Forbes: Alan Dershowitz on the Wall Street Bailout

The biggest growth industry on Wall Street these days is the white collar criminal law firm. As Wall Street financial firms crumble, Wall Street law firms—especially those with litigation departments populated by former U.S. attorneys—will prosper.

The FBI recently announced that it has opened preliminary investigations into possible fraud involving Fannie Mae, Freddie Mac, Lehman Brothers and AIG. This is on top of the two dozen or so cases that had been opened earlier. This means hundreds of Wall Street bankers are currently under investigation. All of them need lawyers.

The New York Times reported that the FBI was "under pressure to look at possible criminal activity in the financial markets." Such pressure almost always follows financial catastrophes.

Throughout history, criminal law has generally operated backward: A murder victim is found and a search begins for the murderer. "Who killed Cock Robin?" is the question most often asked by criminal law.

With financial corpses littering Wall Street, it was inevitable that the search for perps would begin. There is an enormous difference, however, between looking for murderers and looking for financial predators. The law of murder is clear—it requires a willful act by a defendant who intended to kill and whose act caused the death of the victim.

The laws regulating financial manipulation are anything but clear. The government's weapon of choice in such cases is mail fraud—an accordion-like and elastic law if there ever was one. To constitute mail fraud, the underlying conduct need not even be criminal—that is, it need not be prohibited by any specific provision of criminal law. It is enough that it may deprive the employee of the defendant of his "honest services," whatever that may mean.

Over the years, this phrase has been stretched beyond the breaking point to include disclosure of confidential material, billing irregularities and violations of the internal guidelines of private companies. As Sen. Patrick Leahy, chairman of the Senate Judiciary Committee, told the FBI, "if people were cooking the books, manipulating, doing things they were not supposed to do, then I want people held responsible."

The essence of fair criminal law, however, is adequate notice to the defendant that his actions were criminal, not merely that he was doing something he was "not supposed to do." If the law wants to make it a crime to "manipulate" then it should define that concept and make it a specific crime rather than including it within the vague concept of fraud, or the even vaguer concept of honest services.

There is a considerable risk of scapegoating individuals who honestly believed they were going right up to the line but not over it. After an economic catastrophe, there is a tendency to move the goal posts and to make criminal that which was deemed acceptable before the catastrophe, but is now—retroactively—regarded as something investment bankers "were not supposed to do." This violates the spirit, if not the letter, of the constitutional prohibition against ex-post facto laws.

It is not easy to generate public sympathy for former "masters of the universe"—whiz kids who made tens, sometimes hundreds, of millions of dollars by taking risks that ended up costing taxpayers billions—all while they kept their bonuses and profits. But sympathy is not the issue. Potential misuse of criminal law is. If government is given the power to redefine crimes in order to retroactively punish previously lawful predatory conduct, we are all at risk.

That is why white collar criminal lawyers are busy preparing their clients for investigations, subpoenas and flipping witnesses. The race to the courthouse has already begun, with lawyers trying to be the first to offer up their clients as witnesses against former friends and colleagues, instead of themselves becoming defendants. The race, however, is not always to the swiftest but rather to the lowest on the totem pole—the underling who can provide evidence or testimony against the higher ups. The first rule of criminality in the U.S. is "always commit crimes with people more important than you are, so that you can turn them in rather than having them turn you in!"

So, a word to the formerly wise Wall Street whiz kids. Watch out for your friends. Pick your lawyers wisely. Make sure they are representing you and you alone—not your company. And hope and pray that you are not targeted as one of the scapegoats for the mortgage meltdown.