Corrupting the harm requirement in white collar crime.

• Author: Mills, David

INTRODUCTION I. DEFINING CORRUPTION IN THE PUBLIC SPHERE A. A Brief Intellectual History of "Corruption" B. The Federal Law of Public Corruption II. MAIL/WIRE FRAUD A. The Road to [section] 1346 B. Fits and Starts in the Redefinition of Harm Under [section] 1346 C. The Public/Private Blur D. The Curious History--and Economics--of the Kickback 1. What is wrong with a kickback? 2. The mysterious economics (and occasional law) of commercial kickbacks E. Kickbacks and the Adventures of the Second Circuit III. INSIDER TRADING AND FAITHLESS FIDUCIARIES A. The New "Victimology" of Insider Trading B. The New Worm of Fiduciary Relations C. Sarbanes-Oxley, [section] 1348, and the Future of Fraud Law IV. THE POSITIVE LEGAL MEANINGS OF "FRAUD ON THE MARKET" A. Fraud on the Market in Private Securities Law B. Loss and Punishment in Federal Sentencing CONCLUSION INTRODUCTION

This Article is about how federal white collar crime law is put to the test of defining corruption. We focus on the concept of "corruption" while acknowledging that it is hopelessly vague and that the legal system, so long as it identifies more specific goals for criminal or civil legislation, bears no intellectual responsibility to define "corruption" or to resolve larger philosophical debates about its meaning. Nevertheless, the effort at definition finds motivation in several sources, such as deference to the normative concerns of juries or the public generally, sincere respect for the normative standards imputed to legislatures, and concern for coherence in or restraint on prosecutorial and jury discretion in the absence of clear legislative criteria. Whatever the key motivation, white collar crime prosecutions frequently turn on difficult value-laden judgments about types and effects of conduct for which the term "corruption" is, in the spheres of laws and morals, our dominant name.

Although some version of the word "corrupt" appears as an actual statutory term in some laws, (1) we examine broader social and economic concerns about how a polity or an economy gets "corrupted" by crime, and how those concerns animate our legal definitions of the nature and effects of criminal misconduct. (2) Our thesis is that federal white collar criminal law has exhibited a remarkable trend toward the principle that the victim protected by our white collar laws is an abstraction: the theoretical equilibrium (or, in more ethical terms, the "integrity") of a fair commercial market. This trend has been far from linear--it has been anxious and fitful and has produced considerable inconsistency among the federal courts. Moreover, its manifestations may be very hard to capture through empirical crunching of case filings. Rather, the manifestations lie in the conceptual expressions of the courts, abetted of course by prosecutorial arguments and framing of indictments.

The notion of the market as a victim is remarkable because it creates in federal white collar law a new concept of an inchoate crime, no longer focused on the causation of, or even the attempt to cause, the kinds of demonstrable material harm that most criminal law, even traditional white collar law, aims to prevent. To capture this trend, we focus on two key statutory crimes--so-called "honest services" fraud under mail and wire fraud laws (3) and securities fraud. (4) But as a prelude to our detailed examination of mail/wire fraud and securities fraud, we first review the state of the law in the more straightforward area of the federal statutory scheme proscribing the bribery of federal government officials. Our legal system necessarily accepts the absence--or infeasibility--of any requirement of a demonstrable material economic loss in the public bribery arena. So this public bribery scheme is a useful predicate for our main statutory subjects, where absence of such a harm requirement is very much a political and philosophical choice.

In the mail/wire and securities fraud areas, we associate the new notion of inchoate harm with a general concern that the contemporary breed of white collar criminals has breached vital fiduciary duties. The implicit (sometimes explicit) incorporation of notions of fiduciary duty into anti-corruption laws points to parallel areas of recent scholarship that have directly addressed the meaning of "fiduciary" in American law and culture. Scholars have been examining these questions from a number of disciplinary angles. Indeed, recent years have seen a flourishing of this writing, underscoring how fiduciary duty is both a compelling and highly contested phenomenon in American law--though few connections to criminal corruption law have been made in the academic writing. (5) Whereas traditional fiduciary duties are usually associated with contractual duties to specific individuals or some formal legal responsibilities required by virtue of a special relationship to a set of corporate beneficiaries, federal fraud crime has implicitly redefined fiduciary duty. Our legal and political systems assume a general principle that when public officials take bribes, they violate a fiduciary duty to the body politic, even if the terms and boundaries of that fiduciary duty are rarely examined. Moreover, recent developments in the law governing federal white collar crime treat private corruption as mimicking public corruption--in that the duty allegedly breached is to the market, conceived as broadly and amorphously as the body politic. In this Article we demonstrate the tropism of both mail wire/fraud and securities law doctrines toward this new inchoate harm, and we note how components of the new Sarbanes-Oxley Act (6) have the potential to augment this tropism.

As a matter of historical context, the new trend in white collar law could be explained by what might be called a new cultural criminology of financial corruption, and a populist perception that the United States has been suffering a "crime wave" of white collar offenses. Even in a more familiar crime wave, for example a rise in the rate of violent crime, segments of the populace who are not really threatened with victimization often adopt--or have ascribed to them--the social role of the fed-up, vulnerable citizen. (7) In the imagery of most modern American crime waves, the perpetrator is a malevolent, sociopathic street criminal, alas, all too well exemplified by the 1988 figure of Willie Horton. For the crime wave to have any political purchase, of course, the victim needs to be a figure of populist sympathy, and for conventional crime waves, the victim is the frightened, law-abiding, fed-up, resentful good citizen. (8)

But white collar crime complicates the role of the prototypical victim of endemic crime. (9) In white collar crime waves, the perpetrator is the powerful politician or wealthy businessperson who is both corrupt and corrupting. Self-described ordinary citizens, the iconic victims of street crime waves, are especially implausible claimants of direct vulnerability to white collar crime. Rather, to achieve a sense of victimization, they must feel, or profess, outrage at some greater, diffuse social harm. They must believe--or plausibly profess to believe--that the crime wave is concretely linked to their own economic frustration; they must alter the imagined target of their moral outrage from the sociopathic street predator to the calculating, moral choice-maker. (10)

Complicating things further--and this is especially true of the Enron crime wave--the notion of measuring a crime wave is especially challenging when the most salient consideration justifying the use of prosecutorial resources is not the number of crimes, but the total economic loss and the number of people potentially affected, however indirectly. (11) That loss is difficult to calculate, perhaps conceptually unknowable, and, ironically, often made harder to know by the highly conflicted self-interest of the businesses and shareholders who are arguably victims. Similar to perceived street crime waves, perceived white collar crime waves hardly require any actual increase in crime to develop political salience. But, of course, for white collar crime, measurement is in any event quite elusive, because the definitions of bad action and mental state are always more amorphous and contested than anything that could be captured in a Uniform Crime Index. (12)

In the case of the Sarbanes-Oxley legislation--the dramatic legal response to the Enron crime wave--public sentiment and political rhetoric addressed these complications by redefining the iconic crime victim as the populist shareholder for whom the loss in portfolio value seems to be a legitimate, personal harm. Millions of Americans can now (somewhat) plausibly claim to have experienced measurable losses, even though there is often little clear correlation between those losses and the crime itself. This new victim is a participant in capitalism, often a profit-seeking participant in her employer's wealth, who feels as much betrayed as victimized. Put differently, the victim of an Enron-crime perpetrator is a kind of co-dependent capitalist decrying a relationship gone bad.

It might seem that the criminal laws condemning mail/wire fraud and securities fraud, or white collar crime law more broadly, have no special role to play here, since civil and regulatory constraints on corruption raise and address the same questions. But white collar crime prosecutions are cultural events that test our notions of combating corruption far more dramatically than civil suits and regulations. More importantly, we have to remember what is special about these being criminal laws. An act becomes a crime because it is an act against the public order, even if it is also an act that victimizes a private individual in some material way. The very decision to make an act criminal is a way of impressing the targets of the criminal law's coverage into a public role.

1. DEFINING CORRUPTION IN THE PUBLIC SPHERE

   Our first...