Stoneridge and the End of Enron Deterrence

Conservative intellectuals typically justify their reactionary legal/judicial agenda by citing the theory of deterrence. They tell us that harsh punishments, mandatory sentences and wide definitions of the criminal accessory designation are the ways to deter crime before it happens, because under such "get tough" measures, potential perpetrators will think twice before committing a crime.

The theory, of course, doesn't end up working all that well when applied to crimes that emanate from momentary "passion" and from socioeconomic desperation. A crime of passion is often not deterred by potential punishments because, by definition, a crime of passion is one where the perpetrator is motivated by a blinding explosion of emotion. Similarly, a crime of socioeconomic desperation — stealing food, etc. — is not usually deterred by the threat of jail because such crimes are by definition motivated by perpetrators' belief that they need to commit the crime to survive.

However, where "get tough" measures can deter unacceptable behavior is in the area of white-collar crime — crime often plotted by emotionless calculation and committed by the very rich (a k a the least economically desperate people in America). And this is why this week's Stoneridge decision by the Supreme Court is so tragic: A major deterrent to Enron-style white-collar crime was crushed right before our very eyes.

Here are the gory details from the Financial Times [1]:

"The Stoneridge v Scientific-Atlanta decision was a homerun for corporate interests. The court reaffirmed a 1994 ruling that business partners, lawyers and bankers cannot be held liable for assisting or participating in corporate fraud unless investors can prove they specifically relied on those third parties when making investment decisions...Merrill Lynch, for example, will be able to use this ruling to fend off the long-running Enron investor lawsuit, and UBS could do the same in its HealthSouth litigation."

Though the Financial Times — like most loyal corporate media megaphones — cheered the decision, it noted that now that "gatekeepers, like lawyers and bankers, are protected they are less likely to question shady activities by their clients." That's actually an understatement. It provides an incentive for the "gatekeepers" to not ask questions.

Whereas before the Stoneridge ruling, these "gatekeepers" would want to know what kinds of shady shenanigans their clients were engaging in so as to deter prosecution, they now will not want to know anything so that they can claim total plausible deniability.

As author Thomas Geoghegan [2] has written, the justice system is the last resort — the final barrier between civilization and total chaos. When the rest of civil society fails — when the regulators blow it, when the watchdogs get run over — it is up to the justice system to create the deterrents that prevent economic greed from being allowed to destroy the country. In the Bush era, when our government's regulatory agencies have been gutted, one of the last remaining deterrents is the knowledge that if you help a corporation steal from its employees and shareholders, you might become the target of a civil lawsuit that could result in serious financial pain.

Under the guise of taking on supposedly "greedy" trial lawyers, the conservative movement is working to take away that deterrent and help the truly greedy — the corporations that polls [3] show Americans are sick and tired of being trampled by. Whether by statutorily limiting punitive damage awards or by using the Supreme Court to strip investors of their right to demand recourse, the Right's efforts are moving America closer to the barbaric, economic Darwinism they dream of, a place where those who helped Enron executives are given more rights than the shareholders Enron bilked, a place where respect for the common good is subverted for a survival-of-the-greediest mentality.