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The $6,000 shower curtain returns
A six-month lull in corporate fraud trials ends soon. Ex-Tyco, WorldCom, HealthSouth execs on deck.
January 7, 2005: 6:59 PM EST
By Krysten Crawford, CNN/Money staff writer

Former Tyco CEO Dennis Kozlowski leaves a New York court Friday. His retrial starts soon.  
Former Tyco CEO Dennis Kozlowski leaves a New York court Friday. His retrial starts soon.

NEW YORK (CNN/Money) - The last six months have been relatively quiet in the world of corporate scandals, with only Martha Stewart grabbing headlines. The lull came to an end this week in courthouses in Alabama and New York.

Former Tyco executives Dennis Kozlowski and Mark Swartz were back in New York state court Friday, where lawyers for both sides tackled unfinished business as a second trial date nears. The first go-around, a sensational showdown that featured a $6,000 shower curtain and a vodka-spouting statue of David at a lavish Italian birthday party, ended this spring in a mistrial.

And in a federal courthouse in Birmingham, Ala., jury selection began Jan. 5 in the felony trial of former HealthSouth Corporation CEO and founder Richard Scrushy.

Meanwhile, ex-WorldCom CEO Bernard Ebbers Jr. will head to New York federal court Jan. 18 -- the same day as the Tyco duo -- to face criminal charges stemming from an $11 billion accounting fraud that bankrupted the telecommunications giant now known as MCI.

Far from being over, the sensational scandals that first swept corporate America when Enron Corp. imploded in late 2001 are still deepening.

"Although in 2004 we saw the Rigases (of Adelphia Communications), Martha Stewart and Frank Quattrone (the former Silicon Valley investment banker) get convicted, the largest number of high-profile executives on trial will be in 2005," said Jacob Frenkel, a former federal prosecutor and SEC enforcement lawyer who is now in private practice.

Scrushy faces 450 years in prison if found guilty on all 58 criminal counts brought against him in connection with a $2.6 billion accounting fraud at the healthcare provider.

On Friday, his lawyers requested that opening arguments, which are now set for Jan. 18, be delayed a week so they can sift through what they called a "deluge" of government evidence.

Also on Friday, lawyers in the retrial of former Tyco International honchos Kozlowski and Swartz met with New York state court judge Michael Obus. Among other things, prosecutors told Obus that the entire case would last four months. The first trial, which Obus also presided over, took six months.

All four executives -- Kozlowski, Swartz, Scrushy and Ebbers -- have pleaded not guilty and deny they did anything wrong. If convicted on all counts against them, they face prison terms ranging from 10 years for Ebbers to 450 years for Scrushy.

Climbing the corporate ladder

Many more await their day in court. They include former Enron chiefs Kenneth Lay, Jeffrey Skilling and Richard Causey. Ex-Adelphia chief operations officer Michael Rigas is also due to be tried again. While his brother and father were convicted in July of fraud and are due to be sentenced, the prosecution of Michael Rigas ended in a mistrial.

Frenkel, a partner in Rockville, Maryland's Shulman, Rogers, Gandal, Pordy & Ecker, calls 2004 the "year of the plea." For while Stewart, Quattrone and a handful of executives went on trial, many more once high-flying corporate suits cut deals with prosecutors whereby they agreed to plead guilty and to cooperate with ongoing investigations in exchange for lighter sentences.

The practice, which prosecutors have long used, is aimed at pressuring underlings to snitch on the higher-ups who prosecutors want most to put behind bars. Perhaps the best-known example of a plea deal in 2004 involved a husband-and-wife team caught up in Enron's collapse.

Andrew Fastow, Enron's former chief financial officer, agreed to a 10-year prison term and to cooperate with investigators on the condition that his incarceration would not overlap with that of his wife Lea, Enron's former assistant treasurer, who also brokered a deal with prosecutors. The Fastows said they wanted one parent at home to raise their children.

The on-again, off-again plea deal ended when Lea Fastow pleaded guilty to a misdemeanor tax charge in May and began serving two months later a one-year sentence at a Houston federal lockup.

"In the last two years, the government has painstakingly climbed ladders, gotten different people along the way to plead guilty in order to go after someone at the higher rung," said Frenkel. "We're now at the top of the ladder."

The biggest battles loom

Legal experts have praised prosecutors for a solid, if not unblemished, track record in 2004. But they arguably face their toughest battles yet.

Two of this year's biggest trials -- against Martha Stewart and her former Merrill Lynch stockbroker and against Quattrone, the former Credit Suisse First Boston financier -- did not involve charges of fraud. Instead, prosecutors brought narrow cases centered on easier-to-prove allegations of obstruction of justice.

Stewart, the founder and former CEO of Martha Stewart Living Omnimedia (Research), was found guilty last March of trying to hinder a government probe into her well-timed sale of ImClone Systems (Research) stock on Dec. 27, 2001. Quattrone was found guilty of obstructing justice when he sent an e-mail to underlings reminding them to clean up their files while investigators were looking into allegations that CSFB broke the law by giving favorite clients shares of some of the late 1990s hottest initial public offerings.

Stewart is now serving a 10-month sentence, including a five-month prison term, even though her appeal is pending. Quattrone has been sentenced to 18 months behind bars but is free on bail until an appeals court decides his fate.

Former Tyco CFO Mark Swartz will also stand trial. Kozlowski and Swartz are accused of looting $600 million from the company.  
Former Tyco CFO Mark Swartz will also stand trial. Kozlowski and Swartz are accused of looting $600 million from the company.

Prosecutors, predicted Frenkel, "are not going to have an easy time" convincing a jury that Ebbers or Scrushy cooked the books at their respective companies. He said the cases are far more sophisticated and success for the prosecutors will hinge on their ability to simplify complex accounting principles.

He noted too that Scrushy et al. have lined up some of the best legal talent money can buy. Ebbers' lead defense lawyer is Reid Weingarten, a partner in Steptoe & Johnson who already has one big victory under his belt: former Tyco general counsel Mark Belnick, who was acquitted this summer of financial misconduct.

"Prosecutors are also about to go up against an unprecedented level of firepower," said Frenkel.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.