This week, Sholom Rubashkin, who was the vice-president of what was once the largest kosher meat processing supplier in the world, was sentenced to 27 years federal prison for “financial fraud.” Prosecutors had asked for 25 years, and this is essentially a life sentence for Rubashkin, who is 51. However, a lot of other people, including a number of former U.S. attorneys general, called for leniency and are outraged by this sentence that was motivated more by politics and not by the law.
I will go against all of them. Sholom Rubashkin, in my view, does not need "leniency." He needs to be freed, period, for the man is not a criminal, which is more than I can say for the people who hounded and prosecuted him and destroyed his business, Glatt kosher Agriprocessors of Postville, Iowa. Let me begin.
Rubashkin is a Hasidic Jew, his family having fled the U.S.S.R. after the Nazi invasion. They came to the United States and set up a butcher shop in New York City. After marriage in 1989, he and his new bride moved to Atlanta on shlihut to do kiruv (Jewish outreach). That same year, Rubashkin’s father started a kosher meat processing business in Postville to better enable Jews living outside of main Jewish centers to be able to obtain kosher meat.
Before Glatt kosher Agriprocessors began to expand its business, Jewish families could only purchase kosher meat from small butchers and specialty stores that catered to Jews. This made things more difficult for Jewish families who did not leave near these kinds of stores, but by expanding the amount of kosher meat for sale, the firm was able to bring kosher meat to regular grocery stores, which was not a small development for Jewish families.
Soon, Rubashkin joined his father’s company and the family moved to Postville. As the Jewish Daily Forward declared (more about the Forward later), the Rubashkins literally changed how Jewish people in the United States eat. Like many others who practice Hasidism, the Rubashkins were generous to people in the community, both Jews and non-Jews, and generated a lot of good will as a major employer in that area.
Unfortunately, being successful in the United States these days does not garner praise; it makes one a target of people who specialize in promoting strife and envy. In this Age of Envy and dominance by the state, it seems that the only entrepreneurship that is acceptable is political entrepreneurship, and the Rubashkins did not fall into that category. (Public Choice economists call such political entrepreneurship "rent seeking.") The Rubashkins made their living from processing meat, and that meant slaughtering animals according to Jewish dietary laws that are thousands of years old, and that attracted the attention of the People for the Ethical Treatment of Animals.
First, PETA charged in magazine articles that the Rubashkin plant was a veritable house of horrors, something out of an Upton Sinclair novel. (Notice, I say that The Jungle is a novel, since it was written as socialist propaganda and had as much veracity as did PETA’s charges.) The organization charged that the place was a filthy hellhole with unsanitary (at best) facilities where animals were tortured and worse, and filed a complaint with the U.S. Department of Agriculture.
Second, while it was clear that PETA’s charges were false, nonetheless the organization managed to put the kosher meat facility in the public eye, thus making it a bigger target for federal authorities. The next organization to go after Glatt kosher Agriprocessors was the United Food and Commercial Workers Union, which had been unsuccessful in organizing the plant. Part of the problem was its workforce, and anyone who has been near a meat or chicken processing plant will know that a lot of immigrants from Mexico and Central America work there, as well as Asian immigrants.
Work in these plants is hard and low-paying, but low-skilled workers nonetheless are able to band together and make enough money to live in the United States and send money back home to relatives. However, they clearly were not candidates for union membership, which not only enraged the union leadership, but also caught the attention of liberal Jewish groups that don’t much care for the ultra-orthodox Hasidim, including the publishers of the Jewish Daily Forward.
The Forward ran a number of articles (sourced by the UFCW, of course) that claimed Rubashkin was hiring not only illegal immigrants, but also was exploiting child labor. At the same time, political conservatives such as Wesley Pruden of the Washington Times, were mounting a huge campaign against illegal immigration, and the Bush administration decided to make an example out of Agriprocessors and staged an extremely public raid on the facilities in 2008.
Keep in mind that the government went full-scale paramilitary on its raid, complete with a Blackhawk helicopter, and heavily-armed police carrying submachine guns and other weapons. The raid was no surprise; in fact, days earlier, Rubashkin knew the raid was coming and personally contacted the federal authorities and promised to cooperate with them.
Not surprisingly, the Bush administration did things its way, and its way was to be as brutal as possible. More than 300 workers were rounded up, denied legal representation, and forced to plead guilty to a number of charges. They were imprisoned for up to five months, and then deported. The feds then seized all of the company’s records and went on a fishing expedition.
Ultimately, the government charged Rubashkin with financial fraud, claiming that the company had faked invoices and other financial documents in order to inflate its financial assets in order to qualify for larger loan amounts from First Bank of St. Louis. In fact, Rubashkin’s firm had overstated its revenues, but that is much more common than one might think and generally does not land one in a criminal trial.
I will give an example that most readers can understand, a personal example. Last year, we refinanced our mortgage, and an appraiser came to our house to see if we would qualify for the best deals. There was a "magic" number for our house’s value, and he asked me at least twice if I believed that our place qualified.
My answer always was the same: "I have no idea. That is up to you." Now, I was hoping that he would see to it that our house met the so-called value threshold, although I had serious doubts that we actually could sell our house on the open market at that price, and I was not going to say anything that legally could get me into trouble later on. In fact, during the refinancing boom of the last decade, appraisers generally overstated the market value of houses so that the owners or perspective buyers could qualify for certain loans.
Was this fraud? Legally, it was. How far did the fraud go, and who perpetrated it? It would determine who the feds wished to target before that decision could be made. For example, if the feds wished to crucify the homeowner, they can get the appraiser to testify and the homeowner lied to them, and, no doubt, the bankers would testify that they never would have approved the jumbo-sized loan had not the homeowner or perspective buyer defrauded them.
That would be a lie, but federal prosecutors regularly suborn perjury, something I have documented in dozens of articles over the years. For that matter, if the feds wished to nail the bankers or the appraisers, they would "convince" the others in that chain to testify to whatever would be the most damning testimony. It would not matter as to what really happened, as federal prosecutors famously create their own reality, or at least a reality that the courts, the political classes, and the media will swallow.
In the case of Agriprocessors, the loan was a revolving $35 million payout that enabled the company to keep a steady cash flow, meet payroll, and pay its bills. The firm was not arrears in payment, and all indications were that the company would be able to meet its obligations to the bank.
Because the federal courts have eviscerated the ancient doctrine of mens rea, which means that prosecutors needed to prove that a person charged intended to commit a crime, intent to defraud no longer matters. In fact, one can argue that Agriprocessors did not "defraud" First Bank at all, and there are indications that the bank knew that Agriprocessors was overstating its revenues and underestimating its costs (something the federal government does every year, but never results in anyone’s arrest), but did not care because its good customer paid its bills on time. The company was profitable, and so was the bank.
That was not all, according to the feds. Apparently, certain suppliers of cattle and other things are required by a little-known (and almost never enforced) law from the 1920s to be paid within 24 hours. No one had complained about the late payments, to my knowledge; instead, it was yet another of those "legal technicalities" that federal prosecutors use when they want to convict someone on something.
I won’t dwell on Sholom Rubashkin’s trial, except to say that there were some highly-prejudicial aspects that should be mentioned. Certainly, Hasidim are to people in Iowa what Old Order Amish might be to people from New York City: alien creatures from outer space. Hasidic Jews live a separate life, although it is clear to many people in Postville, Rubashkin, his family, and his company were heroes and important to the community and its well-being.
None of that mattered to the jury located in Sioux Falls, South Dakota, where the trial was held, and federal jurors quickly returned guilty verdicts. According to the New York Times, the damning testimony came when…
Former Agriprocessors employees testified that Mr. Rubashkin had personally directed them to create false invoices to show First Bank, which is based in St. Louis, that the plant had more money flowing in than it really did.
Knowing how federal prosecutors operate, I have no idea if any of those witnesses told the truth. Federal prosecutors are well-known for suborning perjury and are especially known to do it in high-profile cases, such as this one. One can be sure that the people who testified were told that if they did not testify according to a certain script, then the feds would levy fraud charges against them, too. (If the readers wishes to gain some insight into how federal prosecutors lie in order to gain testimony they want, read this link to what the feds did in the trial of Jeffrey Skilling of Enron. Because no federal prosecutor ever has to worry about being charged with suborning perjury, one can bet that this kind of behavior is the norm, not the exception, among U.S. attorneys.)
On another front, the State of Iowa originally charged Rubashkin with more than 9,000 counts of child labor law violations and he recently stood trial. Even after prosecutors amended the charges to just 83, they could not win a single conviction. (While state courts are known to be corrupt, unlike the federal courts, evidence generally matters in state trials.)
Unfortunately, there is more. After the feds originally charged Rubashkin with fraud charges, the prosecutors argued that he was a "flight risk" and should be imprisoned. Their reasoning? Rubashkin is a Jew and the nation of Israel grants expedited citizenship to Jews around the world. They further stretched the story by pointing out that Rubashkin kept about $20,000 in cash, as well as his passports and other documents in a lockbox in his home.
(There are two aspects to that story. First, most of us keep some cash and papers in lockboxes, and we are among that "criminal" crowd that likes to keep these things in a single place just in case we need them. Second, one of the Rubashkin children is autistic, and the family knew they needed to keep certain papers secure in a place where that child would not be able to find and disturb or scatter them, not realizing what they were.) Obviously, this is something that would affect literally every Jew charged with a crime, given that the vast majority of them are considered to be "citizens" of Israel, even if very, very few of them actually would do such a thing. (For that matter, anyone with a passport and cash would be considered a “flight risk” to somewhere, given those standards.)
There is another, more troubling, aspect of this case to me, and it goes to the heart of federal criminal law and how it is enforced. Bernie Madoff was guilty of fraud; he ran a Ponzi scheme, and no Ponzi scheme — including those run by the government — can survive over time. Madoff knew that sooner or later, his investors would lose their money, and that is exactly what happened.
Fraud goes to intent. One defrauds someone else if one purposely charts a course of action that will negatively affect the other party, while promising to give that party positive results. For example, if I borrow money in order to start a business, but then use those funds instead for a Caribbean cruise, that is fraud.
However, Sholom Rubashkin intended to pay back his loans, as he always had done, and he intended his business to continue to provide kosher meat to people who wanted to buy it. He had no plans to abscond with the money he borrowed, with people showing up to work one day and finding the place padlocked and Rubashkin and his family on a secret cruise to Israel.
There was no fraud in the historic sense of the word. If there was misrepresentation of his funds, that was a civil and contractual matter between Agriprocessors and First Bank, and, let’s face it, had the feds not invaded his plant and shut down the operation, Agriprocessors still would be in operation today and most of us never would have heard of Sholom Rubashkin.
To understand federal criminal law today, one must remember that it is something far removed from the roots of what criminal law used to be in the United States. In the past, a crime designated real harm done by one party to another, whether it was robbery, murder, assault, rape or something in which it was obvious that one party clearly injured another.
Today, however, most federal criminal law falls into the "public welfare" category, in which a person charged has failed to perform a certain so-called public duty, or has failed to follow a set of rules which often are arbitrarily set up and even more arbitrarily administered. Not surprisingly, we have seen federal criminal law put to an increasing number of political applications. The legal language might be similar to what it was in the past, but now it is describing certain things that might have political meaning, but describe simple disobedience from the federally-prescribed way of doing things.
The irony is that the feds are calling this a huge "fraud," but the only people really being defrauded are the victims of this federal assault. Let us look at the real damage that the feds have inflicted upon people:
- A thriving business has been shut down, and hundreds of people now are out of work, and a town is reeling economically and financially;
- A woman will be deprived of her husband for many years, and a number of children will not have a father;
- First Bank was heavily damaged by this action in a way that never would have been the case had the feds not decided to "rescue" the bank from its "fraudulent client";
- Kosher meat is more expensive and much less available than it was before the government destroyed Agriprocessors.
No doubt, federal authorities consider this whole affair to be a great victory, and they are telling the rest of us how they are protecting us from fraudsters and exploiters. In truth, the real fraudsters and exploiters here are the federal agencies that took part in this action, and the various groups that were cheerleaders for it.
Literally, thousands of people were harmed by what the government did. However, no one from the federal government lost a dime.
William L. Anderson, Ph.D. [send him mail], teaches economics at Frostburg State University in Maryland, and is an adjunct scholar of the Ludwig von Mises Institute. He also is a consultant with American Economic Services. Visit his blog.