The death of Ken Lay

I may have more reflection to come, but here's a quick collection of old thoughts, and one thought for today.

Let’s start with Ken Lay’s perp walk, three years ago:

I see that they have him handcuffed on his way to court. I'm relieved. This way, we can be sure that the former Enron ceo will not suddenly break and spin, whipping a gun out of his suit cuff, covering his tire-burning departure in his getaway limo. But didn't he wait around for years as the government built its case, and now is surrendering? Why would he pull anything now, you might ask? The government, of course, is just trying to shame the man, as a lesson to future corporate offenders. But for what? So far, he's innocent. PS: Here is the Washington Post's discussion of Lay's "perp walk." The article points out that "[t]he government made sure everyone got a good, long look at Kenneth L. Lay in handcuffs yesterday morning" and that "[p]rosecutors traffic in image as well as evidence." . . .

Then, of course, the conviction:

NYT reporters on the Enron beat, Barrionuevo and Eichenwald, have a revealing story in today’s paper about Lay's prosecution. The reporters spin the story as a drama in which heroic government lawyers dramatically pull off a successful prosecution against all odds. But what emerges from the facts is an alternative narrative of a prosecution team out to get Lay at all costs because he’d already been convicted in the court of public opinion.

Now there are signs of an emerging prosecution scandal over government tactics such as extorting cooperation from companies and their employees and icing witnesses that could help the defense. These tactics have resulted in a scathing critique of the government in the KPMG case.

And the government’s debatable effort to criminalize agency costs and demonize business decisions looks like it's already unraveling in one Enron prosecution . So, like Arthur Andersen, perhaps Ken Lay (more accurately, his family) can hope for some post-mortem relief.

No doubt Ken Lay’s death will be satisfying to those who think he’s getting his just deserts. And a case can be made that his zeal for his company got the better of him at the end. But anybody who thinks that he deserved to spend the rest of his life in jail is either a fool, a politician or a journalist. Whatever he did, he most assuredly did not cause hundreds of millions in market losses under any realistic accounting. What caused those losses was the market’s over-enthusiasm perhaps aided by the machinations of others at Enron who will get off much more lightly than Lay. Lay's guilt went no further than delaying the day of reckoning.

My heart goes out to Lay’s family. The man deserved better.  Maybe the reevaluation can begin now, albeit too late to do him much good.

Comments

[Marc Shepherd]

I agree with your comments about the "perp walk." It's a practice, as you note, that is more for the benefit of the prosecutors than for any legitimate law-enforcement purpose.

But the government is not is "criminaliz[ing] agency costs and demoniz[ing] business decisions." The acts of which Lay was accused, if true, are indeed real crimes. I do agree that the prison term that he was facing was grossly unfair, but in our modern system that is true of most criminal sentences.

[Matt]

Nice post. I remember having a similar reaction to that Times article. When prosecutors spend month trying to invent a crime to fit the facts, that seems like a bad thing to me. The Times seems to disagree.

[David]

If there's anything about his proposed sentence that is "unfair", it's that it was much too lenient.

[Dave]

To have sympathy for Ken Lay (over his Enron conviction) is like having sympathy for the devil. The man, in my opinion, had no morals left at the end of the Enron debacle.

[Mark]

So a perp walk is unfair? Agressive prosecution tactics involving pressure to lower-level subordinates are unfair?

I guess you feel sympathy for all the accused murderers, child molesters and drug dealers who have been paraded in front of the camera.

And even more sympathy for the mob bosses convicted with the use of novel legal theories.

Or is your sympathy restricted to rich white man who did more financial damage to more people than any of the above defendants dreamed of.

He was the CEO. He was responsible. Whether that responsibility is cause for a (successful) criminal prosecution is a matter of public policy.

Prosecutorial discretion has always existed. To say, "Poor Ken Lay, those prosecutors were really out to get him because the public was howling for blood" is to deny that the public has any role in the legal system. It wasn't a lynching. He got a fair trial. And he was convicted.

What reevaluation are you expecting? I predict that Ken Lay will always serves as history's poster boy for corporate wrongdoing around the turn of the 21st century.

[vnjagvet]

Dave and Mark have one view and Professor Ribstein has another.

I suspect history will be more kind than Dave and Mark and less kind than the Professor.

It may be that the one of the biggest problems with Enron was the failure to have a conservative(not politically, but in a business sense) CFO, and the conversion of what was historically a public utility into a private trading company.

Fastow was not acting as a check or balance on the operating management, but just the opposite. Fastow was (pardon the pun) playing fast and loose with the financial affairs of the company.

The Chairman, CEO, COO and Board should have assured themselves that they had someone in the CFO position who would question risky business decisions rather than aid and abet them.

But I seriously doubt that it ever entered into Ken Lay's mind that he was a crook.

Richard Nixon had the same blind spot, and look where it got him.

[James Cameron]

"But anybody who thinks that he deserved to spend the rest of his life in jail is either a fool, a politician or a journalist."

Utter nonsense. Mr. Ribstein has either thought too much about this issue . . . or not enough. Ken Lay was at the helm of a company whose shenanigans wrecked the life savings - and lives - of thousands. Mr. Ribstein might be blogging a different tune if he was among this group, though I wouldn't have thought this was a prerequisite.

[Jeff Villard]

Ken Lay is on his way to meet his maker. I wish him good luck convincing his omniscient god of his innocence. I still bet he goes to hell, first for committing the crimes, then for perjuring himself.

[nykoolkat]

Lay may not have been been involved (in the sense of approving or even having direct knowledge) in the activities that contributed to the downfall of Enron (the so-called "machinations of others at Enron"). He did however make false public statements about the soundness of the company, was unforgivably unknowledgable about the activities of his company and something about his leadership of Enron permitted the culture of deceit. I will leave it to the more knowledgable to decide whether this was criminal, but he chose his path and led his company as he saw fit. I have no sympathy for the man as relates to the legal troubles that resulted (even if overzealously prosecuted). Hopefully the positive result will be for CEOs and Boards to be more actively involved and knowledgable of their companies, and remind them that riding/or crossing the ethical and legal lines may lead to incredible short term gain, but not without the risk of even more incredible long term pain.

[David]

It's clear that Ken Lay did more harm to other human beings than any common murderer does. If his acts were criminal, and the harm was great, why shouldn't the punishment be proportionate? Because (as Ribstein is quoted as saying) if we left him not only out of jail but with a bunch of money, he could "redeem" himself by giving it away like that great patron saint, Michael Milken? Give me a break. I think the government, not to mention Enron's creditors, can do a lot more with Lay's money than he would.

[Marc Hodak]

I'm particularly struck by the sanctimony of commenters like David. They clearly bought into everything the media said about Lay that couldn't be turned into an indictment, as well as the few things that could. Or by Mark or nykoolkat being comfortable with the outcome "even if overzealously prosecuted." I guess a power grab by government is OK as long as it's used against a despised celebrity. They would never exploit such power against people like you or me, right? Or against the powerless?

What I find most appalling, though, is the moral bankruptcy in equating the loss suffered by shareholders to victims of murder, child molestation, or mob violence. Does James or nvjagvet know what it means to take equity risk? Can David or Jeff, in good consciensce, equate having their wife's jewelry cleaned out from their bedroom or having a child shot dead with taking a loss in the market? You should be ashamed of yourselves.

[vnjagvet]

Mark:

I generally agree with you. Therefore it is difficult for me to understand how you concluded from my comment that I don't understand equity risk.

As a matter of fact, having started or purchased and owned six different businesses over that past 40 years, I believe I have a pretty good working understanding of equity risk.

I have also prosecuted and defended several hundred criminal cases, and litigated almost as many cases, many of which featured alleged breaches of fiduciary duty.

What is it that I said that led you to believe that I did not appreciate the issues about which Professor Ribstein writes?

Just wondering.

[Marc Hodak]

Sorry about that vnjagvet. I mistook Mark's comments above yours ("Or is your sympathy restricted to rich white man who did more financial damage to more people than any of the above defendants dreamed of") as part of your post. That was sloppy of me--a much greater sin than mistaking "Marc" for "Mark".

I actually thought your post was uniquely thoughtful. I'm not sure that Lay shared Nixon's mens rea, but one can have no moral objections to supposing that he might have.

[David]

Economic harm in the billions DOES translate into many lives lost, and direct human suffering. People die sooner when they can't afford basic necessities of life. Most murderers only kill once. By any reasonable estimation, more people than one died as a result of Lay's frauds.

The people who worked for stable companies and had their pensions destroyed by Enron's acquisitions and subsequent collapse weren't market traders who chose to take "equity risk". They were innocent victims.

The cost to society also includes the cost of having productive resources misdirected to nonproductive ends, which, it is clear, was an integral part of the fraud.

[Ted]

If Lay committed economic harm in the billions, who got those billions? People seem to be insisting upon expectation damages here with the big numbers they're throwing around.

We don't normally demand the death penalty for "committing economic harm", but, if we are, I note that Milberg Weiss is responsible for far more economic harm than the collapse of Enron was.