The End of an Era?
Even the Post article itself is quick to point out that a fresh wave of scandals already under way suggests that white collar fraud prosecutions will remain an important part of the judicial landscape for the foreseeable future. This week’s guilty plea of Comverse Technology’s former CFO in connection with the company’s options backdating investigation (here), and the indictment of REFCO’s former CFO (here), are but the latest signs that white collar crime will remain a high prosecutorial priority.
For that matter, even though Skilling’s sentencing might represent a high water mark, it is far from the end of the Enron saga. As detailed in an October 24, 2006 Houston Chronicle article entitled "Other Trials Likely; Shareholder Suit on Tap" (here), there are still quite a number of Enron-related criminal prosecutions remaining in the pipeline. For example, three British bankers, extradited to the U.S. earlier this year, will stand trial early next year on allegations that they stole from a former employer in connection with an Enron-related transaction. There may be new trials for several former Enron executives whose trials ended in mistrials. Several key Enron defendants, including former Enron Chief Accounting Officer Richard Causey, are yet to be sentenced. The civil lawsuit against former Enron investment banks (at least the ones that have not already settled) and the Houston law firm of Vinson and Elkins remains pending.
And even when the book is finally closed on Enron, whenever that may be, the assault on white collar fraud is likely to continue. In one of the more interesting quotations in the Post article cited above, Timothy J. Coleman, a former prosecutor and Justice Department official who, while at DOJ, was responsible for the President’s Corporate Fraud Task Force and supervised the work of the Justice Department’s Enron Task Force and Criminal Fraud Section, predicted that:
The legions of investigators hired by securities regulators, federal prosecutors and the FBI will pay lasting dividends because they will become a "standing army" ready to target business wrongdoing. "Whether it’s stock options, mutual funds or something else, corporate America should expect a continuing series of major, nationwide investigations for the foreseeable future," said Coleman.
A "standing army" is expensive to maintain. It also has to justify its existence. Reasonable minds may question whether a permanent corporate crime military force is really in the best interests of investors, and what effect it will have on America's competitiveness in the global economy. The standing army may be one of the least attractive legacies of Enron. (Consider what the Enron Task Force did to Arthur Anderson. ) More comments on the "standing army" follow below.
The D & O Diary’s prior comments on Enron’s Legacy can be found here.
Skilling’s Sentencing: Comment from the Blogosphere: Skilling’s sentence provoked a wide variety of comments in the blogosphere (links to blog posts here; The D & O Diary’s post on the topic can be found here.) But the most interesting comments appear on the White Collar Fraud blog (here). Regular D & O Diary readers will recall that the White Collar Fraud blog is maintained by none other than Sam E. "Sammy" Antar, the former CFO of Crazy Eddie’s. (See my prior post about Antar here). Antar states:
The sentencing of Mr. Skilling will not stop any crimes in progress or cause any criminal to wake up the next day with any new found morality. Criminal can only be prevented through effective deterrents through barriers such as strong internal controls, effective oversight, and "checks and balances."
In an earlier post (here), Antar wrote:
No criminal changes their moral compass and no crimes in progress are stopped as they read about long prison terms imposed on felons like Bernie Ebbers…However, as an ex-felon I can say that criminals fear barriers such as a strong internal control structure, well educated, skilled, and trained external public accountants who are truly independent. Criminals fear oversight. White collar criminals think in terms of the successful execution of their crimes (like a project) and are undeterred by strong prison sentences (which we require to exact responsibility and accountability on criminals, but are not a significant preventive measure).Antar’s concluding remarks in his post about Skilling’s sentence:
Punishment and prison are important. However, unless integrated with prevention, professionalism (competence), and power (legislation), there will be many more Enrons to come.
Antar’s comments ring true to me. They also raise questions about the wisdom of maintaining a "standing army" to prosecute the perpetrators of the future Enrons, as opposed to concentrating on trying to prevent future Enrons from occurring in the first place. Resources and efforts would be better invested in trying to deter and prevent wrongdoing rather than punishing it once it has occurred. Vast resources tied in up in a "standing army" devoted to finding people to punish and then punishing them is a misallocation of social assets.
Enron in Cyberspace: As noted in the Daily Caveat (here), there is a "ridiculously cool" Enron Explorer website (here), that contains a searchable, graphically relatable database of over 200,000 emails that traversed through Enron as it careened toward oblivion. I recommend this site; it is unspeakably weird to be able to get lost inside an unfolding American corporate catastrophe. The WSJ.com Law Blog has isolated a few of the "highlights" (here), such as this sarcastic excerpt: "Certainly all of you can stop shredding documents for 5 minutes to respond."
It is Always About Harvard (Just Ask a Harvard Grad): Enron is no exception. Details on the Harvard connection to Enron, here.