May 26, 2006
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DOW JONES
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Reprints tool at the bottom of any article or visit:http://www.djreprints.com/. • See a sample reprint in PDF format. • Order a reprint of this article now. The Enron Verdicts . .
. If anyone still thinks corporate chieftains are above the law, yesterday's 29 guilty verdicts against former Enron CEOs Jeffrey Skilling and Kenneth Lay should put that myth to rest. The two former masters of the Houston universe will make long-shot appeals, but the odds are that both will spend much if not all of their remaining years in a federal prison. Sentencing is scheduled for September 11, of all dates. Yet this is somehow fitting since Skilling initially tried to blame a suspicious attempt to dump his Enron stock on the climate of uncertainty following the 9/11 attacks. He was flatly contradicted by records showing he had actually tried to sell on September 6, 2001. More broadly, Skilling and Lay may have lost their case from the start when they hung their defense on the dubious assertion that Enron was a fundamentally sound company tripped up only because speculators were abetted by critical articles on the front page of this newspaper. "This is not a case of hear no evil, see no evil. This is a case of there was no evil," said Skilling's lead attorney. But that was after former CFO Andrew Fastow had already pleaded guilty and admitted to helping cook the company's books. Fastow and a string of former execs testified against the two CEOs. And in the end, jurors clearly understood that companies with real assets and sound balance sheets don't just go poof as the result of a little bad press. We appreciate the free advertising, but the Journal isn't that powerful. Meanwhile, the damage done from this fraud was terrible: tens of billions of dollars in market value, $2.1 billion in pension obligations, and 5,600 jobs lost in the December 2001 collapse. With each of the guilty verdicts carrying potential penalties of at least five years, Skilling and Lay may well spend more time in prison than Fastow, the fraud mastermind. By way of comparison, WorldCom CEO Bernie Ebbers is now facing 25 years, John and Timothy Rigas of Adelphia Cable 15 and 20 years respectively, and Tyco's two top former officials 25 years apiece. That's a pretty impressive cleanup job by the Justice Department and (in the Tyco case) Manhattan District Attorney. We think these convictions of individuals -- some 30 in the Enron case alone -- will do more to deter future corporate crime than anything in Sarbanes-Oxley. At the same time, the U.S. economy has snapped back nicely, meaning that assertions of widespread corporate fraud back in 2001 and 2002 were way overblown. The Enron verdicts are proof, if more were needed, that lying to employees, shareholders and the public about corporate finances is a serious crime that will be punished.
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