By Andrew L. Jaffee
The two top Enron executives, Ken Lay and Jeffrey Skilling, who defrauded employees and investors out of millions, “have both been found guilty on fraud, conspiracy and other charges.” Some may wonder why it has taken so long for the wheels of justice to catch up with these malefactors. The main reason was the slick and complicated nature of the financial manipulations they used. They didn’t intend to get caught — I know, that sounds pedantic.
But remember that these guys were savvy, big-league players whose modus operandi was way beyond the take an extra 10 spot out of the cash register twice a week minor league scamming.
The “pros” used nuances in financial laws to try to hide what they were doing. They were tampering with core financial statements which, if handled with integrity under honest management, can create tremendous wealth for all the employees and shareholders of a decent company. It should be noted that there were maybe 20 companies implicated in the post-1990′s apocalypse, while there are least 10,000 companies which never did anything dishonest.
But at Enron and WorldCom, these financial wiz-kids were bending — even re-writing the rules: “Ya see that income entry for $119.4 million; let’s move some decimal places around, because our earnings announcement is next week.” These pack-rats wearing Gucci suits were borrowing/lending money in and out of shareholder assets, and using legal loop wholes to keep the transactions off their balance sheets, income statements, and statements of cash flow.
Hiding assets is illegal for publicly-traded companies, most of the time, but I’m sure the loopholes are ever-adapting. These miscreants used nuances in financial laws to try to hide what they were doing, and felt quite confident with all their MBA degrees. Being cocky and taking risk are great strengths in our system, but guys like Ken Lay got greedy and power-hungry on top of being cocky. But he did so very craftily. Because of the complexity of accounting standards and laws (sometimes politically motivated), its not always easy to prove wrongdoing. Hence, it can take years of time while forensic accountants poured over thousands of financial statements, memos, call logs, etc., while at the same time highly-paid defense lawyers impeded prosecutors’ requests for information. But most of the crooks of the 1990′s bubble have been indicted, convicted, or are now rotting in jail.
I still hear grumblings along the lines of, “The white collar crooks always get off easy,” but that has not been the case for the leeches complicit in the party-like-its-1999 economic collapse. For example, WorldCom’s Bernie Ebbers will never see the light of day again. CEO Dennis Kozlowski and former CFO Mark Swartz of business conglomerate Tyco were each sentenced to 8-25 years in jail, and forced to pay $239 million in restitution.
There is justice in the home of the brave, land of the free. Tyco, WorldCom, Martha Stewart, Arthur Andersen, Adelphia, and Global Crossing… justice has caught up with all of them.
If you are an investor, buy low, sell high, and be smart.