Wednesday, September 21, 2011

The Solyndra Non-Investigation

Bankruptcy examiners aren’t prosecutors.

As Andrew Stiles reported Tuesday on NRO, House Judiciary Committee chairman Lamar Smith (R., Texas) has written to Attorney General Eric Holder to seek the appointment of a special bankruptcy investigator in the Solyndra case. The operative word here is bankruptcy. The bankruptcy process conducted under the supervision of a trustee is very different from a criminal investigation conducted by a prosecutor. For those hoping for a full accounting of the $535 million Solyndra debacle, there is less to Representative Smith’s request than meets the eye.

In my weekend column, I explained that if the Solyndra case came walking into a competent prosecutor’s office, the theory of the investigation would be fraud. We have the loss of over half a billion dollars in public money (in the form of government credits), which was pledged to back a company that had a hopelessly flawed business model and that was gushing losses with no realistic prospect of a turn-around. We have grossly misleading rosy-scenario pronouncements by key players (including President Obama and Vice President Biden) at a time when Solyndra backers were gearing up an initial public offering of stock — and when Solyndra’s independent auditors had issued a dire warning that it was doubtful the company could continue as a going concern. In addition, we have executive-branch officials renegotiating the loan arrangement so that corporate insiders, including Obama administration cronies, would be given priority over taxpayers in the liquidation of assets when the company inevitably went belly-up — a novation that appears to be as illegal as it is inexplicable.

But what is happening with Chairman Smith’s letter to Attorney General Holder is not what happens when a case comes in the door at a prosecutor’s office. Smith is not asking Holder for an ordinary criminal investigation in the sense of having federal prosecutors and agents pursue the case as they see fit.

To be sure, Smith would be delighted if that were an option. Alas, it is not, for three reasons. First, the deep and suspect involvement of the Obama administration in the facts of the case leaves the Holder Justice Department ineradicably conflicted when it comes to investigating Solyndra. Second, the conflict would not be cured if Holder were to appoint a quasi-independent counsel — i.e., one who would still ultimately report to Holder, or to other high-ranking political appointees in the Obama Justice Department if Holder were to recuse himself. Third, because prosecution is an executive-branch function, the appointment of a fully independent counsel would be legally dubious — and even if that weren’t so, independent-counsel investigations have a sorry history that we shouldn’t want to see repeated, regardless of which party is in power.

Representative Smith is obviously trying to find a way around this dilemma. His letter seizes on the happenstance that Solyndra is now a bankruptcy case. On the surface, bankruptcy law appears to permit some probing of fraud by an independent investigator. Unfortunately, when you dig a bit beneath the surface, it is not really very independent and it is far too circumscribed to be effective in a matter like Solyndra — where the fraud may have caused the bankruptcy but has little if anything to do with the bankruptcy process.

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