Lessons of past aided in convicting ex-CEO
But experts fear corporate crime cycle repeating
By Jeff Smith
Rocky Mountain News
Saturday, April 21, 2007
Thursday's conviction of former Qwest CEO Joe Nacchio on insider
trading charges closes the book on corporate scandals stemming
from the overheated technology markets and subsequent
stock-market crash of 2001. Many agree the crackdown against
top-level executives was a resounding success -- putting such
former CEOs as Enron's Jeffrey Skilling, Tyco's Dennis Kozlowski
and WorldCom's Bernie Ebbers behind bars. Nacchio is likely to
get around 10 years in prison, pending appeal.
Government prosecutors learned that to be successful they needed
to simplify complex cases and narrowly tailor charges. The
Nacchio prosecution team benefited from its experience trying
cases against former executives at Enron, HealthSouth and Qwest.
But some experts question what's been learned to keep such
cycles from recurring. And they raise concerns about the shift
from prosecuting companies to prosecuting mostly individuals,
saying companies should be shamed in the public square too.
"We're having these prosecutions, we're getting convictions, yet
the wrongdoing is continuing," said Russell Mokhiber, editor of
the Corporate Crime Reporter in Washington, D.C.
He and others noted the ongoing scandal of executives backdating
options to reap bigger stock profits.
"You would think that if the system was working, we wouldn't see
wave after wave," he said.
Mokhiber said he doesn't know why that is but believes one
reason is that big businesses have been pushing back -- in
efforts to roll back reforms, or stop future reforms.
"I see the cycle repeating itself," concurred Mathew Hayward, an
assistant professor of management at the University of
Colorado. "We just don't know what flavor it will be in the
next few years."
Egos drive wrongdoing
Hayward thinks one of the common threads is senior executive
"I think each of these executives got too full of themselves,"
Hayward said of such executives as Kozlowski, Ebbers and Nacchio.
"Each of them overreached, believing they could do more than
what they (really) could do."
Hayward added that executives often are too "financially
invested" in the issues, such as with huge stock option
packages. And some erroneously believe their decisions and
actions can escape attention and consequences. In short, they
think they can outsmart regulators.
Convictions curb abuses
Government prosecutors deserve credit for curbing abuses and
deterring white-collar crime. Many high-profile executives are
facing prison sentences of 10 years or more. Nacchio, 57, could
spend a good portion of the rest of his life in prison.
"The conviction of Joseph Nacchio is the latest success in our
crackdown on corporate fraud and our effort to restore integrity
to America's financial markets," Deputy Attorney General Paul
McNulty, chairman of the President's Corporate Fraud Task Force,
said in a statement after the Nacchio conviction.
Charlie Cray, director of the Center for Corporate Policy, a
Washington nonprofit working to curb corporate abuses, said in
an interview before the Nacchio trial -- he views the corporate
fraud task force as something the government does "periodically
on any issue to dampen the crisis."
"That's not to say the line attorneys aren't doing a good job
(prosecuting cases)," Cray said. But he said he's disappointed
the Washington-based task force hasn't done more to analyze root
causes of the problems, such as how stock options may create
incentives for cooking the books.
Mokhiber gives government teams high marks for prosecuting and
convicting individual executives. The Nacchio prosecution team,
led by Cliff Stricklin, included litigators from the U.S.
attorney's office in Colorado and the Justice Department in
"Defense attorneys have a lot of resources in (fighting) these
cases, and often the government is the underdog," Mokhiber
said. "It's kind of like the Colorado Rockies beating the New
Mokhiber, however, is concerned by the shift away from
prosecuting companies to individuals, with corporations throwing
individuals overboard so they won't be prosecuted themselves.
A criminal prosecution doesn't have to be a death penalty for a
company, Mokhiber said, and he said he believes it would serve
an important purpose.
"It would send a message that companies were not above the law,
that they, too, could be shamed, and it would send a message to
Wall Street," he said. "Shame in the public square. Now, we've
effectively taken that off the table."
Joe Nacchio is the latest to fall in the government's crackdown
on corporate fraud. He joins:
• Martha Stewart
* Ken Lay, Enron
• Jeffrey Skilling, Enron
• Andrew Fastow, Enron
• Bernard Ebbers, WorldCom
• John Rigas, Adelphia
• Dennis Kozlowski, Tyco
Nacchio will be sentenced July 27, and if given prison time, he
may choose a federal facility near his Palm Beach, Fla., home.
• A likely pick: The Federal Prison Camp in
Pensacola, Fla., on Saufley Field, an outlying Pensacola Naval
Air Station base
smithje@RockyMountainNews.com or 303-954-5155