Even with high-profile cases dominating the news, the number of wealthy defendants squaring off against the U.S. Attorney’s Office is on the decline
The falls of Paul Manafort and Michael Cohen from their ivory Trump towers have obscured a troubling truth, according to a nonpartisan federal enforcement tracker: Prosecutions of white-collar crimes have plummeted to a 20-year low.
The decline in pursuing the Bernie Madoffs of the world was documented by Syracuse University’s Transactional Records Access Clearinghouse project in May. TRAC researchers determined that the number of federal white collar prosecutions for the first half of the year—3,249 from coast to coast—was down 31.3 percent from the same time frame in 2008, and down 40.8 percent from the period in 1998. TRAC analyzes data from the FBI, Immigrations and Customs Enforcement, Internal Revenue Service, the Secret Service and other federal agencies.
Harvard Business School professor Eugene F. Soltes has studied corporate fraud and misconduct for a decade. In researching his book, Why They Do It: Inside the Mind of a White Collar Criminal, Soltes interviewed more than 50 top-ranking executives who were sent to prison. Soltes thinks the slump in prosecutions could be linked to the booming economy.
“Fraud tends to be more discoverable when the economy goes south,” Soltes told SN&R. “Once you’re out of a financial crash, even if someone’s engaged in fairly egregious fraud, it’s generally not going to be rapidly detected.”
Soltes added that the chaos that envelops a business during an internal meltdown can be what finally pushes an executive over the line of criminality.
“It’s the moment when they’re struggling and are going to miss their profit estimates that they’re more likely to do these things,” he said.
Jeff Neumeister, a certified forensic accountant who specializes in fraud investigations and asset-tracing, agrees that fewer white collar crimes are committed or detected during times of plenty. But Neumeister also thinks that the well-publicized prosecutions of executives from Arthur Anderson LLP, Enron and WorldCom have prompted shareholders to demand better oversight.
“A lot of companies require more training for accountants and have more internal controls than they did before,” Nuemeister observed. “Embedding those protections into the culture of a business is more typical now. … The most common way that fraud happens is when a manager overrides those controls.”
Some analysts questioned the shifting budgets and manpower priorities at the U.S. Attorney’s Office under the Trump administration. An official February 2017 memo from Assistant Attorney General Lee Loftus confirmed that the four-month federal hiring freeze Trump enacted last year applied to several divisions of government prosecutors, including those assigned to internal affairs. Just two weeks after TRAC released its findings, it published a second report titled “Criminal Prosecutions Jump 60% for Illegal Border Crossers.”
Federal prosecutors working in Sacramento have pursued an array of privileged suspects this year. One of the team’s most recent probes targeted George B. Larsen, a 56-year-old convicted of running multimillion-dollar bank and title fraud conspiracy out of a church in Nevada City. According to Assistant U.S. Attorney Audrey Hemesath, Larsen and three co-conspirators concocted a fake “mortgage elimination program” that targeted distressed homeowners at the tail end of the recession. Through an elaborate maze of misdirection, Larsen would eventually get his victims’ homes sold through fraudulent means, with he and his cohorts pocketing much of the proceeds. Larsen was sentenced to 10 years in federal prison on August 16.
Lauren Horwood, a spokeswoman for U.S. Attorney McGregor Scott, who presides over the Sacramento region, told SN&R that corporate malfeasance remains a top priority in California’s Eastern District.
“Our office has over 30 attorneys prosecuting white collar crimes,” Horwood wrote in an email.
Soltes and Nuemeister both stress that, regardless of the flagging prosecution rates, white collar crime is far more common than most Americans think.
“We tend to only hear or read about major cases, and that’s only if the media chooses to report on them,” Nuemeister said. “If Trump is firing off a bunch of tweets, then that fraud story might fall to page eight, or just not make the paper at all.”