Mises Wire

The Federal “Crimes” of the College Admission Scandal Aren’t Real Crimes

In 2006, I asked whether or not Ken Lay really was a criminal following his conviction in federal court for crimes allegedly committed while he was the CEO of ill-fated Enron. My conclusion that he had not committed real crimes did not exactly resonate with some readers and certainly not with the media at large.

Indeed, his conviction, along with the conviction of Jeffrey Skilling, was quite popular in the media and elsewhere. A friend wrote me in dismay to ask how I ever could wink at fraudulent corporation practices. To put it mildly, my opinion was quite a minority one. In my view, however, the Enron case was not about corporate fraud but rather how federal prosecutors aided by politicians and the media were able to criminalize a business failure.

Today, I have not changed my views one bit, especially given that federal prosecutors lied throughout the trial, and that the lead federal prosecutor was having a sexual relationship with one of the most prominent journalists covering the event. (They married soon afterward.) One can disagree with the “cash is trash” Enron strategy, in which the company was highly leveraged and collapsed after the Federal Reserve changed course on interest rate policies, allowing those rates to rise. Indeed, the Enron policies were well known to investors and Wall Street, but after the company went under, the feds had to blame someone, and Lay and Skilling were the easiest targets.

At least when Enron went down, people lost their life savings and worse, and the company’s demise did cause a lot of financial harm. In the federal government’s case against actress Lori Loughlin and her husband, Mossimo Giannulli, harm is a relative term. Yet, I suspect that the charges against Loughlin are even more popular with much of the public and the press than the actions against Enron were, and I realize that it is an uphill battle to present a viewpoint that contradicts the current wisdom.

First, let me present some background about the case. Loughlin and her husband engaged in a scheme to get their daughters into the University of Southern California, a prestigious private university in Los Angeles also known to locals as the University of Spoiled Children. The scheme allegedly involved parents paying thousands of dollars to a foundation whose director then directed payments to coaches and college admissions officials, who either claimed the applicants were being recruited for sports (when they were not athletes at all) or manipulated College Board scores.

They hardly were alone, as this scheme apparently was widespread and a large number of families were involved, using various means to get their children into prestigious colleges. These means allegedly included:

· Bribing exam administrators to facilitate cheating on college and university entrance exams;

· Bribing coaches and administrators of elite universities to nominate unqualified applicants as elite recruited athletes, thus facilitating the applicants’ admission; and

· Using a charitable organization to conceal the source and nature of laundered bribery payments.

The American Conservative further explains what happened:

the FBI and federal prosecutors announced that 50 people had been charged in, as Sports Illustrated put it, “a nationwide college admissions scheme that used bribes to help potential students cheat on college entrance exams or to pose as potential athletic recruits to get admitted to high-profile universities.” Thirty-three parents, nine collegiate coaches, two SAT/ACT exam administrators, an exam proctor, and a college athletics administrator were among those charged. The man who allegedly ran the scheme, William Rick Singer, pled guilty to four charges of racketeering conspiracy, money laundering conspiracy, conspiracy to defraud the U.S., and obstruction of justice.

As part of the scam, parents would “donate” money to a fake charity run by Singer. The funds would then be laundered to either pay off an SAT or ACT administrator to take the exams or bribe an employee in college athletics to name the rich, non-athlete children as recruits. Virtually every scenario relied on multiple layers of corruption, all of which eventually allowed wealthy students to masquerade as “deserving” of the merit-based college slots they paid up to half a million dollars to “qualify” for.

If the allegations are true, it is clear that the employees involved in the scheme acted contrary to their employers’ policies, and if they did it for payment, then we are looking at bribery. Whether or not these alleged actions rise to a crime, however, depends upon how one defines criminal behavior.

First, and most important, none of these actions are directly covered by criminal statutes, federal or state, at least when it comes to employees for private organizations. For example, I had a teammate in college (when I ran track) who had someone take the College Board exam for him, and he was caught. While the NCAA declared him ineligible for his first year (he still managed to be accepted into college — don’t ask), he faced no danger of federal criminal charges despite the fact that what he did was no different than what prosecutors are alleging against a number of parents.

The criminal charges, instead, fall into the typical categories of federal law, including honest services fraud, wire fraud, mail fraud, and money laundering. The various employees named in the scheme face charges of honest services fraud , which is a catch-all category of crime, and one of the most devastating weapons federal prosecutors had in their arsenal until the US Supreme Court narrowed the focus of the law. (A decade ago, Judge Andrew Napolitano interviewed me about this law and how federal prosecutors abuse it on his radio show.)

All of the “crimes” tied to this case (which the FBI has named “Varsity Blues”) are what Candice E. Jackson and I have labeled “derivative crimes,” essentially fictional charges that are derived from some other action of the accused. That is why Singer would plead guilty to “racketeering,” which is nothing more than a combining of other acts into one “crime,” with draconian penalties for those who are convicted. (Racketeering was invented in 1970 as part of the Racketeering Influenced and Corrupt Organizations Act, better known as RICO.)

Because nearly every private college or university receives federal funding, federal prosecutors have a link they can use to pursue these prosecutions. With thousands of federal criminal laws on the book, prosecutors can pick and choose whom they will target and what the charges will be. As Harvey Silverglate noted in Three Felonies a Day, anyone reading this article probably violates at least one federal law each day. The following account from Slate explains this:

At the federal prosecutor’s office in the Southern District of New York, the staff, over beer and pretzels, used to play a darkly humorous game. Junior and senior prosecutors would sit around, and someone would name a random celebrity — say, Mother Theresa or John Lennon.

It would then be up to the junior prosecutors to figure out a plausible crime for which to indict him or her. The crimes were not usually rape, murder, or other crimes you’d see on Law & Order but rather the incredibly broad yet obscure crimes that populate the U.S. Code like a kind of jurisprudential minefield: Crimes like “false statements” (a felony, up to five years), “obstructing the mails” (five years), or “false pretenses on the high seas” (also five years). The trick and the skill lay in finding the more obscure offenses that fit the character of the celebrity and carried the toughest sentences. The, result, however, was inevitable: “prison time.”

Second, the fact is that most of the parents who took part in this scheme are white, wealthy, prominent, and utterly unfamiliar with how federal criminal law works. That is why the feds can threaten Loughlin and her husband with up to forty-five years in prison if they are convicted. That is more than most murderers, rapists, and armed robbers receive for their crimes. Yet Loughlin harmed no one. Yes, one can argue that if her daughters had been accepted at USC undeservedly, two other perhaps more promising students would have been denied entry. However, that clearly would be a civil, not criminal, matter, and any students who were left out can seek remedy in court.

Unfortunately, most Americans these days seem to believe that since Loughlin’s daughters are “privileged,” the law should turn them into orphans by sending their parents to prison for the rest of their lives. (The feds are calling for penalties that would effectively be life sentences for those convicted.) Like Martha Stewart, who was convicted of questionable “crimes” in 2004, these parents are “wealthy beyond a reasonable doubt,” and the idea that they are able to use their wealth to “break the rules” to get their children into places like Harvard or USC is galling to many. Declares the American Conservative:

Cheating. Bribery. Lying. The wealthy and privileged buying what was reserved for the deserving. It’s all there on vivid display. Modern American society has become increasingly and banally corrupt, both in the ways in which “justice” is meted out and in who is allowed to access elite education and the power that comes with it.

The U.S. is now a country where corruption is rampant and money buys both access and outcomes. We pretend to be better than Russia and other oligarchies, but we too are dominated by a rich and powerful elite.

The notion that throwing Loughlin and Giannulli in prison for the rest of their lives will somehow overthrow the alleged oligarchy that is ruining our lives is a stretch, to put it mildly. But that seems to be the sentiment among many Americans. Like so many others who are ignorant of the vast array of weapons that federal prosecutors can wield against them, many of the parents who are fighting the charges have no idea what they are up against.

As Jackson and I noted, federal criminal law does not have to meet the mens rea standard which for centuries has been the bedrock of American-Anglo criminal law. We write:

many federal laws impose criminal sanctions for so-called public welfare offenses. These laws often do not require a “guilty mind,” or mens rea, which historically has been an essential element in common law crimes. Indeed, public welfare “crimes,” such as violations of environmental regulations or insider trading laws, need not involve even unintentional harm to third parties. The overreaching of federal criminal law is especially troubling because institutional and procedural features of the federal system invite prosecutorial abuses, make convictions easier to obtain than in state systems, impose harsh mandatory sentences even for nonviolent acts, and result in disparate treatment of similarly situated defendants.

The second disadvantage is that the American news media, which claims to be a “watchdog” protecting our rights, is rooting for the feds. When Martha Stewart was convicted, federal prosecutors already had broken the law by illegally leaking grand jury testimony to the press, a felony punishable by five years in prison. One of the jurors lied in order to get on the jury, and it was clear that his sole purpose was to vote guilty.

In other words, the government cheated and denied Stewart the fundamental right to a fair trial, but all that most journalists could do was to be cheerleaders for federal prosecutors and to comment upon Stewart’s wardrobe whenever she made a court appearance. Although what Loughlin and Giannulli allegedly did was wrong by any social and moral standards, they hardly deserve to be thrown in cages for the rest of their lives. I realize that mine is an unpopular opinion these days, just as my questioning the criminal charges against Ken Lay and Jeffrey Skilling brought out the long knives. That being said, I don’t apologize for my pleas to see sanity return to how the authorities carry out the law.

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