Enron’s Lay and Skilling deserve their punishmentWritten by Matt Sussman | | email@example.com
The guilty verdict is in the Enron trial. After six days of deliberations, the jury found former CEOs Ken Lay and Jeffery Skilling, guilty on 29 criminal counts.
Ken Lay was the founder and CEO of what would become the seventh-largest company in the U.S. He was well known for philanthropy but isn’t that always the case? It’s easy to be generous with ill-gotten gains.
Lay could get a total of 165 years in prison for the corporate trial and personal trial. Lay told reporters he still believes he’s innocent, despite the guilty verdict on multiple charges of securities fraud. The penalties for Skilling carry a ceiling of 185 years. I’m probably not alone in wishing that a public hanging was an option.
The two men lied and used accounting gimmicks that led to the failure of the once powerful energy trading company in 2001. The disintegration cost 5,600 people their jobs and many more their retirement monies. That of course is not counting the Arthur Anderson job losses. The verdicts may bring some consolation but it will not bring back that which was lost.
Lay and Skilling did not commit these frauds without help. The group concocted a highly structured scheme to deceive investors, professional analysts and regulators about the true financial picture of Enron.
Enron treasurer Ben Glisan is already serving a five-year prison sentence after pleading guilty to a charge of conspiracy. He was the first Enron executive put in jail. He had invested $5,800 and earned $1 million in one of the many complicated company partnerships schemes.
Andrew Fastow, Enron’s chief financial officer, told of his unlawful acts and said Skilling and Lay were deeply involved in the colossal cover-up. He pled guilty in exchange for a 10-year jail sentence in 2004. Under the deal, other counts against Fastow will be dismissed if he fulfills the obligation of the plea agreement. Fastow would be able to keep his $23.8 million in assets. Prosecutors charged Fastow with making millions by setting up partnerships that benefited the company by inflating revenue and hiding debt.
Vice chairman J. Clifford Baxter resigned from the company in 2001. Eight months later Baxter committed suicide and was found dead in his wife’s Mercedes.
Was it just greed alone? Lay made $220 million from the sale of Enron shares from 1999 through 2001, while Skilling made $150 million. They sold their stock while telling employees to hold on to their own shares.
Fortune magazine writer Bethany McLean wrote the definitive book on the Enron scandal with colleague Peter Elkind. She is given credit by many for being the first to question the company’s accounting in an article for Fortune in 2001. I interviewed McLean in 2003. She concluded that it was a combination of arrogance and mismanagement.
How arrogant? There are 1,800 hours of videotapes, from more than 10 years of company meetings. The executives’ had a tendency to parody their business practices which helped prosecutors convict them.
A documentary of Enron featured Jeffrey Skilling in a skit mocking company accounting tricks that were used to hide debt.
“We’re going to move from mark-to-market accounting to something I call HFV, or hypothetical future value accounting,’’ Skilling said in the video.
This was a big win for a government justice system that needed more than just one. There have been other corporate scandals and convictions against executives from Tyco, WorldCom and Adelphia Communications. The public has been justifiably angry.
Maybe the punishment that will be handed down during sentencing will be a deterrent to future crooked CEO’s but I doubt it. If history is repeated, it’s likely to last for just a short period of time.
Troy Neff is managing director of Advanced Retirement Solutions. He hosts “The Troy Neff Show” weekdays 6 to 9 a.m. on WCWA 1230 AM. He may be contacted by e-mail at Troy@TroyNeff.com