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At 2-year anniversary, corporate fraud force reaches high mark

Tuesday, July 13, 2004

WASHINGTON -- The Corporate Fraud Task Force, created two years ago in response to a wave of company scandals, has reached a high-water mark with the addition of Enron Corp. chief Kenneth Lay to a lengthy roster of senior executives charged with crimes.

Although juries have yet to speak in many cases, Justice Department officials and legal experts say the high-profile crackdown coupled with new laws making chief executive officers personally liable for malfeasance have had a significant deterrent effect.

"Before Enron, it was a rare occurrence when a CEO of any good-sized corporation was prosecuted criminally," said Robert Mintz, a former federal prosecutor who now oversees securities litigation at a New Jersey law firm. "I do think these corporate prosecutions have forever changed the corporate landscape."

The task force has prosecuted more than 700 people and obtained over 300 convictions or guilty pleas, according to the most recent figures available from the Justice Department. A handful of acquittals and mistrials have resulted, and more than 300 investigations still are underway.

Last week's indictment of Lay on 11 criminal charges, which stemmed from the 2001 collapse of the Houston-based energy company, was in many ways the capstone of the prosecution effort.

Deputy attorney general James Comey, who leads the task force, said the investigations of Enron and other firms will continue.

"We will go no higher, but we may well go wider," Comey said. "We are going to continue this work."

The list of senior executives indicted so far ranges from the famous -- celebrity homemaker Martha Stewart, scheduled to be sentenced Friday after her conviction for lying about a stock sale -- to the obscure -- Steven Davis, former ad director of the Birmingham, Ala.-based Just for Feet athletic footwear chain that went bankrupt in 1999.

The prosecutors' message clearly is meant to be that the government won't settle for a few company underlings in corporate fraud investigations, that chieftains aren't immune. Prosecutors pursued most of the high-profile cases in ways similar to organized crime investigations, starting at the middle levels, gaining cooperation and moving up the ladder to the top executives.

In the Enron case, for example, 30 people were indicted before charges were brought against Lay. Many of them agreed to cooperate in hopes of receiving lesser prison sentences.

Political sensitivityWhen it was created, the task force was seen by many Bush critics as a political creation put together mainly to protect the administration from charges it was too cozy with business amid rising public furor over repeated revelations of corporate fraud.

Some Democrats still say that Enron in particular should be examined more closely. Before the scandal broke, the president was close friends with Lay, whom he called "Kenny Boy." Bush received more than $139,000 in campaign contributions from Lay and his wife over the years.

Jano Cabrera, spokesman for the Democratic National Committee, said these links raise "a simple question: Did Ken Lay's relationship with George W. Bush cause the lengthy delay in Lay's indictment?"

The White House denies the charge.

Beyond the political sensitivity, the Justice Department still faces long court proceedings in many of the higher-profile cases. Besides Lay and two other top Enron executives, trials probably await former Worldcom Inc. CEO Bernard Ebbers, ex-HealthSouth Corp. CEO Richard Scrushy and others.

Gaining convictions of top executives in corporate ethics cases is not easy. The complexity of the alleged accounting and market manipulation schemes can be difficult for jurors to follow, and it has become clear that juries will not necessarily punish an executive simply for living a lavish lifestyle.

It took prosecutors two trials to convict Credit Suisse First Boston investment banker Frank Quattrone on obstruction of justice charges arising from a probe into how the bank allocated shares of a stock offering. Jurors issued a split verdict last week in the case of top executives of Adelphia Communications Corp., who were accused of conspiring to hide company debt for their personal benefit.

"You cannot overstate the difficulty of proving these cases," Mintz said. "Linking up the conduct of CEOs with efforts to knowingly defraud investors is not easy to do."

Perhaps just as valuable to the government is the deterrence effect of bringing the charges themselves and parading top executives in handcuffs before television cameras.

Comey said the task force's overriding goal is "to work like crazy to make sure that those who commit crimes are brought to justice and that people hear about it and learn about that justice, in an effort to restore public confidence."


On the Net:

Justice Department: http://www.usdoj.gov


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