Corporate Crime after 2000: A New Law Enforcement Challenge or Deja Vu?
Lowell, Abbe David, Arnold, Kathryn C., American Criminal Law Review
White collar crime is in vogue. Although there are investigations and prosecutions throughout the country at any given time in which individuals and businesses are charged with corporate wrongdoing, 2002 and 2003 will likely be high-water marks for such cases. The reasons for the increase are obvious. Police and prosecutors respond most quickly when there are victims of criminal wrongdoing--the greater the harm and the greater the number of victims, the greater the priority given by law enforcement. When businesses flourish, profits are high, unemployment is low, and bankruptcies are sporadic, the conduct of businesses (including misconduct) is masked by economic success. Conversely, when companies fail, markets drop, layoffs are widespread, and Chapter 11 becomes common, the conduct which caused or contributed to such failures are examined closely under the law enforcement microscope. This is such an era. Corporate crime has become a central topic on the business pages, cable channels, in periodicals, and throughout the media. Two-thousand two was the year Americans became versed in the failures that surrounded companies such as Enron Corporation, Worldcom, Inc., Adelphia Communications Corporation, Imclone Systems Inc., and Tyco International, Ltd. In 2003, the trend has continued as there are investigations concerning the financial dealings of AOL-Time Warner, Healthsouth Corp. and Tenet Healthcare, to name just a few.
It may seem as if 2002 was the most prolific era for investigations following business failures, but that is not the case. About a decade ago, there was a flurry of legislative and judicial activity concerning the failures of banks and savings and loans institutions throughout the nation. There are a number of similarities between the financial institutions crisis of a decade past and the current phenomenon of corporate failures. In both eras, regulators and law enforcement officials were criticized for being too lax before the events occurred. Then and now, elected officials incorporated the events into a dominant theme in the political landscape. Once the respective failures occurred, the law enforcement responses in both the financial institutions era and the current onslaught of corporate scandals has been massive, with some criticism that the response is an attempt to compensate for pre-failure neglect.
With respect to law enforcement's efforts now as during the Savings and Loan crisis, the question should be asked: Has the law enforcement response been effective or excessive in addressing the problem de jour? In considering that question, there is one large difference in the two different eras of business scandal and failure--the possibility of recovery for the victims of wrongdoing. Many of those adversely affected by bank and savings and loan failures enjoyed government-insured accounts and had the chance to recover the sums lost. With respect to business failures and market collapses today, there is no such insurance; the return to investors and others damaged by the business failures may be pennies on the dollar, if anything. This potential for unreimbursed loss has caused a great call for action by this era's victims, and perhaps an even greater response by law enforcement.
The impact of the current era of business failures has motivated all branches of government to react. Congress, which feels the pulse of public opinion most quickly, jumped into the fray with a new omnibus securities law containing a variety of new laws to address business crime. In addition, courts have been retooling the definition of "intent," perhaps the most essential ingredient in white collar crime charges, at the urging of prosecutors seeking a means to compel officials to answer for the actions of their businesses. Finally, agency regulators, prosecutors, and even private attorneys once again found creative avenues in all legal forums--administrative agencies, the courts, and licensing procedures--to seek redress from alleged wrongs and, in so doing, breathed new life into the law and practice of "parallel proceedings. …