It’s Extortion or Justice Facing U.S. Corporations: Opening Line

Photographer: Paul Cooper/Bloomberg

Arthur Andersen collapsed, taking 85,000 jobs along with it, while facing a criminal obstruction-of-justice charge for its accounting work on Enron Corp. Close

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Photographer: Paul Cooper/Bloomberg

Arthur Andersen collapsed, taking 85,000 jobs along with it, while facing a criminal obstruction-of-justice charge for its accounting work on Enron Corp.

We darn near choked on a sub-headline of the Economist magazine’s 3,800-word sympathy card to U.S. companies that are accused of wrongdoing:

“Corporate America is finding it ever harder to stay on the right side of the law.”

Oh, cry us a river. Are U.S. corporations suddenly bereft of legal talent and political veterans who will fight for them? Now that they’re people in the eyes of the law, do corporations feel bullied?

We swallowed our coffee and kept reading. We’re glad we did.

For historical perspective, we won’t go back quite so far as the Economist, which in its inimitable way backs its case with a quote from an 18th century British lord chancellor. We’ll go back only to 2002, when Arthur Andersen collapsed, taking 85,000 jobs along with it, while facing a criminal obstruction-of-justice charge for its accounting work on Enron Corp.

That genuine catastrophe -- compounded by the fact that the conviction was overturned in 2005, too late to save the company -- led to a rethinking of how to handle malfeasance by corporations. With memos in 2003 and 2006, the Justice Department tried to establish guidelines on when, whether and how to prosecute a company.

To this day, “prosecutors have been gun-shy” about bringing criminal charges against corporations, “fearing the dreaded ‘Arthur Andersen effect,’” Peter Henning, an expert in securities fraud at Wayne State University Law School in Detroit, wrote in May in the New York Times.

That fear -- that filing criminal charges could cause another major employer to fail -- inspired the phrase “too big to jail.”

So what is the Economist’s gripe?

In its editorial accompanying the article, the magazine says federal and state prosecutors run what amounts to a “lucrative shakedown operation” by threatening a company with criminal charges, then squeezing “an enormous fine” in exchange for closing down the case with most details kept secret.

“In many cases, the companies deserved some form of punishment,” the editorial concedes. “BNP Paribas disgustingly abetted genocide, American banks fleeced customers with toxic investments and BP despoiled the Gulf of Mexico. But justice should not be based on extortion behind closed doors.”

Nobody can be satisfied with this state of events, especially since individuals -- real, live, venal, deceitful people -- rarely get singled out, much less prosecuted, for their roles in corporate misdeeds. And the emphasis on privacy and dollar signs in some of these cases is almost comical.

In reaching a $13 billion deal in November 2013 to resolve a probe of its mortgage-bond sales, JPMorgan Chase acknowledged a stripped-down statement of facts without admitting wrongdoing. The Federal Home Loan Bank of Pittsburgh tried to force disclosure of the government’s detailed complaint, saying the document could be relevant in its own case against JPMorgan. Two months later, an agreement was reached in that dispute -- the details of which, of course, were kept secret.

The negotiations leading up to Bank of America’s $16.7 billion deal last month with prosecutors and regulators sounded more like an EBay bidding war than a legal case.

One solution, the Economist offers, is for prosecutors to take some cases to trial. Our legal-coverage team would no doubt concur, as would most of our readers. Would corporate America?

***

Today’s economic indicators kick off with ADP employment changes at 8:15 a.m. EDT, followed at 8:30 a.m. by trade balance, initial jobless claims and nonfarm productivity. Bloomberg consumer comfort is at 9:45 a.m., and ISM’s nonmanufacturing composite index is at 10 a.m.

Earnings reports include VeriFone Systems, Joy Global, Ciena and El Pollo Loco Holdings.

***

- Tesla and Nevada tying the knot. - JPMorgan’s internal hacking probe points to Russia-based data center. - Vladimir Putin sketches his ideas for Ukraine peace. - Justice Department plans broad review of police practices in Ferguson, Missouri. - Democrat’s withdrawal unsettles Senate campaign in Kansas. - Neiman Marcus plans first New York City store. - U.S. consumer agency weighs ban on small, powerful magnets. - Carl Icahn sold his stake in Family Dollar for a $200 million profit, Reuters reports. - Almost 4,000 Starbucks employees applied for Arizona State University online program to finish their college degrees. - Toronto’s film festival draws hard-core fans. - Michael Sam joined the Dallas Cowboys’ practice squad.

***

Like Superman without Lex Luthor -- or the Boston Red Sox without the New York Yankees -- NATO lost part of its own identity when its chief enemy, the Soviet Union, went away in 1991.

It’s true that countering communism wasn’t the only goal when the U.S., Canada and several western European democracies created the North Atlantic Treaty Organization in 1949. “Deterring Soviet expansionism” was one of three founding missions, the others being to quash the revival of “nationalist militarism” and to encourage European political integration.

Still, anyone who grew up during the Cold War would think of NATO -- to the degree we thought of NATO -- as a bulwark against the USSR.

So it was bewildering, a jostling of our world view, when talk began in 1991, under Boris Yeltsin, of Russia someday joining NATO.

Baby steps were taken -- cooperation agreements and the like -- culminating in creation of the NATO-Russia Council in 2002. By then, though, Russia was under the sway of a former KGB officer named Putin, who, despite noises to the effect, pretty clearly never had any intention of joining such a Western club.

Any remaining romance ended in 2004, when NATO welcomed the Baltic states of Latvia, Lithuania and Estonia, plus Slovakia, Romania, Bulgaria and Slovenia. To Putin, that was “a particular offense and a geopolitical threat,” David Remnick wrote in the New Yorker last month. Even Mikhail Gorbachev “always said that the U.S. had promised that, in exchange for his acquiescence to the reunification of Germany, NATO would not expand to the east,” according to Remnick.

So here we are today, with a NATO summit opening in Wales and its member countries worried, for good reason, about the militant, expansionist, autocratic leader of Russia.

Feels like old times.

***

For all but those of you in a select group of cities, where the local nines will still be playing baseball in October, it is now football season, beginning with tonight’s NFL season opener featuring the defending Super Bowl champion Seattle Seahawks hosting the Green Bay Packers.

Welcome, autumn. After only a few weeks of NFL and college football games, they’ll be airing out the ice rinks and basketball courts as the NHL and NBA start stirring from their hibernations. As we turn this calendar, rarely, if ever, have the days been greeted by such a remarkable, probably historic, confluence of changes to the games that have been the sources of such lasting traditions. The days of jocks wearing letter sweaters, sporting crew cuts, closing the stadium-hotel bar after the game and holding jobs in the off-season are long gone.

Which is why the Bloomberg Sports Business Summit, taking place today at the Altman Building on West 18th Street in New York, could not be more valuable or possess a better sense of timing. To run down the list of topics and panels and guests is to rip headlines from the sports -- and business -- pages from the past year: the rise of owners coming from Wall Street backgrounds, the spiraling costs of sports programming in television, labor issues not just with a new NBA players’ union chief but dawning in college sports as well, the arms race in stadium technology, and so much more, especially the panels on deal flow, financing, etc.

The conference brings ownership, management and athletes together with agents and “the classic Bloomberg customer,” as John McCorry, executive editor for the Americas, put it to us -- investment bankers, financial advisers, financial analysts, “someone who helps institutions raise capital and figure out how best to grow.”

“The notion that sports is simply boys with toys is mistaken. It’s a lot more than that,” says McCorry, who oversees sports coverage in the U.S. “People who raise capital always understood that this was a big business, and that the business wasn’t simply the event on the field, it was the media around it.”

McCorry will join a phalanx of reporters and editors from Bloomberg News as well as hosts from Bloomberg Television to moderate panels that will span the full galaxy of sports A-listers: Josh Harris, Marc Lasry, and CAA Sports’ Michael Levine; NBA Commissioner Adam Silver; NHL Commissioner Gary Bettman interviewed by Tom Keene, which -- honestly -- is there a better ticket in town today?; McCorry interviewing new NBA Players Association Executive Director Michele Roberts; and Carmelo Anthony interviewed by Bloomberg TV’s Stephanie Ruhle, among so many other panels and discussions.

If you can still get in, then come for the insight, stay for the autographs and get ready to play ball, because there are deals sitting in those other chairs.

***

Peakburger? We’ll take one medium rare, with pickles and ketchup.

Not so fast.

In Bloomberg Businessweek, Leslie Patton explains that traditional fast-food burger chains such as McDonald’s, Burger King and Wendy’s may have reached maximum market saturation -- a shocking state of events shorthanded as “peak burger” -- after years of growth in the U.S.

One force eating away at fast-food sales: so-called fast-casual restaurants including Chipotle’s Mexican Grill, the make-it-your-way burrito restaurant that was, coincidentally enough, majority-owned by McDonald’s before being spun off in 2006.

We pretty much already knew that salads and lower-calorie burgers flopped as healthier menu items at burgers-and-fries restaurants. Turns out that the menu-tinkering had an additional unfortunate side effect.

Introducing new fare “complicates and bogs down kitchens that were optimized to quickly churn out burgers and fries,” Patton writes. “That’s why drive-through times have gotten slower for the major chains over the past decade, reducing the quick-service draw for some fast-food diners. It takes at least 30 seconds longer to get through a McDonald’s drive-through now than it did in 2003, according to studies by QSR magazine and Insula Research. The trend is true for Burger King and Wendy’s, too.”

We thought we were just getting more impatient with age.

***

Novak Djokovic and Kei Nishikori endured tough matches to advance to the men’s semifinals at the U.S. Open. That also makes a winner of former Sony Corp. executive Masaaki Morita, who is underwriting Nishikori’s tennis education in the U.S., Rob Gloster reports.

The other two spots in the men’s final four will be decided today, with Roger Federer facing Gael Monfils and Tomas Berdych playing Marin Cilic.

The women’s semifinal lineup is now complete, after Serena Williams and Ekaterina Makarova won to join Peng Shuai and Caroline Wozniacki.

To contact the reporter on this story: Laurence Arnold in Washington at larnold4@bloomberg.net

To contact the editor responsible for this story: Marty Schenker at mschenker@bloomberg.net

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