Less Fanfare for Bush's Fraud Fighters


No press conference. No "perp walk." No comments from senior White House officials. For the first time in the Bush Administration's campaign against corporate fraud, Justice Dept. prosecutors have taken action against a major corporate figure without stoking up the publicity machine. To paraphrase the old Nike commercial, with the indictment of former Enron CFO Andrew Fastow on Halloween, the Bushies just did it.

Perhaps some of the prosecutors had to get home to go trick-or-treating with their kids. More likely they've come to realize they've gotten about all they're going to get out of Fastow, or out of the highly choreographed events that have heretofore accompanied each new development.

The 78-count indictment leveled against Fastow for fraud is basically a reprise of the charges presented at the time of his arrest on Oct. 2. No higher-ups are implicated. "It's a bit anticlimactic," says Henry T.C. Hu, securities law professor at the University of Texas. "It's like finding out one of the Gabor sisters has gotten divorced again."

MUST-SEE TV. The Bush Administration remains keen on milking everything it can from its progress against corporate malfeasance, however. It notified New York media before arresting former Adelphia CEO John Rigas on July 24 at his apartment. Never mind that the 77-year-old hardly posed a risk of flight nor could he be seen as a threat to himself or others (the standards for not allowing a person to surrender himself). Marching the guy down the street in handcuffs made for great TV.

When two former officials at online real estate listing service Homestore.com pleaded guilty to fraud, a relatively routine criminal action against a garden-variety deflated dot-bomb, Justice trouped out its top brass for corporate fraud to herald the moment.

These dog-and-pony shows do have a method, though. Publicity can deter other would-be corporate crooks out there from robbing the till, prosecutorial theory holds. But the Justice crowd has staged its shows with particular relish. When the department's current top criminal official, Michael Chertoff, was a U.S. Attorney in New Jersey, he once arrested a judge at rush hour on a busy freeway as TV-news helicopters swarmed overhead.

FLOW CHARTS IN COURT. Now comes the hard part. The Justice Dept. will be judged by one thing in its campaign against corporate fraud: results. The case against Fastow, despite the cooperation of his underling, Michael Kopper, who pleaded guilty Aug. 22, is no slam dunk. The standard for a guilty verdict is proof beyond a reasonable doubt. And the subject matter of the trial will be the enormously complex partnerships known as "special-purpose entities," whose very purpose is to blur the limits of generally accepted accounting principles.

"You've got to educate the jurors on special-purpose entities," says Hu. "You've got to show the impact of all these flow charts with arrows going in all different directions. I wouldn't want to argue this case."

Perhaps foreshadowing the difficult road ahead, Deputy Attorney General Larry Thompson, head of the Administration's corporate-fraud task force, said his folks still have a lot of digging to do. "The investigation into Fastow's illegal activities continues," he said.

And that's just one prosecution. Going after Fastow's superiors, former Enron CEOs Jeffrey Skilling and Kenneth Lay, will take a lot more work. All of the easy perp walks have already been made. Carney covers the Justice Dept. for BusinessWeek in Washington


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