Enron prosecutions: still wrong after all these years

I’ve been saying for a long time (see, e.g., my Corporate Crime and Enron archives) that the wave of corporate crime prosecutions following Enron, and particularly the Enron prosecution itself, were unfair, ineffective and counterproductive. The criminal law is wholly inappropriate for disciplining managerial agency costs, including disclosure violations. We’re likely to end up with some very close cases, pursued at enormous direct costs, and the even larger indirect cost of precluding a constructive effort to figure out what happened.

Dennis Berman makes these points in today’s WSJ:

Those looking for retribution against the executives of failed companies will quickly see that prosecutions won't come easy. The law gives executives wide latitude to run their business, no matter how terrible their decisions. And even convictions would seem an incomplete conclusion given that a system -- political and regulatory -- also failed the public.

Berman reviews potential criminal cases involving Lehman. As he quotes me in the article:

These are necessarily going to be very close cases," said University of Illinois law professor Larry Ribstein, a critic of some Enron prosecutions. Should Mr. Fuld "err on the side of panic, or state the risk pessimistically, he's got a full-scale bank run. If he gets optimistic, it's bordering on fraud."

Berman concludes:

It has been just 2,282 days since Sarbanes-Oxley was signed into law. Today, "we need to figure out root causes and get at them," Mr. Ribstein said. "We could go through all this and have no assurance the same thing won't happen again."

The question now: have we learned anything from Enron?