EARLY MONDAY MORNING ON FEBRUARY 3, 1975, Eli Black climbed into the back of his company car, greeted his chauffeur with a cheerful hello, and inquired about his weekend. The driver, James Thomas, responded cordially and drove his boss down from the Upper East Side to his office in the Pan American Building in Midtown Manhattan.
Business wasn’t going well for Black. He was the chairman of United Brands, parent company of United Fruit, which in turn owned the Chiquita banana brand. United Fruit had dominated Central America in the middle of the century—we owe the term “banana republic” to the company—but by the early 1970s, the business had gone off. In 1970 Black had maneuvered to merge United Fruit into a company he owned to create United Brands. An orthodox rabbi who came from ten generations of rabbis,1 Black had left the clergy to become a financier. He worked at Lehman Brothers before embarking on a career buying and selling companies. He had pledged to turn around United Brands, and not just financially. He trumpeted his company’s good morals, boasting in his 1973 letter to shareholders that its “changing image” had been noted in articles in the New York Times, the Chicago Daily News, and the Boston Globe. One reporter gushed, “It may well be the most socially conscious American company in the hemisphere.”2
His turnaround stalled, however. Revenue continued to fall, and losses mounted. Several Central American countries, noting how the Organization of Petroleum Exporting Countries (OPEC) had become a successful market power, created their own cartel to control the banana market. The new Unión de Países Exportadores de Banano (UPEB) raised tariffs on banana multinationals, hammering United Fruit. Desperate, Black counteracted the measures.3
Now the consequences of his tactics were becoming clearer. Thomas pulled the car up to let Black out. He asked Black whether he would need him during the day.
“No, Jim, today will be an in day,” Black replied.
Black was the first to arrive in the office that morning. He walked through the long hallway on the forty-fourth floor to his office, small and modest by the standards of CEO corner offices. It had a contemporary rust-colored wooden desk on chrome legs. Abstract paintings by his wife lined the walls. On his desk, he kept a picture of his son, Leon, then at Harvard getting his MBA. (Leon Black would become a billionaire financier himself, founding the giant private equity firm Apollo Global Management.) The senior Black went in. He slid the bolt, double locking it, and then locked the rarely used metal door right beside the wooden door.
Black went to the window, made of quarter-inch-thick plate glass, and raised the venetian blinds. He swung his attaché case through the window, shattering the glass onto the street below. Carefully, Black picked shards of glass out of the window frame. “He apparently didn’t want to cut himself,” a police officer said later.
A half hour later, the chauffeur came up to Black’s office. He knocked. There was no answer. He knocked louder. He banged on the door and called out to Black. Worried, Thomas fumbled for his key and tried the door. He couldn’t get it open because of the sliding bolt. He went to another office and got a secretary to call Black’s office. Still nothing. Now panicked, he slammed against the door with enough force that he broke it down and rushed in. By then, on the terraced section of Park Avenue below, police officers had found the body.4, 5
Something about Eli Black’s leap didn’t seem right to Stanley Sporkin. The explanation couldn’t be that he had been working too hard, as his friends speculated. Sporkin had his enforcement attorneys open an investigation. They soon discovered what been going on at United Fruit, one of Black’s most prominent business holdings. It was the kind of activity a man like Black would never want to become public.
A few months earlier, in August 1974, a United Brands executive had met with the Honduran economics minister, who was acting on behalf of that country’s president,6 at the Fontainebleau Miami Beach—the once-swanky hotel where Frank Sinatra, Dean Martin, and the rest of the Rat Pack had partied in the 1950s. The executive wanted to get rid of the banana tariff crippling United Brands’s business. The minister was willing to consider the request. He asked for $5 million.7
The executive was not authorized to commit such a sum. He checked with Eli Black to see if the chairman would condone such a sizable bribe. Black told him to counter with an offer for half. The Honduran economics minister accepted graciously. Soon after, United Brands sent the first half of the payment, $1.25 million, through its European subsidiaries into a numbered account at the Credit Suisse in Zurich.8 In exchange, Honduras agreed to lower the banana tariff and extend favorable property terms for twenty years.9
After unearthing the details of the arrangement, Sporkin called the Southern District to say he had a hot one. Prosecutors were intrigued. The actions were bad; the evidence—internal corporate correspondence, wire transfers—was strong. But the case presented them with a dilemma.
The US Attorney’s Office in Manhattan went after individual criminals, not corporations. The way to deter corporate crime was to put culpable executives in prison. In this case, that executive was dead. The prosecutors could always bring a case against the company, but the Justice Department regarded that kind of action as useless. What was the point? A company, after all, could not go to jail.
The office took that position even though it had the law on its side. The ability for the government to prosecute corporations dates to a 1909 Supreme Court ruling, United States v. New York Central and Hudson River Railroad Company. In that case, the high court recognized, for the first time, a notion of corporate criminal responsibility. Two railroad employees had charged a sugar company a secretly discounted rate, a violation of a law that proscribed railroad side deals and favoritism. The company had countered the government with an argument that companies continued to make over the next century whenever they faced legal jeopardy: to “punish the corporation is in reality to punish the innocent stockholders, and to deprive them of their property without opportunity to be heard, consequently without due process of law.”10 In turning back that entreaty, the court showed that corporations had been held criminally liable often through history.11
Under the Supreme Court’s unanimous decision, a company could be held accountable for the actions of a sole employee. To be liable, the employee had to be shown to have been acting within the scope of his or her official corporate duties with the aim of helping the company. It did not matter if the actions violated corporate policy. The employees were “clothed with authority” of the corporation. If “the invisible, intangible essence or air which we term a corporation can level mountains, fill up valleys, lay down iron tracks, and run railroad cars on them, it can intend to do it, and can act therein as well viciously as virtuously.”12 For decades after that ruling, however, prosecutors rarely charged corporations—especially large ones—with crimes, focusing instead on individuals.
After Eli Black’s suicide, the Southern District debated what to do about United Brands over the next several years, an argument that consumed Rakoff and his mentor and friend Rusty Wing. They hashed out the various issues with their boss, the US attorney Robert Fiske.
In Rakoff’s day in the Southern District, prosecutors had to make the opposite case from the one that government lawyers make today: sometimes it is necessary to go after a corporation. Today prosecutors lean toward sanctioning companies. They all say they want to go after individuals first and foremost, but they find it difficult to identify and prosecute culpable individuals.
While Rakoff and Wing agreed in principle that individuals were the priority, the two young prosecutors argued that United Fruit’s bribery was too blatant to be dismissed. Rakoff pointed out to Fiske that their friend Stanley Sporkin had begun a national debate about bribery at corporations. The Southern District could help.
When the two prosecutors and their wives vacationed together in the Caribbean for a week, they sent Fiske a postcard. Rakoff, obsessed with the case, put in elliptical references to the investigation and closed it waggishly, “Unitedly Yours.” Finally, after years, they prevailed on their boss. The Southern District charged United Brands with conspiracy and five counts of wire fraud. The theory was a classic Rakoffian feat of far-reaching imagination.
For the charge against United Brands, Rakoff and Wing combined two legal concepts. Prosecutors could charge American companies for frauds committed abroad. An American company selling fraudulent stamps to Canadians could be indicted in the United States. Rakoff combined that notion with a second piece of the puzzle. He and Wing took an old concept and repurposed it marvelously. It was possible to charge corrupt public officials with depriving their constituents of their honest services, the same charge prosecutors would use fatefully with Enron’s Lay and Skilling. Public officials were not permitted to enrich themselves at the expense of the public. Rakoff and Wing used the charging theory, but in this case, they argued the violation was that the Honduran foreign minister had deprived his country’s citizens of his honest services. United Brands had helped him do it.
Hence a charge for United Brands. The defense bar, unsurprisingly, was outraged. Wealthy and prominent investors had acquired United Brands after Black’s suicide. They came in to plead their case. They explained to Rakoff and Wing that they had nothing to do with the fraud.
“It’s going to murder us in Honduras. All the Honduran workers who work for us are going to lose their jobs. The company is going to be anathema,” the investors told the prosecutors. Robert Morvillo represented United Brands. Portly and short, looking like an unmade bed, Morvillo was just starting to become the legend of the defense bar he would later be. He had taken the traditional route to criminal defense work, forming his own boutique. Only a few years earlier, he had been the chief of the fraud unit at the Southern District. There he had regularly said to his underlings, including Rakoff, “Corporations don’t commit crimes, people do.” Now he was back, making that plea to Fiske, the US attorney. The prosecution theory was a stretch and deeply unfair, he said. It would hurt only the current, innocent shareholders and the creditors. It would cause job losses. Fiske listened but rejected the petition.
Rakoff and Morvillo were friends, so Morvillo’s zealous defense didn’t bother him. He collected friends from all corners of the legal world. He and Morvillo would hammer each other during the day and then go to Gassner’s, a restaurant near Foley Square where all the lawyers gathered. They would talk about their families, joke, and drink together. The legal bar was smaller then. Everyone who was anyone knew all the other anyones.
Morvillo gave up the fight on United Brands, but in wily fashion. On a sleepy summer day in July 1978, he walked into court and had United Brands plead guilty to all six counts for a grand total fine of $15,000. United Brands put out a statement that the company “had voluntarily disclosed” the facts more than three years ago—which was true only insofar as it had volunteered the information when Sporkin asked for it. “Management had concluded that it was far better to settle with the government for this modest amount than to engage in prolonged litigation,” the company said, sounding not particularly contrite.13
Rakoff and his colleague walked out to the courthouse to denounce the statement. They pointed out that none of the senior executives involved in the bribery had been dismissed. Though some had left the company, they had done so voluntarily. Others remained.
That was that. The story ran buried on page D3 of the New York Times the following day. Was it a victory or a defeat? Despite the meager media coverage, Rakoff felt the point was made. Congress cited United Brands when it passed the Foreign Corrupt Practices Act, a law that is still used to go after the bad practices of corporations as powerful as Halliburton, Alcoa, Daimler, and Siemens. But in some ways, any chance for accountability died with Eli Black.
In 1980 Ronald Reagan was elected president. The onetime actor and two-term governor of California ran on the notion, as he would put it in his first inaugural address, that “government is not the solution to our problem; government is the problem.” Stanley Sporkin, the consummate government problem solver, was vulnerable. With Reagan in power, Sporkin’s critics rounded on him and his agency. The new president planned to lacerate its budget by 30 percent over three years and slash the enforcement division from two hundred people down to fifty.14 Reagan’s new SEC chairman, John Shad, the first Wall Street executive to head the agency in fifty years, told the world that the SEC would refocus on securities crime such as insider trading. It’s not that Sporkin didn’t believe in insider trading enforcement. After all, he and Rakoff had put together the Chiarella case, one of the pioneering criminal insider trading cases. But Shad’s message was clear. The New York Times reported that the legal world understood Shad’s shift of focus was code for turning away from Sporkinesque enforcement actions against bad corporate behavior.15
The Reaganites rolled back many Sporkin-era reforms and softened the agency’s enforcement. The new top SEC officials dropped an investigation into Citicorp, the giant bank that was a precursor to today’s Citigroup. SEC investigators had found that for seven years, senior management directed operations that circumvented and violated tax and foreign exchange laws of other countries. The case was shelved because the Citi violations weren’t, the agency now said, “material.”
The new Reagan SEC loosened up disclosure requirements for smaller companies. The agency allowed Wall Street investment banks to lower their capital requirements. Such a move permitted the banks to take greater risks and make more money, while making them less sound. And the new chairman, Shad, publicly supported weakening Sporkin’s baby: the FCPA antibribery law.
Sporkin was exhausted from fighting the SEC commissioners. Underneath the gruffness, he never relished the criticism. Though Sporkin couldn’t be fired, his friends understood that the new regime sought to make him miserable. William Casey, his old friend and the former chairman of the SEC, called him. Reagan had just appointed Casey to be head of the CIA.
“Stanley, how would you like to be the general counsel of the agency?”
In an unlikely move, Sporkin took the job in April 1981. Upon Sporkin’s departure from the SEC, Milton Gould, a legendary defense litigator who had clashed with him, offered grudging praise: “He’s despotic, offensive many times, but he’s instilled a little morality in the business community.”16 From his deathbed a few years earlier, Manuel Cohen, who had served as SEC chairman before working as a prominent corporate lawyer, wrote to Sporkin, “The thing that has given me great pleasure is to bring to a meeting with you an inside general counsel or CEO who has heard you are a devil or madman and then hear him report to his board that you are hardly an unreasonable person.”17 Others were less laudatory. A Stanford University law professor would chastise him for his “rampant prosecution mentality.”18 Later, Senator Alfonse D’Amato of New York would call Sporkin “a steamroller” who had “gone too far” during his days at the SEC.
As a federal district court judge, he continued to enjoy piercing corporate power. In 1991 he pressed the government to make Exxon’s settlement more generous to native Alaskans after the 1989 Exxon Valdez ran aground in the state’s Prince William Sound, splling nearly eleven million gallons of crude oil. Sporkin warned prosecutors that they shouldn’t allow Exxon to escape “on the cheap.”19 In 1995 Sporkin rejected the US government’s settlement with Microsoft over antitrust violations. He branded the company “a potential threat to the nation’s well-being” and called the settlement “too little, too late.”20 An appeals court rebuked the maverick for his ruling.
Meanwhile, Rakoff started to think about leaving the Southern District. What would be his next step? Briefly, the new administration considered him as a possible replacement for Sporkin as the new SEC director of enforcement. But it didn’t want a Democrat.
Before the 1970s, the biggest and most prestigious law firms did not do criminal defense work. Criminal defense lawyers worked at boutiques. Gentlemen and elite lawyers from great schools did not participate in such a grubby business. But with the new focus from Morgenthau, Fiske, and Sporkin on top corporate officers, there was a need for top defense attorneys.
The legal world adapted. White-collar criminal defense started to look like a business that was not only respectable but also lucrative. Peter Fleming, a Morgenthau lieutenant, had been the first, moving to Curtis, Mallet-Prevost Curtis, Colt & Mosle in the 1970s. A few years later, Rusty Wing left the Southern District for Weil, Gotshal & Manges. At his farewell party, the office roasted him. Rakoff penned doggerel in the form of a children’s poem, warning Wing to beware a mysterious ghoul:
Now Rusty proved a courtroom pro,
A prosecutor’s panacea.
His words were as cool as this past week’s snow,
Yet as catchy as gonorrhea.
Win, lose, or draw, he held all in awe,
With never a flub or a botch.
So who would have guessed it was simply a test
For his future at Wily Gotch.
Cause the Wily Gotch’ll getcha though you don’t even shout.
Yes, the Weil Gotshal getcha if you don’t watch out.
In 1980, a few years after Wing left, Rakoff, too, made a pioneering move, going to a top law firm to start a white-collar criminal practice. He joined Mudge Rose Guthrie & Alexander, where Nixon had worked in the 1960s when he was temporarily out of politics, having lost the California governor’s race. The transformation of the business of law was inexorable. Top firms no longer looked down on representing white-collar executives accused of crimes. As prosecutors turned away from focusing on individual prosecutions to probing companies in the following decades, Big Law’s criminal defense business got better.
For this lucrative line of fees, Big Law owed much to Stanley Sporkin. Radical and far-reaching as he was, he inadvertently ushered in today’s softened regulatory approach. Still overmatched and underfunded, government overseers leverage their authority through compliance mechanisms: corporations police themselves. When they fall under regulatory scrutiny, companies often conduct internal investigations ahead of the government. They hire law firms. The government requires corporations to cooperate. Cooperation yields settlements. Rarely do companies have to admit wrongdoing. Sporkin had imagination and righteousness and tempered assertiveness. Under his watch, the amnesty model worked. But something was lost in translation. The system was fragile. Who serves in government matters. What they believe and how they approach their jobs can be the difference between being tough or being soft. By the mid-2000s, the Sporkin innovations had become perverted.