Not-So-Special Prosecutor, Investment Impacts, and Regulatory Rollbacks
Here’s What You Need To Know
Yesterday afternoon, Deputy Attorney General Rod Rosenstein announced the appointment of former FBI Director Robert Mueller to serve as Special Counsel to investigate connections between those close to President Trump and the Russian government. This appointment comes in response to numerous lawmakers calling for a special prosecutor following the firing of FBI Director James Comey. In the wake of this appointment, it’s important to understand what a special prosecutor is today versus what it was 20 years ago, how independent a special prosecutor really is, and what outcomes special prosecutors really provide.
- The “Special Prosecutor” Of Today Is Not What It Was 20 Years Ago: When many people think of a “special prosecutor,” what they’re actually envisioning is the Office of the Independent Counsel, which was created after Watergate as part of the Ethics in Government Act of 1978. This measure allowed Congress or the Attorney General to request an independent counsel who would then be chosen by a panel of three judges to eliminate any potential political meddling. This measure was most prominently used when Kenneth Starr was tasked with investigating the Clinton Administration as an independent counsel. This statute, however, was allowed to elapse when Congress failed to reauthorize it in 1999. So, there is no longer an Office of the Independent Counsel, but rather it is the U.S. Department of Justice Office of Special Counsel.
- Special Counsels Aren’t Actually Independent: In the absence of the Office of the Independent Counsel, the Department of Justice has the authority to appoint a “special counsel” to investigate specific issues where the traditional channels of justice are either compromised or insufficient. (NOTE: This is separate from and different than the official DOJ’s Office of the Special Counsel – welcome to government!) The chief difference between the prior independent counsels and the contemporary special counsel is that the position in now subject to Department of Justice oversight. While technically the Attorney General’s appointment of a special counsel is “unreviewable,” President Nixon was able to circumvent this during the “SaturdayNight Massacre,” firing senior Justice Department officials until landing on an Acting Attorney General willing to fire the special counsel. Since the lapse of the independent counsel statute in 1999, that circumvention remains possible.
- Special Prosecutor Investigations Are Never Satisfactory: Whether looking at investigations conducted by the previous Office of Independent Counsel or the modern-day Office of Special Counsel, the historical trend suggests their results never really satisfy either side. Their investigations often lead to claims of overreach by some and under-reach by others. The last use of a special counsel was 2003, when then-Deputy Attorney General James Comey appointed Patrick Fitzgerald to investigate the leaking of CIA operative Valerie Plame’s name to the press.Some argue Fitzgerald’s investigation overreached by indicting a Bush Administration figure and a journalist for crimes entirely unrelated to the actual leaking or publishing of Plame’s name. Meanwhile, Fitzgerald refused to pursue charges against the actual source of the leak, who was identified to him early in the investigation. The same has been argued of independent counsel Kenneth Starr’s investigation into the Clinton Administration’s White Water real estate scandal, during which Starr was accused of exceeding his investigative mandate by refocusing his efforts on perjury charges against President Clinton related to his extramarital affairs.
Robert Mueller shares a challenge with his predecessors: the politically charged environment that require their independence come with the expectation that they will find wrongdoing. Exoneration or a conclusion that there was no crime committed is almost never a politically acceptable answer for them to give. Once the investigation starts, it must deliver a culprit. Thus, rather than removing political influence from the equation, as they are intended to do in theory, special counsels in reality tend to conform to that influence and expectation.
If one genuinely wants answers about the extent and nature of Russian influence in the 2016 presidential elections, a special counsel may not offer you much value. While Mueller may temporarily calm the tempest in Washington, the Trump Administration may come to regret trading that short term gain for the long term overreaching scrutiny that may result.
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THE FRENCH FOUGHT THE HACKERS, AND THE FRENCH WON
After the prominent instances of campaign hacking during the 2016 U.S. presidential election, the French were prepared to fend off similar attacks during their recent presidential election. Russian hackers’ attempts to break into the servers of elected French President Emmanuel Macron’s campaign were stymied; Macron’s team created and filled fake email accounts to confuse hackers, proving that this type of information warfare can be successfully counteracted through early warning and rapid exposure.Our own National Security Agency closely monitored Russian hackers during the French presidential election process, but Macron’s campaign had been the target of sophisticated cyberattacks since December. Russian hackers are clearly still seeking to influence international elections. Yet high profile national campaigns are starting to effectively inoculate themselves from these attacks.
FREEDOM CAUCUS CELEBRATED AT HOME
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Members of the right-wing House Freedom Caucus have been the cause of near-constant frustration for Republican leadership on the Hill and the White House. Back in their home districts, however, they’re much appreciated by their constituents. Citizens living in the districts of key Freedom Caucus members – like Reps. Mark Meadows (R-N.C.), Dave Brat (R-Va.), and Morgan Griffith (R-W.Va.) – see the group as an effective, successful check on establishment politicians, especially with their ability to influence the GOP healthcare bill to a point where they could actually support it.
Given this support in their districts, it does not appear the House Freedom Caucus is going anywhere, and if Republican leadership hopes to achieve key policy priorities, they will have to consider the opinion of these members.
SMALL RULE, BIG INVESTMENT IMPACTS
A recent, obscure regulation from the Financial Accounting Standards Board (FASB) may have a large impact on how major tech firms – like Alphabet, Intel, IBM, and Salesforce.com – invest in smaller companies. The rule, entitled “Accounting Standards Update 2016-01,” requires companies who invest below 20 percent in other publicly traded companies to value those investments on a quarterly basis. The intent of this rule is to better inform investors and creditors about a company’s financial health.
Previously, companies were only required to post decreases in an investment’s value and could continue posting the investment at cost despite potential increases. But, the new rule creates a potential problem for those investing in other companies because it requires quarterly analysis of these often difficult-to-value investments, potentially creating unnecessary volatility on their balance sheets.
The concern, especially in the tech industry where companies investing in smaller startups is particularly common, is that the rule will discourage larger companies from investing in innovative smaller companies that show promise – thus disrupting the tech ecosystem that has produced significant growth and opportunity in the past.
SLOW YOUR REGULATORY ROLLBACK
Several top lobbyists for major players in the energy industry have relayed a seemingly unlikely message to the Trump Administration: slow down on deregulating the energy sector. Big energy leaders have expressed concern at the speed with which the Administration is deregulating their industry.
They argue deregulation needs to be done carefully to ensure the companies most impacted by the changes understand them and that the markets are not unnecessarily disrupted. They also worry that if not done correctly, lawsuits or a future Administration could force rollbacks of the rollbacks. There is truth to these concerns, but it is also worth mentioning that big companies often play a role in crafting regulations. Thus, they have a vested interest in keeping some of them in place since they can afford to comply, while smaller companies, who might serve as competition, cannot.
THE UNFOUNDED BIAS AGAINST EMERGING MARKETS
Today, only 10% of private capital investment goes to emerging markets – countries with a Gross National Income per capita of $12,475 or less like South Africa, Brazil, and Thailand. Yet, a new study highlighted by Village Capital finds that entrepreneurs in emerging markets have the same or higher levels of education, have higher revenues, employee more full-time individuals, and have founded significantly more companies on average than their peers in “high-income countries.”
Cultural bias likely plays a role in this disconnect between investor perception and entrepreneur quality in emerging markets. But, the larger issue may be that the “one-size-fits-all, Silicon Valley-style approach to investing” greatly limits what types of entrepreneurs appear attractive. Investors pay attention to the university the founders attended, the network they belong to, and their potential for exponential growth, rather than looking to other indicators that have more proven track records as predictive of success.
This reliance on pattern recognition has resulted in more than half of global venture capital going to just three U.S. metro areas (New York City, Silicon Valley, and Boston). Investors who are brave enough to break from this traditional Silicon Valley-style approach may have a great opportunity in front of them with emerging markets.