Nearly five years have passed since Enron’s shocking and spectacular demise from the seventh largest company in the United States to a bankrupt, hollow shell of an organization. At the time, amid financial fraud fallouts at WorldCom, Tyco, and Adelphia, there was talk of long prison terms for those responsible, including those who worked at the very top.
The fates of two the top three Enron leaders, the late ex-chairman and chief executive officer Kenneth Lay and the ex-CFO Andrew Fastow, have, of course, been already determined. Much to the likely disappointment of government regulators, however, the one left standing—former Enron CEO Jeffrey Skilling—is probably not going to be singled out for unusual punishment, according to legal experts who spoke with CFO.com. The sentencing U.S. District Judge Simeon T. Lake III metes out to Skilling on Monday will probably be in the 20-year range, they say, which is pretty much in line with the sentences of WorldCom’s former WorldCom CEO Bernard Ebbers (25 years) and Adelphia founder John Rigas (15 years).
Lake, however, is tasked with making a decision on Skilling’s individual actions, his 19 counts of fraud, conspiracy, and insider trading, and not necessarily sending a broader message about corporate fraud in general, according to Marc Powers, who heads Baker Hostetler’s national securities litigation and regulatory enforcement practice.
“I think that there is a slight swing back of the pendulum of overly aggressive enforcement efforts of the government, on behalf of the Justice Department and the Securities and Exchange Commission, and that is in some measure attributed to the actions by defense lawyers, the bar association, and other types of interest groups as well as the jurors themselves,” he says. “I think that if you look at the well-intentioned actions by the government in seeking to stamp out what was perceived as major scandalous fraud matters—perhaps encouraged by the lack of diligent earlier enforcement—you could understand why the government came down as much as it did.”
Russell Ryan, a partner at King & Spalding who spent a decade in SEC enforcement, agrees that the pendulum has slightly turned. “One of the reasons is that in the last four years or so, since the Enron case first broke, corporate execs have gotten the message and substantially improved their corporate governance,” he says.
Prosecutors have faced poor press in the past year as guilty pleas like Fastow’s have given way to what many view as lenient sentences in high-profile cases. In addition, earlier this year, a federal judge rebuked the government for pressuring KPMG to cut off legal services to 16 employees, including a former CFO, accused of setting up tax shelters as part of their work for the firm. That has brought up questions about the validity of the so-called Thompson memo, which outlines nine factors for prosecutors to use while deciding whether to indict a company.