"Enron: Now Less Criminal Than Ever"

has been on top of the latest developments in the Enron case, namely that CEO Jeff Skilling’s sentence from 24 years to six months (!) and that the Justice Department has decided a Fifth Circuit appeals court decision overturning most of the conviction of Merrill Lynch investment bankers.

While the decisions may narrowly be correct, they are bad for the rule of law, and at least as presented in the press, they fail the test of common sense. The Merrill reversal was first in the Houston Chronicle:

Last August, the appellate court threw out fraud and conspiracy convictions of Bayly, Brown, Furst and a fourth former Merrill executive, William Fuhs. A jury in 2004 convicted all four of fraud and conspiracy for helping push through a deal in which the brokerage pretended to buy three power barges from Enron so the energy company could appear to have made earnings targets in late 1999.

In a 2-1 decision, an appeals panel ruled that prosecutors improperly presented jurors with a theory that the defendants deprived Enron of its right to their honest services.

The panel said the theory was flawed in that case because their actions were consistent with corporate goals and did not rob the energy company or shareholders of money or property.

Had the deal involved bribery or theft, the theory could have been proper, the panel said….

Huh? “Did not rob the company or shareholders of money or property?” Was I missing something, or didn’t Enron go bankrupt? And didn’t Merrill play a material role in the sham transactions that presented shareholders with a misleading picture of the company’s health? Many of them would have bailed out if they had seen the deterioration in earnings.

Here is the on Skilling’s apparently likely sentence reduction on , the source for the Dealbreaker.com item:

From the “How Did I Miss This?” File:

In the Fifth Circuit’s December 12, 2006 order denying Jeffrey Skilling bail: “Our review has disclosed serious frailties in Skilling’s conviction of conspiracy, securities fraud, and insider trading, difficulties brought by a decision of this court handed down after the jury’s verdict, as well as less formidable questions regarding the giving of a jury instruction on deliberate ignorance.”

This assertion by the Fifth Circuit that some counts of Skilling’s conviction would almost certainly be reversed did not seem familiar to me, and I try to stay informed. I looked around to see if this sentence had been reported in the media. Um, not really. A WSJ article (no link) did quote the sentence, on page A12, in an article oddly titled, Court Faults Skilling Conviction But Orders Him to Report to Prison. The Law Blog that day reported on the order in a post entitled “Well, That Was Fast” with the beginning paragraph that focuses on the fact that the court ordered Skilling to report to prison one day after Skilling filed the appeal. No one seems to think it’s interesting that the Fifth Circuit, in one day and without the trial record, goes out on a limb to say that there are “serious frailties” in the conviction. The media reports focus on the fact that he was denied bail.

So, why was he denied bail? Well, even if the Fifth Circuit thinks that the counts of conspiracy, securities fraud and insider trading are vulnerable on appeal, there are still five counts of false statements to auditors. The time to be served on convictions standing after an appeal would have to be less than the duration of time between December 12, 2006 and the appeal. So, the Fifth Circuit might be saying that much of the conviction may be reversed, but there could still be six months to a year to serve at the end of the day. Well, that’s a lot different than 24 years. Remember that when the Fifth Circuit sua sponte released the Merrill Lynch bankers William Fuhs, Daniel Bayly and Robert Furst from prison pending appeal the bankers had already served one year and had been sentenced to 37- and 30-month sentences.

Now there may be those of you that think that Skilling’s 24 year sentence was excessive. An article in by Stuart Taylor, Jr., “,” makes that case, arguing:

The spectacle of former CEOs Bernard Ebbers and Jeffrey Skilling getting sent to prison for 25 and 24 years, respectively, reminded me a bit of Roman emperors throwing criminals to the lions and bears to gratify circus crowds. Yes, Ebbers and Skilling are world-class crooks. The first helped inflate WorldCom’s profits by billions of dollars. The second presided over the multiple frauds that caused the collapse of Enron, the largest corporate bankruptcy in history. They helped squander the nest eggs and kill the jobs of thousands of people.

But does this justify locking them up for longer than we do most murderers?….

To be sure, these are not the most egregious examples of the savage severity of our sentencing laws. Worse still are the long terms imposed on the scores of thousands of nonviolent, nondangerous drug offenders now rotting in state and federal prisons around the country.

But while we have become numb to the minimum drug sentences mandated by Congress since 1986 (which have driven up the sentencing commission’s guidelines as well), Ebbers’s and Skillings’s near-life-terms are fresh reminders of how wantonly our sentencing laws trash the lives of nonviolent convicts at the top and the bottom of the income scale.

We could go on about how the US incarcerates a higher percentage of its population than any other country (we surpassed Russia a few years ago), but that’s besides the point. The real question is how sentences for violent crimes should compare to merely stealing a lot of money (I say that because the Enron fraud was ultimately about the enrichment of the executives, irrespective of the consequences to everyone else).

We have a very confused posture about murder sentencing. The problem is a lot of the population has bloodlust and believes in “an eye for an eye, a tooth for a tooth.” Even so, a considerable portion of the population had reservations about the death sentence, and The Innocence Project’s reversal of murder convictions (over 10% of the inmates on death row in Illinois) has helped lower public approval of executions. So the compromise has become a life sentence for the more heinous murders.

The rationale for severe sentences includes: retribution, removal of danger to society, and deterrence. Since the death sentence wasn’t an effective deterrent, it’s not clear that deterrence is a valid motive. So we are left with retribution and public safety.

Now in some cases, the murderers, even violent ones, are rehabilitated. In a sense, over time they become different people. But there is still a great deal of reluctance to give them their freedom (again, back to the retribution motive, it’s seen as unfair to the victims).

Now let’s return to Skilling. Why shouldn’t the retribution logic apply to him? It isn’t a very modern view, but he messed up a lot of lives. And the deterrence angle might apply more strongly in his case, and particularly in the case of the Merrill bankers. And now that going to prison has been de-stigmatized (think Mike Milken and Martha Stewart), it will take a stiff sentence to have a meaningful impact.

Or you could take the Friedmanite posture (yes, I don’t believe in Friedman, but if you live by the sword, you die by the sword). In most murders, the dollar value of the life taken isn’t high (their is a calculus the courts use based on remaining earning potential), and even if you attribute pain and suffering to the family of the victims, you probably don’t get above $25 million in the great majority of cases. Skilling and the other Enron executives and their advisors were paid a great deal of money precisely because they were entrusted with a fiduciary duty. And some of the people they messed up were retirees, who really will suffer in a meaningful way from their losses.

More important, the damage went beyond the very sizable monetary losses. Cases like Enron strike at the integrity of the system (well, such as it is, we are talking about debased coinage).

One could cynically say that The Atlantic argument about sentencing is in part about class. Poor people steal with knives and guns. Middle and upper middle class people steal with computers and sometimes lawyers and accountants. Perhaps Rodney Dangerfield said it better:

You rob a convenience store and you go to jail for ten years. You rob $100 million and you go before Congress and get called bad names for ten minutes.

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