The Crackdown Cracks
Getting tough on corporate crime is so yesterday. The pendulum is swinging back, hitting everyone from gumshoes to judges
Please pass the pleas. Prosecutors may be retreating a little, too. A criminal indictment of employers may cause financial devastation to innocent employees. So prosecutors have started offering sweeter plea agreements to corporations. Since 2004, federal prosecutors have struck at least nine deals with companies accused of accounting fraud, to defer prosecution or not prosecute at all. In the previous five years, the Justice Department announced just four, according to the Corporate Crime Reporter. The deals, which require companies to turn over material incriminating executives, have helped prosecutors win guilty pleas and convictions of executives at Adelphia Communications, MCI, and several other companies.
But Russell Mokhiber, editor of the newsletter, worries that prosecutors may be getting too soft. In February, for example, the Justice Department agreed to defer prosecution of insurance giant American International Group on criminal charges of accounting fakery from 2000 through early 2005 because it "agreed to accept responsibility for its actions" and paid $825 million in federal fines and restitution. AIG also settled New York State charges that it rigged insurance bids, for $818 million. Prosecutors allowed AIG to avoid trial even though a division of the company is operating under a 2004 agreement for other accounting misdeeds. "How many free bites of the apple are we going to give corporations?" Mokhiber wonders.
Shorter sentences. Some judges are also easing up on the punishment of white-collar criminals. In 2005, the Supreme Court declared unconstitutional the harsh mandatory sentencing rules that resulted in prison terms of 20 years and more for many corporate wrongdoers. As a result, some convicted defendants, such as Dynegy executive Jamie Olis, who was sentenced to 24 years, have won appeals that could reduce their jail time.
And others have won lighter sentences from judges now freer to show leniency. Former Adelphia Executive Vice President Michael Rigas, who had pleaded guilty to lying to the SEC, was last month sentenced to 10 months of home confinement. His father and brother, who were convicted of much more serious charges, were ordered to spend 15 and 20 years, respectively, behind bars for their parts in the cable company's $3 billion accounting fraud. But federal Judge Jed Rakoff said Michael Rigas was "a good person who found himself to be at the wrong place at the wrong time."
Relaxing the rules. Many businesses are hoping this retreat will even reach all the way back to the tough new rules on executives' conflicts of interest and disclosure to investors. A federal appeals court early this month agreed with the U.S. Chamber of Commerce that the SEC had improperly rushed a rule requiring that a mutual fund chairman be independent of the fund's management. It gave the SEC 90 days to consider more public comments and reconsider its orders.
And business lobbyists are winning bipartisan congressional support for a proposal that would exempt small public companies--which represent the vast majority of all public companies but less than 6 percent of the total market's monetary value--from some of the tough auditing requirements of the 2002 Sarbanes-Oxley Act. "They took a sledgehammer to kill a fly," complains Ted Schlein, a managing partner at the Kleiner Perkins Caufield & Byers venture-capital firm, of Sarbanes-Oxley. He is a member of an SEC small-business advisory panel that came up with the exemption proposal.
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