Going soft on white collar crime
Now that the Enron trial is over, it seems the fervor over prosecuting corporate crime has died down.
NEW YORK (CNNMoney.com) -- Even as Enron founder Kenneth Lay's conviction is expected to be expunged with his death, the memory of his crimes has started to fade. So too, say legal experts, has our collective zeal to suss out and prosecute any more corporate crime.
White-collar crime has been a political and judicial hot button over the past five years, ever since Enron's fantastic implosion in 2001 provided the public with a window into the corruption plaguing Corporate America. Awareness of the business community's dirty little secrets set forth a wave of regulation and high-profile investigations into some of America's top corporations, including WorldCom and Tyco.
But legal experts say the fervor has since died down. Now that both Lay and his co-defendant Jeffrey Skilling have been convicted, the focus has turned away from aggressively prosecuting white-collar criminals.
"Crimes and investigations work in cycles," said Joel Androphy, partner at Houston-based law firm Berg & Androphy. "(With Enron), prosecutors jumped on the bandwagon, and what was once a boutique practice became a practice among all firms."
Androphy added that since the government has conveyed the message that white-collar crime will not be tolerated, it may not feel the need to be as aggressive about going after corporate criminals as it has in the past.
Legal setbacks for prosecutors
And from a legal standpoint, prosecutors have faced some setbacks in the courts when it comes to making a conviction stick. Both lower court judges and the Supreme Court justices have criticized some of the methods that prosecutors and overzealous judges employed to punish corporate executives charged with crimes.
In June, a New York-district judge found that prosecutors violated the rights of 16 former KPMG executives by improperly pressuring KPMG to stop paying their legal bills, in exchange for avoiding an indictment of the firm itself.
The executives are accused of scheming to defraud the Internal Revenue Service by setting up fraudulent tax shelters. KPMG settled the charges last August but now - thanks to U.S. District Judge Lewis Kaplan's ruling - the company faces a lawsuit from its former executives over the withheld legal fees, filed Wednesday in the United States District Court in Manhattan.
Legal experts said the ruling, while limited to the Manhattan district court, could have a profound impact on the opinions of other judges because it signals that the courts are backing away from making examples of those accused of corporate crimes.
"The pendulum swung too far after Enron, with a tendency for government tactics to become increasingly coercive when investigating corporate cases," said John Bielema, securities litigation defense partner at Atlanta-based Goldstein LLP. "This decision sends a clear message that coercive tactics aren't going to be tolerated, at least not by this judge."
And government prosecutors have gotten some other slaps on the wrist over the last year.
Among the more prominent rebukes came from the Supreme Court, which decided to overturn the conviction of Enron's accountants, Arthur Andersen last year, citing jury instructions that "simply failed to convey the requisite consciousness of wrongdoing."
The high court added that the jury instructions gave jurors an inordinate amount of leeway with which to convict Arthur Andersen - a move that eventually forced the once-respected accounting firm to shut its doors.
Overly aggressive jury instructions also led to the reversal of former CS-First Boston banker Frank Quattrone's obstruction of justice conviction in March. Quattrone was granted a new trial with a new presiding judge. But the government has yet to make it clear whether it will pursue Quattrone for a third time (his first trial ended in a mistrial).
"Obviously after a period of significant corporate scandal, the government did what it was supposed to do by taking a harder look at corporate practices," said Scott Meyers, chairman of the litigation group at Chicago-based Levenfeld Pearlstein LLC. "Unfortunately the government overreacted and really started to peel back the core constitutional protections of defendants."
Meyers added that the judiciary is now moving to correct that.
Going too far?
But is the government easing up too much?
Thomas Ajamie, a securities lawyer at Ajamie LLP said there is concern that, in the wake of the Enron conviction, the government and the courts are moving towards rolling back regulations and becoming softer on prosecuting corporate crime.
As an example, he cited recent moves within the government to repeal or limit Sarbanes-Oxley - which was created to tighten corporate financial reporting standards following the high-profile Wall Street scandals. He also noted last month's ruling by the Appeals Court of the District of Columbia - barring the Securities and Exchange Commission from regulating hedge funds - proves that there is some pullback from regulation.
"I think there's no question that we're moving in that direction," Ajamie said. "Memories are very short."
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