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Execs' Trials Are a Start

September 30, 2003

Too few suspected white-collar criminals are getting their day -- or their due -- in federal court. The first major trials since the wave of corporate fraud incinerated billions of dollars in investor wealth started Monday in Manhattan, with former Tyco International Chief Executive L. Dennis Kozlowski facing grand larceny charges and investment banker Frank Quattrone accused, in an unrelated case, of obstruction of justice. Good. But what about WorldCom's Bernard J. Ebbers and Enron's Kenneth L. Lay and Jeffrey K. Skilling?

Investors clearly financed obscene paychecks, extravagant mansions and the $6,000 shower curtain passed off as a business expense (that infuriating little folly was Kozlowski's). But evidence trails grow colder with each passing day. Documents somehow disappear. And the only way to put the fear of God into corporate executives and board members is to hold their brethren at fraud-ridden companies responsible. Recent rounds of fraudulent activity at mutual funds and the hubris indicated by former New York Stock Exchange Chairman Richard Grasso's $140-million compensation package are object lessons.

The coming months will say a lot about how serious the federal government is about prosecuting top executives whose schemes picked the pockets of shareholders and employees.

Members of the Rigas family, who seemed to treat cable giant Adelphia as their personal piggy bank, may soon reach the courtroom, and President Bush's Corporate Fraud Task Force has registered some successes. More than 200 corporate fraud investigations have resulted in more than 200 people -- most of them underlings -- being charged and more than 75 convictions. Many of the plea bargains should be leading to prosecutions up the corporate ladder.

But this month, the Justice Department seemed more concerned about turf rights than pursuing justice after Oklahoma's impatient attorney general filed fraud charges against Ebbers rather than risk missing the state's three-year statute of limitations. And the only federal legal action so far against Lay and Skilling is a Labor Department civil suit about pensions.

Going after lower-echelon executives who take part in frauds is necessary. So is prosecuting the accountants and corporate attorneys who abet fraud. But to paraphrase the gun owners' mantra, corporations don't steal from shareholders, people do. The guilty ones -- particularly those at the top -- should be forced to trade their bespoke pinstripes for prison khakis.

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