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The Idiot Defense

March 06, 2005

Kenneth L. Lay, Richard Scrushy and Bernard J. Ebbers are singing that they don't know much about accounting tricks, don't know much about financial fraud, don't know much about anything. What a wonderful world it must have been, then, to simply show up on Fridays to pocket the paychecks.

And what good Fridays they were, at least until the financial foundations of their respective companies were crushed by dishonest accounting schemes that pumped up executive pay and incinerated billions in investor money. Prosecutors say Scrushy, the former HealthSouth Corp. chief executive, enjoyed $279 million in ill-gotten salary, bonuses and stock options. Lay, the former Enron chairman, collected $103.6 million in payments during the calendar year before his company imploded. And in the days before WorldCom crashed into bankruptcy, the personal fortune of former Chief Executive Ebbers was estimated at $1.4 billion.

Lay, whose criminal trial will begin next year, unveiled his "I knew nothing" defense last summer after federal prosecutors outlined their case against him in a 65-page criminal indictment. Lay claimed ignorance -- though incompetence might have been more believable -- when it came to the massive fraud that toppled Enron. Lay blames subordinates who kept him in the dark.

Ebbers, whose trial in U.S. District Court in New York on charges of securities fraud and conspiracy went to the jury on Friday, kicked Lay's "idiot defense" up a notch, testifying that he was simply a former milkman who ended up in the wrong place at the wrong time. Though he built one of the nation's largest telecom companies, Ebbers stated, "I don't know about technology, and I don't know about finance and accounting."

Playing dumb could prove more difficult for Scrushy because more than a dozen former executives already have testified that he knew what was going on. But Scrushy's attorneys are painting them as liars.

Assume for a moment that Ebbers, Lay and Scrushy are innocent, and that other men and women in pinstripes left them holding the bag. The question then becomes: What was this confederacy of dunces doing to earn its massive paydays?

And if a cadre of high-ranking subordinates already has pleaded guilty to white-collar crimes, what would exoneration of the three men say about where the buck really stops in corporate America?

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