My favorite books on corporate crime

This may well be the best book ever written on a corporate scandal. Just out, I expect to see it on prize lists for this year. Keefe weaves together three independently fascinating stories in seamless, brilliant, and deeply researched fashion: a 20th-century immigrant American dynastic family (the Sacklers), the emergence of the modern pharmaceutical industry, and the opioid disaster. His eye for the smoking gun document or telling admission is as good as his eye for irony and the many darkly humorous connections in this saga. The book gets better as it goes on, all the way to the end, where he takes the reader carefully through the thoroughly dispiriting story of the legal system’s handling of Purdue Pharma’s involvement in the opioid market. This book made my blood boil—and I am usually the one trying to explain why accountability is harder to impose than most people think.

This is the other genius book written recently about a corporate scandal. Carreyrou pulls off two great things in his account of Elizabeth Holmes and Theranos, her Silicon Valley start-up that purported to revolutionize medical testing but evaporated in a cloud of lies. First, he shows how a charismatic young person with seemingly no scruples could delude dozens of rich, sophisticated, and sometimes famous people. This book uncovers the psychology involved in white-collar crime as well as any story I have read. Second, Carreyrou’s account is absolutely devastating with regard to the conduct of lawyers who not only defended Holmes but attempted to silence and destroy whistleblowers and critics, including Carreyrou himself, who unavoidably becomes an important character in the story. Look out for the trial of this case, which is scheduled to begin in August 2021. And also the Jennifer Lawrence movie…

There is a partial myth, eagerly promoted by corporate interests and their lawyers, that federal prosecutors are frighteningly all-powerful and basically cannot be defeated. The veteran financial and legal reporter Eichenwald knows otherwise. The Informant, in contrast to the almost farcical (if enjoyable!) Stephen Soderbergh movie based on the book, lays out a textbook case of how prosecutors can blow an important case due to infighting, problems with unreliable informants, and clever high-priced defense lawyering that exploits every error that less-than-superb prosecutors might make. Here we have a tale of CEO-level officials at major global corporations caught on videotape flagrantly conspiring to violate antitrust laws and, in the end, almost no one ends up in prison. Eichenwald details the countless blunders by many Justice Department lawyers spread across several offices, and the clever maneuvering throughout by crack corporate defenders. He too, by the way, paints a fascinating portrait of the informant Mark Whitacre, a uniquely problematic figure who was played by Matt Damon to delightful effect in the film. In fairness to the government lawyers, every prosecutor knows that you do not get to pick your witnesses. You must take them as you find them.

Partnoy, a distinguished law professor at Berkeley, is a brilliant chronicler of the people and products in modern financial markets. One could read any of his books and say they were among the best ones on the market and corporate chicanery. But I love his first book, in which he tells the tale of his brief time trading derivatives—back in the very early days of those now world-famous products—among the unsavory characters of a Wall Street trading floor. The story has been told by others since (Wolf of Wall Street, Big Short, etc.) but Partnoy may have done it first. And seeing that world through his young, brilliant, and impressionistic eyes is wonderful. His firm tried to block him from publishing the book, but he did it and has gone on to a magnificent academic career in which he continues to tell it like it is, understanding the world on the ground as well as anyone in the academy.

Because I was a prosecutor on the Enron case, people often ask me what to read about it (or even to explain it to them!). At the time, we used to say that Enron was calculus to every other case’s algebra when it came to corporate financial fraud. Elkind and McLean (McLean had a lot to do with questioning Enron’s narrative before the company’s decline) have done the definitive job of explaining a very hard case in accessible style and detail. The truth is that accounting fraud is a very technical form of corporate fraud, sometimes painfully so. But, as I tell my students, the people who work at companies on these kinds of things are no smarter, and often no older, than my students. They just speak a different language. Don’t let that obfuscate matters. Learn the lingo and follow the money. Smartest Guys allows the general reader to do exactly that with regard to Enron, and the book is fair and careful in showing what a lot of people did not realize about the case: most of what Enron did, while manipulative to be sure, was not illegal and the criminal case had to focus on the instances where executives stepped over the line to fraud.  Bankrupting a big company is not itself a crime. The deeper lessons of Enron, alas, were not learned during the intense focus on a few individual prosecutions. In the financial crisis of 2008-2009, many of the same things happened again on a much more devastating scale.