Jeff Skilling, left, has cut a deal with federal prosecutors that could… (DAVID J. PHILLIP, AP )
As if you didn't know this already, we're coddling criminals in America.
By that I don't mean the petty drug dealers, three-strikes necklace-snatchers and other mooks filling up our state prisons; many of them are doing hard time. I'm talking about people like Jeff Skilling.
Skilling, you may recall, was a key architect of the rise and fall of the energy and commodities trading firm Enron, which around the beginning of the last decade claimed the trophy for the biggest securities fraud of all time.
That was in the quaint period when top-level white-collar criminals still faced jail. In May 2006, Skilling was convicted by a federal jury on 19 counts of conspiracy, securities fraud and insider trading. He was sentenced to more than 24 years in prison and ordered to pay $45 million in restitution to victims of the Enron collapse.
Now he's made a deal with federal prosecutors that could cut his sentence to as little as 14 years. Throw in credit for exemplary conduct behind bars, and he could walk out a free man as soon as 2017. In return for the reduced sentence, he's agreed to stop fighting his conviction and to allow more than $40 million in personal funds to be distributed to former shareholders.
The deal must still be approved by U.S. District Judge Sim Lake in Houston, who will hear from victims at a June 21 hearing before making his decision. But the received wisdom in the white-collar defense community is that the judge will accept the agreement.
Skilling's legal battle speaks volumes about justice in our great nation. What it says is that, given enough money, you can get away with a fraction of the penalties you should be facing. Steal little, and you can rot in jail. Steal big, and you can extort a deal from the feds.
"This is a prime example of a structural bias in the law that favors powerful defendants with massive amounts of legal resources," Henry Pontell, a white-collar crime expert at UC Irvine, told me last week.
What's most unfortunate about the Skilling deal is that it comes at a time when the government's efforts to punish white-collar fraud have lost all credibility. How many top banking and Wall Street executives even have been indicted for their role in crashing the world financial system and fomenting a three-year downturn? If you guessed none, you're right. Not even Countrywide Financial's chairman, Angelo Mozilo, the very face of the mortgage industry excesses that fueled the housing bubble, faced criminal charges; he got away with settling a civil lawsuit for $67.5 million, two-thirds of which was covered by corporate insurance and Countrywide's new owner, Bank of America.
Federal officials point proudly to their anti-fraud strategy of extracting multibillion-dollar settlements from corporations for misdeeds, as if that's an adequate substitute for indicting the human beings who commit those misdeeds. By allowing individual executives to skate blithely away, prosecutors perpetuate rather than eradicate a culture of fraud in the boardroom.
So Skilling represents a rare species, the executive brought to book. It's proper to revisit briefly what the case against him was all about.
Enron's 2001 bankruptcy cost shareholders an estimated $45 billion. Many of them were employees who had been incited to buy the stock by executives who convinced them they were onto the greatest thing ever; they lost their jobs and their retirement nest eggs in one blow. About $7 billion was eventually recovered for a restitution fund, mostly through a settlement with major banks that had been sued for their role in Enron's fraud.
There's no minimizing the scale of the catastrophe. Skilling's lawyers were not above citing it when it served their purpose, as when they applied for a change of trial venue by citing opinion polls showing that 1 in 3 residents of Houston knew someone harmed by Enron's collapse. (Their motion was denied.) Judge Lake has asked that victims who wish to speak at the June 21 hearing let him know by June 7, in case he has to find "adequate seating" for them all. One might suggest the Houston Astrodome.
Skilling joined Enron in 1990 and by 1997 was the right-hand man to the company's smooth-talking chairman, Ken Lay. He became CEO in February 2001. According to the federal case against him, Skilling lied copiously to hide Enron's multitude of financial irregularities and business problems — to securities analysts, investors and the public. With other executives, he manipulated earnings reports, touted the success of Enron subsidiaries that were in fact cataclysmic flops and concealed mounting losses. His principal goal was to prop up the price of the stock, of which he owned hundreds of thousands of shares. (Lay, who was convicted with Skilling, died in July 2006 before he could appeal his verdict.) Weeks after Skilling resigned as CEO in August 2001, but before the scale of the firm's problems were known, he unloaded 500,000 shares for $15 million.