Posted 9:48 AM by Robert

The Quattrone Mistrial

The Wall Street Journal editorializes:

Assorted legal sages are fretting that the mistrial means the public won't punish as many corporate miscreants as they once hoped, but we think the fault here lies more with the case prosecutors chose to bring. They did not indict the former investment banker for crimes associated with investment banking. Presumably they never found enough evidence on those matters to indict him with.

Instead, they brought charges of obstruction and witness tampering ....

Most of the criminal indictments coming out of the recent corporate scandals are not of this ilk, fortunately. The Enron, Tyco, Adelphia and WorldCom cases all involve some kind of business or financial fraud that is a matter of fundamental corporate honesty. The exception, also brought by the Manhattan U.S. Attorney, is the charge against Martha Stewart for obstruction of justice rather than the insider trading for which she was being investigated. Her lawyers have to be cheered by the Quattrone mistrial.

I agree with the Journal as to the relative strength of the Tyco, Adelphia, WorldCom and Stewart cases.

But why does the Journal need to be reminded that the Justice Department did not destroy Arthur Andersen with charges of securities or accounting fraud in the Enron case. Presumably they never found enough evidence on those matters to indict it with. Instead, they brought charges of obstruction and witness tampering .... The Andersen jury also split - and only "convicted" improperly on inconsistent theories. The damage was done - although the conviction should be reversed on appeal.

As for the highest Enron officers themselves, the New Yorker has explained:

Almost two years after the fall of Enron, it appears increasingly likely that [Kenneth] Lay and [Jeffrey] Skilling will never face criminal charges," Jeffrey Toobin reports in "End Run at Enron." The Enron investigation, he suggests, "has been a demonstration of the limits of criminal law." Lay and Skilling have eluded prosecution because of "the complexity of the corporate enterprise they built; the overlapping and sometimes competing investigations of the company; and the reluctance of witnesses to come forward." One investigator tells Toobin, "Every other white-collar case in history is arithmetic. Enron is calculus." The trouble is that "first, we have to explain it to ourselves, so that we know what was going on. Then we have to figure out if it's illegal. Then we have to figure out how to persuade a jury that it's illegal. And then we have to figure out how to explain why it's illegal even though the accountants and the lawyers said it was O.K." Andrew Fastow, Enron's former chief financial officer and the highest-ranking company official to face indictment so far, is not cooperating with the government, although his wife has also been indicted. "In Prosecution 101, Fastow should have cooperated a long time ago," the investigator says. "But he hasn't." While the Enron task force "has made steady progress against mid-level players," Toobin writes, in the end, "prosecutors may be able to show only that Lay and Skilling presided over a culture where...pervasive dishonesty flourished?—which is not, in any legal sense, a crime.....The sad truth of the criminal-justice system is that when everyone is guilty, no one is.

And if, as the Journal intones, the cases against the highest Enron officers all involve some kind of business or financial fraud that is a matter of fundamental corporate honesty, why did the SEC and the Justice Department settle with the very New York banks that created and fully understood the supposedly "fraudulent" structures that Enron perpetrated - without any admission of guilt or culpability on the banks' part? The banks got off scott free singing the old Tom Leher song:

"Once the rockets are up, who cares where they come down?
That's not my department," says Wernher von Braun."

A matter of fundamental corporate honesty, indeed.