TCS Daily

Retributive Justice

By Duane D. Freese - July 26, 2002 12:00 AM

"We will not rest until the cheats and the chiselers and the charlatans spend a large chunk of their lives behind the bars of a Federal prison," President Bush said Friday.

It's about time. I don't know about you, but I've had it with these financial crooks, and I want to see them behind bars, wearing orange, green or whatever is the new color code for prison garb.

So, I am glad to see President Bush was, too. Only, I imagine he's a little tired by now. After all, it's been more than a dozen years since President George Herbert Walker Bush made the above statement to United States Attorneys on Friday, June 22, 1990.

Now, his son is sounding the same theme. "This government will investigate, will arrest and will prosecute corporate executives who break the law," President Bush promised on July 24 upon the arrest on financial fraud charges of members of the Rigas family and other executives of bankrupt Adelphia Communications Corp.

The stock market celebrated the news of this personal crackdown, coupled with House-Senate agreement on new corporate fraud legislation, with the Dow Jones Industrial Average leaping 489 points, its second largest one-day increase ever.

While state attorneys general may get a kick from getting $100 million settlements from securities dealers -- as New York's Eliot Spitzer did with Merrill Lynch -- what turns people on is corralling actual crooks. When federal prosecutors won their criminal case against the accounting firm Arthur Anderson, investors and the general public greeted it with a big ho-hum.

The reason: No sense of justice.

Hitting corporations and businesses with fines -- while it may make sense insofar as it takes away ill-gotten gains and deters some future bad behavior -- creates no sense of a crime being paid for. In the cases of employees and investors of Enron and WorldCom, it can end up making them feel as if they're being victimized twice.

Federal Justice Department guidelines. on filing criminal and civil charges against corporations require United States Attorneys to consider the ramifications on investors and employees, but tend to give them short shrift:

"Virtually every conviction of a corporation, like virtually every conviction of an individual, will have an impact on innocent third parties, and the mere existence of such an effect is not sufficient to preclude prosecution of the corporation. ... (W)here the top layers of the corporation's management or the shareholders of a closely-held corporation were engaged in or aware of the wrongdoing and the conduct at issue was accepted as a way of doing business for an extended period, debarment may be deemed not collateral but a direct and entirely appropriate consequence of the corporation's wrongdoing."

But as happened in the 1980s with the savings and loan scandals, management and shareholders often don't share the exact same interests. The pension funds and the retirees they support who've lost billions with WorldCom's stock decline don't deserve extra punishment for what Bernie Ebbers did.

When executives of a company cook the books, as WorldCom's financial officer seemed to do, or engage in complicated off the books dealings, as Enron's CFO did, going after the business makes about as much sense as prosecuting, say Al Qaeda or La Cosa Nostra, but not trying to imprison Osama bin Laden or the heads of the five families.

Imagine how Americans would feel if the war on Terrorism was limited to trying to dry up Al Qaeda's source of funds.

Justice demands a face, and alleged wrongdoers to put on trial. That's what happened in the late 1980s and early 1990s. President Bush the elder kept his word. As his speech that day noted:

"In 3 years, we've won more than 150 S&L convictions: $100 million ordered in restitution; ... more than 400 years in prison terms meted out." Included in them were: "An S&L chairman gets 30 years in the celebrated case in Dallas, Texas. An S&L CEO in Santa Rosa is sentenced to prison, and the courts ordered almost $7 million in fines and restitution. In Illinois, top officers of an S&L go to prison and are ordered to pay $17 million. Now, these cheats have cost us billions, and they will pay us back with their dollars, and they'll pay us back with years of their lives."

Unfortunately, some of those convictions didn't stick. Charles Keating, for example, whose failed Lincoln Savings & Loan cost federal taxpayers $3.4 billion, was sentenced to 12 years, but got out after five because a judge gave faulty instructions to the jury.

And some subsequent white-collar criminals have gotten mere slaps on the wrist. Federal Judge Kalimba Edwards, for example, let James McDermott, the former chief executive of Keefe Bruyette & Woods, off with only eight months for his insider trading, giving the condition of his ailing daughter as a reason.

The sob stories judges and juries need to hear from the current scandals are in the 401(k), pension and retirement plans of those whose faith and trust in companies has been subverted. So, now it's the job of Bush the younger now to reteach the lesson his dad taught a dozen years ago, only in a way that sticks.



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