Another CEO in Handcuffs ; Enron's Kenneth Lay Is Indicted, Part of a Wave of Prosecutions of Corporate Officers

Article excerpt

Rarely have so many high-profile executives taken so many perp walks - that shameful moment when the handcuffs snap over the cufflinks as cameras record it all.

From "A" as in Adelphia to "Z" as in Zurich Payroll, the charges of corporate fraud have rolled in. In the two years it's been in existence, the US Justice Department's Corporate Fraud Task Force has indicted hundreds of individuals from scores of firms.

Now add Kenneth Lay, who was at the helm of Houston-based Enron in 2001 when it became the largest corporate bankruptcy in American history - the first of the recent multibillion-dollar corporate governance scandals.

For millions of Americans, Mr. Lay's indictment Thursday carried a certain resonance. After Enron, scores of companies were caught falsifying their books, illegally fattening executives' pockets, or lying to shareholders. Some names are familiar, as with Martha Stewart. Others are more anonymous, as with Steven Davis, the director of advertising for "Just for Feet," a shoe retailer in Birmingham, Ala.

While the recent wave of prosecutions - one of the largest in modern corporate history - has certainly changed some business behavior, it's also exposed something more tangible: the financial losses of tens of billions of dollars, and, in many cases, life savings.

"In every city in America, people lost their mutual funds, retirement funds, and 401(k) savings after being told to buy Enron," says Gerald Treece, dean of the South Texas College of Law in Houston. "I haven't met one family that wasn't touched in some way by the mischief over there."

Because this is an election year, the Lay indictment has quickly taken on political overtones. Some view the event as proof that President Bush has followed through on his pledge to crack down on white collar crime - particularly given that the handcuffs were snapped on a former friend and major contributor. (Enron executives contributed more than $600,000 to Bush campaigns, according to the Center for Public Integrity, making the company the second largest contributor to Bush throughout his public career.)

But others see it as a painful reminder to many voters of the money they had lost. In the past, Democratic challenger John Kerry has singled out Enron when he's attacking the administration for its ties to "corporate interests." It didn't help the White House that many television news casts Thursday showed old footage of Mr. Bush enjoying a baseball game with Lay.

Still, the details of the case may not prove too harmful to Bush. The trial itself - if there is one - isn't expected to take place until 2005, well after the election.

"President Bush is not the first president to have associated with folks in the business community who ran afoul of the law," says Kirby Behre, a former federal prosecutor, now a partner at the Washington law firm Paul Hastings. "It is not as if he's been hanging out with Ken Lay for the last three years."

The handcuffing of Lay begins the endgame of one of the most prominent periods of corporate investigations in recent history. In impact, it may rival the era of the savings and loan failures that erupted in the 1980s, for example. In that set of scandals, 800 white collar criminals had been convicted by 1992.

But the scandal was centered in one industry, whereas recent court proceedings have engulfed names such as WorldCom in telecommunications, ImClone in healthcare, and the conglomerate Tyco as well as Enron.

In the1920s, stock market scandals roiled the nation, resulting in the securities regulation of the 1930s. And, because of increased securities fraud in the deregulated environment of the 1980s, the SEC and other regulatory agencies saw their budgets increase.

"We tend to get these sorts of major scandals almost once a decade," says Nancy Rapoport, dean of the University of Houston Law Center and a bankruptcy expert. …