United States Department of Justice officials are in talks with the lawyers of Jeffrey Skilling, the former chief executive officer for Enron, for a possible reduction of his 24-year sentence. Skilling was convicted of one count of conspiracy, one count of insider trading, five counts of making false statements to auditors and 12 counts of securities fraud for his involvement with the accounting scandal that ultimately bankrupted one of the best regarded companies at the time.
The Justice Department has released a notice to “Enron employees, stockholders and other victims” stating that the Justice Department “is considering entering into a sentencing agreement with the defendant in this matter. Such a sentencing agreement could restrict the parties and the Court from recommending, arguing for, or imposing certain sentences or conditions of confinement. It could also restrict the parties from challenging certain issues on appeal, including the sentence ultimately imposed by the Court at a future sentencing hearing.”
The notice invites “victims” to express their views on the potential agreement by April 17 if they wish to have their opinion considered.
If the government agrees to a sentencing agreement, it is unclear how Skilling’s sentence would be affected, if it is affected at all. Any reduction requires the permission of Simeon T. Lake III, judge of the Federal District Court of Houston (Texas), who presided over Skilling’s trial. In 2009, the Federal Court of Appeals ruled that sentencing guidelines were improperly applied when Skilling was originally sentenced, and that he must be resentenced with a reduced sentencing range.
The collapse of Enron was but one of a long line of corporate fraud cases that marked the end of the tech boom of the 1990s. Kenneth Lay, chairman of Enron, Bernard Ebbers of WorldCom and John Rigas of Adelphia were all convicted and received lengthy prison terms for accounting abuses. George W. Bush created the Corporate Fraud Task Force that secured nearly 1,300 fraud convictions in response to this; Congress passed the Sarbanes-Oxley Corporate and Auditing Accountability and Responsibility Act of 2002.
Under Sarbanes-Oxley, about 30 people connected to the company were prosecuted and convicted.
Skilling’s conviction was based on the assumption that he denied his employees and customers “honest service,” or the ethical application of his energy and services in a manner meant not to defraud. “Honest service” was stricken down as unconstitutional in 2010 due to the awkwardness of the law’s wording. This led to the conclusion that Skilling’s conviction was flawed. However, a federal appeals court ruled that there was “overwhelming evidence” that Skilling attempted to commit fraud by his own volition. However, due to to the removal of the “honest sentence” violation, Skilling’s sentence must be recalculated.
At the time of Skilling’s sentence, Sean Berkowitz, the director of the Enron Task Force, said the lengthy prison term was needed as a deterrent to corporate fraud. “The Enron fraud is as large and serious as any other fraud in this nation’s history,” he said, adding that because Skilling “sat at the top and set the culture of what happened at Enron — he should bear the brunt of the responsibility.”
“One question of Jeffrey Skilling’s advocacy for a reduced term centers around fairness, which is a core element of trust,” Robert F. Hurley, a professor at Fordham University and director of the Consortium for Trustworthy Organization, told Mint Press. “Clearly Skilling is free to spend his resources to pursue his own interests in a free society. However, perceptions of trust and fairness require that Skilling be on the same plane as all other citizens concerning how the law treats him.
“Herein lies the conflict. Can convicts who are poor gain the same treatment? The system of justice must take this into account or it will be seen as unfair and not worthy of trust by regular [not rich] citizens. This can have the effect of breaking down trust in civil society.”
“Another important question is: what is required to deter white collar crime among corporate chiefs?” Hurley continued. “Many argue that fines are merely a cost of doing business and not a deterrent. Doing jail time certainly will get the attention of powerful and rich prospective criminals. From this perspective, Skilling’s 24-year sentence seems extreme. Certainly 10 or 15 years would represent a significant deterrent to any corporate chief or politician. The real issue here effectively prosecuting these cases. So many of those responsible for the financial crisis like Angelo Mozilo and Dick Fuld enriched themselves at others’ expense and served no jail time.”
The state of corporate prosecutions
In 2012, there was a major upswing in the number of civil convictions for corporate malicious behavior. In 2012, corporations paid $8 billion to settle civil charges of defrauding the government or the people’s trust — more than twice what was paid in 2011. This increase in settlements reflects the resolution of a number of long-standing cases opened by the Obama administration at the beginning of the president’s first term, but also, according to the Justice Department, reflects a renewed emphasis on fighting corporate fraud.
“We are putting more resources into these cases and better using the resources we have,” said Tony West, the acting associate attorney general.
However, as the charge against the corporation revs up, criminal charges against the individuals involved bottomed out. “A lot of people on the street, they’re wondering how a company can commit serious violations of securities laws and yet no individuals seem to be involved and no individual responsibility was assessed,” said Sen. Jack Reed (D-R.I.), chairman of the subcommittee that oversees securities regulation.
There have been a handful of major convictions. Jeffrey John Worth of Minneapolis, Minn., was sentenced Sept. 19, 2012 to 54 months in prison and $6,457,000 in restitution to the Internal Revenue Service for one count of conspiracy to defraud the government by means of tax evasion. Darain Atkinson of St. Louis, Mo., the co-owner of US Fidelis, was sentenced Sept. 25, 2012 to 96 months in prison and $4 million in restitution for one count of conspiracy to commit mail and wire fraud. On June 14, Houston, Texas’ R. Allen Stanford, the former chairman of the board of directors at Stanford International Bank (SIB), was sentenced to 110 years in prison for a 20 year-long investment fraud scheme that embezzled more than $7 billion.
But these have been the exception. Norm Pattis, trial lawyer and author of “Juries and Justice,” told Mint Press that “mortgage fraud came close to crashing the economy in ways that ordinary drug abuse never will. Criminal defense lawyers marvel at the lenience of white collar sentences. Reducing white collar sentences sends the wrong message to pinstripe thieves — break the law, profit, have fun, take your slap on the wrist, and then do it all over again. In the meantime, blue collar convicts grow resentful when they pull decades’ long sentences for lifestyle crimes.”