How Broken Is White-Collar Justice?


By Mike France So what are reasonable people to make of this? One jury sends Martha Stewart to jail -- basically for misrepresenting what she did and when she did it after a friend illegally gave her a stock tip, while a jury can't reach a decision after 11 days of deliberations and a mistrial is declared in the case of whether Tyco's (TYC) Dennis Kozlowski and Mark Swartz, who maintain their innocence, might have illegally plundered their company of some $600 million.

Former CEO Kenneth L. Lay of failed energy giant Enron roams freely around Houston, while mid-level Dynegy (DYN) manager Jamie Olis is sentenced by a judge in that same city to 24 years in prison for a relatively minor act of fraud.

It's easy to reach the conclusion on Apr. 2, in the aftermath of the Tyco mistrial, that the white-collar criminal-justice system is somewhat random. It seems the people who allegedly did the worst things are the hardest to prosecute, while comparative peccadillos are punished harshly.

HEADING FOR JAIL? Yet that rush to judgment on the legal system may not be fair or accurate. Despite the seemingly incongruous results of some recent high-profile cases, the justice systems looks better the longer and harder you look.

Consider some of these other data points. In October, former Rite Aid (RAD) Vice-Chairman Franklin C. Brown was convicted of fraud, conspiracy, lying to the Securities & Exchange Commission, and several other counts. Former CEO Martin Grass and CFO Frank Bergonzi avoided trials by pleading guilty to fraud. All three top executives in this important, but less widely publicized, corporate meltdown are likely to endure long jail sentences.

The mutual-fund mess has also yielded several guilty pleas. Nicole McDermott, a senior executive at Security Trust, pleaded guilty to securities fraud for late trading in December. A former vice-chairman at Fred Alger Management, James P. Connelly Jr., is facing the prospect of jail time for disrupting New York Attorney General Eliot Spitzer's investigation in the after-hours trading scandal. Connelly made a guilty plea in October.

STILL PENDING. Despite the fact that Lay (who says he's innocent of all wrongdoing) hasn't been indicted, the Justice Dept.'s Enron Task Force has been a success. In textbook fashion, prosecutors have attacked the case from the bottom up, squeezing lower-level wrongdoers and pressuring them to "flip" and provide testimony against their supervisors. Guilty pleas have already been secured from several key execs, including former CFO Andrew Fastow, ex-Enron Energy Services CEO David Delainey, and Ben Glisan, who once served as the company's treasurer.

Of course, several critical cases are still pending in coming months, including the ones against former Enron CEO Jeffrey K. Skilling, ex-WorldCom CEO Bernard Ebbers, and the ongoing case against Adelphia founder John Rigas. What's more, a retrial is coming in the obstruction-of-justice case against former Credit Suisse First Boston (CSR) investment banker Frank Quattrone -- and the Tyco duo is likely to face a retrial as well.

So, while it may be tempting now to dismiss the whole criminal-justice system as distorted in favor of the richest and most powerful, remember one thing: The verdict still isn't in, and in complicated financial trials, it can take longer than passions insist to see justice served. France is Legal Affairs editor for BusinessWeek in New York


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