Yesterday's guilty verdicts highlight everything that went wrong in corporate America during the economic boom of the 1990s, writes Denis Staunton
Yesterday's guilty verdicts against former Enron bosses Kenneth Lay and Jeffrey Skilling represent a resounding victory for prosecutors in a case that was emblematic of everything that went wrong inside corporate America during the economic boom of the 1990s.
Regulators claimed that the verdicts sent a message to all company executives that dishonest behaviour would be punished and to investors that the authorities would protect their interests against corporate greed.
"The verdict leaves no doubt that corporate executives are obligated to conduct business honestly and to present a true and accurate picture of the company's business and finances to the public," said Linda Thomsen, director of enforcement for the Securities and Exchange Commission.
On Wall Street, however, the Enron case was dismissed as "ancient history" and yesterday's verdicts were seen as an exclamation mark closing the chapter of recent corporate scandals in America.
Enron's collapse was the most spectacular in a succession of scandals that saw WorldCom boss Bernard Ebbers and Tyco's Dennis Kozlowski get 25-year jail terms and Adelphia Communications founder John Rigas sent down for 15 years. Even homemaking diva Martha Stewart had to serve time when she was caught lying about insider trading.
Despite the enormous scale of Enron's collapse and clear evidence that shareholders and analysts were deceived about the state of the company's health, the case against Lay and Skilling appeared unpromising at first. It was not until former chief financial officer Andrew Fastow agreed to co-operate with the prosecution that a compelling case against the two former chief executives could be built.
In the end, 16 former Enron executives testified against Lay and Skilling, unfolding a narrative of greed, deception, arrogance and an almost frantic determination to keep the fiction of Enron's success afloat.
For their part, Lay and Skilling sought to blame Fastow's fraudulent dealings (which he has admitted), nervous investors, short sellers and a hostile media for Enron's troubles. The jury had to decide whom to believe and yesterday's verdicts make clear that they gave no credence to the excuses and equivocations offered by the defendants.
Lay and Skilling, who will be sentenced on September 11th, are expected to appeal the verdicts, arguing that a fair trial was impossible in Houston, the city where Enron had its headquarters and which suffered most from its collapse.
Defence lawyers are also likely to question Judge Sim Lake's instruction to jurors that ignorance of a conspiracy does not count as ignorance if it was deliberate.
The concept of "willful ignorance" is controversial in American law, although no recent verdict has been overturned because it was invoked and few legal experts expect Lay and Skilling to succeed in their appeals.
The Enron verdicts come as US business is complaining that the Sarbanes-Oxley legislation introduced in the wake of the company's collapse is imposing an intolerable burden on small companies.
Introduced in 2002 to protect investors, shareholders and the general public from corporate fraud, Sarbanes-Oxley requires public companies to produce an annual internal control report. A powerful lobby in Washington argues that the requirement is too expensive for small companies and that the law has driven some companies to go private and others to list their shares outside the US.
Some investors argue, however, that corporate America needs more rigorous policing than ever and that there is no evidence that small companies are less likely than big ones to defraud shareholders. Others point to the shortcomings of a securities arbitration system that one member of each panel arbitrating investors' claims of victimisation should be a representative of the securities industry.
Americans are increasingly uneasy about the widening gap between the earnings of top executives and those of their employees, a gulf exemplified by Lay, who earned $233 million (€182 million) in three years when he was running Enron.
Exxon chairman Lee Raymond is retiring with a package worth nearly $400 million and leaders of the top 500 US companies each made $11.7 million on average last year.
Business Week reported recently that chief executives, who made 42 times an average worker's pay in 1980, now earn more than 400 times the average.
If ordinary Americans resent these huge payouts, it is not only out of envy but also because their own incomes are stagnant, rising only 1 per cent in real terms each year for the past two decades.
When Enron collapsed, its 5,600 employees lost their jobs and many saw their retirement savings, which were invested in the company, wiped out. Meanwhile, Lay and Skilling, along with other senior executives, walked away from the disaster with millions.
Yesterday's verdicts mean that the former Enron bosses will probably end their days behind bars, a prospect that may bring some satisfaction to the victims of their fraud.
September's sentencing comes just two months before Americans vote in mid-term elections, with one-third of Senate seats and the entire House of Representatives up for re-election.
Republicans already fear that voters will punish them, partly for the Bush administration's perceived incompetence but also for a culture of corruption and corporate cronyism in Washington.
Yesterday's guilty verdicts are likely to fuel such sentiments among voters and to crank a little the anxiety level among Republicans.
