, according to the Pacific Legal Foundation) to design and market one’s business toward drug dealers and their entourages, under the unassailable legal theory that it’s not my fault if my customers habitually stab passers-by or get into shootouts with the cops in front of my bar!

Indeed, not all “public nuisance” cases are successful. Linden Bar and Liquors was shut down for most of a year, but Club Choices remained open despite the testimony of a cop who was shot nearby. The club’s owner claimed that he was singled out because the city wants to buy his place for redevelopment.

Government-oppressed entrepreneur or gangster—who can tell the difference these days? Club 410 owner Tomeka Harris had the Baltimore Sun reporting that she was a “law student” even after she was indicted on bank fraud charges and as part of the violent Black Guerrilla Family prison gang.

Forty years ago, when the nation’s self-proclaimed conservatives considered street thugs the enemy, they railed against such “liberal” innovations as Miranda rights. Today, the “conservative” movement has captured the courts, as well as most of the country’s other institutions. But their enemy now is “Big Government” in all its manifestations, especially federal prosecutors who would dare apply to upstanding businessmen the harsh laws intended for mere criminals.

Without a loophole to grab hold of, Pacific concludes, every entrepreneur is threatened:

In short, the court today made a perhaps noble effort to sharpen the wording of the “honest services fraud” law, to make it less vague. But Justices Scalia, Thomas, and Kennedy hold that the term is just too slippery to be defined by the courts. It’s up to Congress to narrow a statute in this way, and today’s decision, in their view, keeps this dangerously vague law on the books, like a trap ready to snap on people who cannot understand what it does and does not prohibit.

*At these levels, Skilling’s actual pay hardly matters—to expend even $100 million in a normal human lifetime would require Herculean effort exceeding $10,000 per day.

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