March 16, 2005

RESTORING CONFIDENCE:

Fraud Verdict Is Ominous for Toppled CEOs: Ex-WorldCom chief Ebbers is convicted of a huge accounting scam, though he professed ignorance. Such a claim may not help others. (Walter Hamilton, Lisa Girion and Thomas S. Mulligan, March 16, 2005, LA Times)

It was the government's biggest win yet in a string of victories against top corporate figures, including Silicon Valley financier Frank Quattrone and lifestyles entrepreneur Martha Stewart. He faces a possible prison term of more than 30 years.

There was little hard evidence against Ebbers — no smoking-gun e-mails or paper trails — and the defendant insisted the fraud was masterminded by Scott D. Sullivan, his onetime finance chief who became the federal government's star witness.

But it came down to this: Jurors couldn't see how the man who had built WorldCom from a small phone company in Clinton, Miss., to a global telecommunication colossus could not have known about the accounting scams that triggered the company's 2002 bankruptcy filing — the biggest in U.S. history.

"When you start a company … and you bring it up from nothing, it's hard to convince a jury that you are just too stupid to know what's going on," said Daniel J. Callahan, a veteran litigator. "This see-no-evil, hear-no-evil, speak-no-evil policy just doesn't fly."

Legal experts said the jury's decision boded poorly for toppled executives Kenneth L. Lay of Enron Corp. and Richard Scrushy of HealthSouth Corp., who are employing variations of the above-the-fray defense.

Lay faces trial in Houston in January on fraud and conspiracy counts stemming from Enron's 2001 collapse. Scrushy is on trial in Birmingham, Ala., for an alleged $2.7-billion fraud at HealthSouth.

"These guys are shaking in their boots now," said Andrew Genser, a white-collar criminal defense lawyer at Kirkland & Ellis in New York.


Folks have to know that economic status is no protection against prosecution and that someone's making sure the market isn't rigged by criminals.

Posted by Orrin Judd at March 16, 2005 8:34 AM
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