The Enron verdicts close a tumultuous era for corporate America, one that led to criminal convictions of high-profile executives at several companies and sweeping reforms of corporate governance.
“It is an epic win for the government in the biggest white-collar prosecution, arguably, of all time,” said Tom Strickland, a former U.S. attorney now in private practice with Hogan & Hartson in Denver. “For the business world, it’s good too because the overwhelming percentage of businesses and businessmen play by the rules and it hurts everybody when some don’t.”
The Sarbanes-Oxley Act of 2002 came amid the scandals at Enron, WorldCom, Tyco and others. The act tightened financial controls at public companies and made corporate officials vouch for financial reports, with stiff penalties for fraud.
The convictions of Ken Lay and Jeff Skilling on Thursday will embolden the government to prosecute future white-collar cases, experts say.
“The rule of thumb was that corporate securities cases were too complex for jury trials,” said Frank J. Birgfeld, former district director and vice president of the National Association of Securities Dealers in Denver. “This (conviction) will embolden corporate prosecutors. It will embolden whistle-blowers to come forward.”
“A not-guilty (verdict) would have made them a bit gun-shy in this area,” said Peter J. Henning, a law professor at Wayne State University in Detroit who specializes in white-collar crime.
The Justice Department has recently launched investigations into a questionable business practice that came to light – the backdating of stock options, reportedly before the Sarbanes-Oxley Act. At least two dozen companies are under scrutiny for allegedly backdating executive stock options to a date that would give the executives a bigger windfall on the options.
“That’s going to get everyone’s attention now,” Henning said. “Is there securities fraud in the backdating issue? Is it a fraudulent scheme or is it executives engorging themselves?”
Experts say new scandals undoubtedly will arise despite the corporate reforms.
“We’re going to continue to have rounds of corporate accounting scandals just because there continues to be terrific pressures to make the numbers that Wall Street expects,” said Kevin O’Brien, an associate professor of business ethics and legal studies at the University of Denver’s Daniels College of Business.
“Certainly the Enron case has assumed enormous importance in all of our minds as an emblem of the corporate accounting scandals of the late ’90s and early 2000s,” said former federal prosecutor John Walsh, an attorney with Hill & Robbins in Denver. “With this verdict, we see this saga beginning to come to a resolution.”
Staff writer Will Shanley contributed to this report.
Staff writer Andy Vuong can be reached at 303-820-1209 or avuong@denverpost.com.
