Wagner on Bailouts and the Distortion of Federal Criminal Law

Robert E. Wagner (Rutgers School of Law-Newark) has posted Bailouts and the Potential for Distortion of Federal Criminal Law: Industrial Espionage and Beyond (Tulane Law Review, Forthcoming) on SSRN. Here is the abstract:

This article reveals previously neglected and disconcerting consequences that government participation in corporate ownership can have on American criminal law, and it illustrates these problems by establishing how the recent bailout could influence criminal enforcement. The article shows how the model of cost allocation developed by Guido Calabresi and based on Ronald Coase’s work can apply in the context of the criminal law and specifically economic crimes. The argument in this article then demonstrates how the government’s purchase of corporate shares through the implementation of the Troubled Asset Relief Program (TARP) causes inefficiencies and inequalities in the criminal law, including by shifting prosecutorial and other enforcement resources toward “preferred” companies and allowing for the imposition of higher statutory penalties against economic criminals that offend against those entities. As a consequence, some corporations may under-invest in private precautionary measures while others will be forced to over-invest and pass on the costs to their customers through artificially inflated prices. The potential end result is a misuse of government power to reward unsuccessful companies like General Motors at the expense of successful ones like Ford. Having established a general framework for using a cost allocation analysis to optimally address economic crimes and shown that TARP leads to inefficient outcomes under that type of analysis, this article concludes with recommendations to avoid these problems in the future.