Saturday, October 21, 2006

Skilling's Sentencing

On Monday October 23, 2006, the final chapter in the Enron criminal saga will conclude when Judge Sim Lake sentences former Enron CEO Jeffrey Skilling. Pundits’ estimates of Skilling’s likely sentence range from 20 to 25 years (here). The accumulated anger of the legions of Enron employees and investors seem to require a harsh sentence. But even given the consensus view that Skilling is the bad guy in the Enron story, circumstances have conspired to put Skilling in an even worse position for his sentencing. It is nearly impossible to want to rally to Skilling’s defense, but something – perhaps just an instinctive impulse to be contrary – compels me to wonder whether Skilling might receive a sentence based on factors other than his just deserts.

Within the narrative framework of the 21st century morality play that the Enron criminal trial has become, Skilling’s role is unmistakable. His arrogance and greed border on caricature. All he needs is a cape and a curled mustache to turn him into a cartoon of a bad guy. Stories about how big a jerk have collected around him since Enron’s collapse. Legend has it that in response to a Harvard Business School entrance interview question whether Skillling was smart, he supposedly responded, "I’m fucking smart."(here) During an April 2001 recorded analyst conference call, one of the analysts questioned Enron’s accounting practices, commenting that Enron was the only company that released its earning statement without a balance sheet, to which Skilling replied, "Well, thank you very much, we appreciate that …asshole." (here)

In response to his criminal prosecution, Skilling has been unwaveringly defiant and remorseless. He disregarded his lawyer’s advice to refuse to answer questions based on his Fifth Amendment privilege against self-incrimination, but instead answered every question posed to him by Congressional investigators. He even submitted to a lengthy SEC interview.

Skilling has managed to make things even worse for himself by getting arrested twice, once before the trial (here) and once after the trial (here), in alcohol related incidents involving disorderly conduct and public drunkenness.

Skilling’s character and conduct have virtually assured him an unfavorable sentencing profile. But as bad all of that is, circumstances that should have nothing to do with his sentencing have put him in an even worse position.

First, Ken Lay’s July 2006 death has left Skilling as the last man standing. Enron employees, furious that Lay cheated the hangman, and even angrier that Lay’s conviction was abated, are demanding that Skilling be punished for Lay’s crimes as well as his own. According to former federal prosector Robert Mintz (here), "In theory, the death of Ken Lay should have no impact on the sentence that Mr. Skilling receives. But it's hard to ignore the reality that Jeff Skilling is now standing alone as the figurehead who orchestrated Enron's demise. There will certainly be pressure to make an example of Jeff Skilling and send a message with his sentence.''

Second, Andrew Fastow’s conspicuously lenient sentence left former Enron employees enraged. (here). The perception that Fastow pulled a fast one on the Court (which apparently has left the government considering the possibility of appealing Fastow’s conviction, here) has united public opinion in the view that Skilling at least must be made to pay, and perhaps make up for the fact that Fastow got off light.

Adding to all of this is the prosecutorial feelings of vindictiveness against Skilling for his steadfast refusal to acknowledge guilt or show any remorse. Skilling seems to have done everything he can to antagonize the government, even referring to them in a post-trial interview (here) as "the Gestapo."

So if the over/under on the length of Skilling’s sentence is twenty years, the smart money is betting on the over option.

There is no doubt that Skilling must receive a lengthly prison term. He was found guilty on 19 of the 28 counts against him, including one count of conspiracy, one count of insider trading (although he was acquitted on nine other insider trading counts), five counts of making false statements to auditors, and twelve counts of securities fraud. Each conviction carries a maximum sentence of 5 to 10 years in prison. His conviction of these crimes required that he serve a substantial period of incarceration.

But while Skilling’s crimes demand a substantial punishment, he should not be punished for any of the swarm of other factors surrounding his sentencing. His well-deserved reputation for arrogance and greed should not affect the length of his sentence. (If arrogance or greed were punishable offenses, most of Wall Street would be behind bars.) His insistence on exercising his constitutional rights to a presumption of innocence and to a jury trial should not increase the length of his sentence. His guilt is no greater because it was determined by a jury verdict rather than by his own admission in the form of a guilty plea.

Nor should his sentence be affected by what happened after the trial to Lay and Fastow.
When Skilling stands in the dock to receive Judge Lake’s sentence, he will stand alone. He should be punished for his crimes, but only for those for which he himself has been found guilty. He should not bear a heavier punishment because others evaded their just penalty.

Skilling will go to jail for a very long time no matter what happens. But the time he serves should reflect only the crimes for which he was convicted -- and nothing more.

Update: On October 23, 2006, Judge Lake sentenced Skilling to 24 years and four months in prison. Judge Lake estimated the shareholder loss that Skilling had caused at $80 million, which under the applicable federal sentencing guideline indicated a sentence in the range of 24.3 years to 30.4 years, so Skilling's sentence was at the low end of the indicated range. An October 23, 2006 New York Times article describing the sentencing can be found here. Interesting commentary in the White Collar Crime Prof blog about the Skilling sentence can be found here.

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