The End of Ebbers of Worldcom

This is one story that I like to archive here in my blog. Very controversial and very
intriguing.

Cook the Books, Get Life in Prison: Is Justice Served?

By Carrie Johnson and Brooke A. Masters
Washington Post Staff Writers
Monday, September 25, 2006; A01

In the category of longest prison sentence, WorldCom Inc. founder Bernard J. Ebbers recently bested the organizer of an armed robbery, the leaders of a Bronx drug gang and the acting boss of the Gambino crime family.

It was a contest Ebbers surely would have preferred to lose.

Tomorrow, the man who once swaggered through the halls of his telecommunications company as a cowboy-booted billionaire is scheduled to surrender to authorities and begin a 25-year sentence. Federal prison policies virtually ensure that Ebbers, who has a heart ailment, will spend the rest of his life in prison for his role in an $11 billion accounting fraud.

Ebbers, 65, is to report to prison on the same day that former Enron Corp. finance chief Andrew S. Fastow will be sentenced by a federal judge in Houston. Fastow, who secretly pocketed more than $45 million in a scheme to disguise mounting financial problems at the energy company, faces a maximum of 10 years in prison as part of his plea deal.

The length of Ebbers's sentence when compared with others touches on one of the most controversial parts of the American criminal justice system: How large a pound of flesh should society exact for serious white-collar crime? When the victims are diffuse, the crime complex and the injuries economic, what kind of punishment constitutes justice?

A top executive who gambles his fate at a trial nowadays risks what amounts to a life term for fraud that can involve as little as $2.5 million in losses, said University of Missouri law professor Frank Bowman. Crimes such as first-degree murder, high-level drug dealing and espionage trigger similar recommendations.

"That means you have to equate fiddling with the corporate books with first-degree murder or treason," Bowman said. "My own sense is that any sentence over 20 years for anybody for an economic crime is hard to justify."

Public revulsion over financial crimes that cost small investors billions of dollars has barely waned since prosecutors began to investigate a string of corporate scandals in late 2001. The death of convicted Enron founder Kenneth L. Lay in July induced profanity-laden outrage from shareholders who felt they had been "cheated" out of seeing Lay sent to prison. Federal prosecutors seized the mood, imploring Congress this month to pass legislation that would make it easier for them to recover $43.5 million from Lay's estate, a process that has been seriously complicated by his death.

The drive to exact punishment even beyond the grave is a sign of vindictiveness in public officials and shareholders, defense lawyers contend.

Reid H. Weingarten, a Washington-based lawyer for Ebbers, said in an e-mail that the judge in his case had public relations, not justice, in mind. "The purpose of the sentence was to please and appease the howling mob demanding Ebbers's head, not a worthy goal of the criminal justice system," he said.

Fastow, 44, assessed the prospect of spending decades behind bars after the government hit him with a 98-count indictment for serving as the architect of the Enron fraud. Prosecutors also accused Fastow of enlisting his wife and using the bank accounts of his two young sons to siphon money from the company undetected. Lea W. Fastow, indicted to pressure her husband to cooperate with investigators, pleaded guilty to a tax charge two years ago for underreporting income from his business partnerships. She served almost a year in a high-security prison.

As part of the couple's package deal, Andrew Fastow pleaded guilty, agreed to testify against Lay and former chief executive Jeffrey K. Skilling, and negotiated a substantial break in his prison term. Skilling, 52, was convicted of 19 criminal charges in May and faces decades in prison when he is sentenced next month.

Fordham University law professor Daniel Richman said shorter sentences in exchange for cooperation reflect the reality of white-collar investigations: Prosecutors must rely on tainted insiders to help convict higher-level executives. In this year's Enron trial, for example, lawyers for Skilling and Lay branded Fastow a liar, a thief and the person most responsible for Enron's collapse who avoided his just deserts by signing a deal with prosecutors.

"Sentences are the currency with which the government buys information," said Richman, a former federal prosecutor.

Not accepting a deal can be costly, as former mid-level Dynegy Inc. executive Jamie Olis, now 40, learned two years ago. Olis, who while growing up was physically abused by his mother's boyfriend and spent time in foster care before working his way through college, became a national symbol of inflexible sentencing policies. He lost his case and was sentenced to more than 24 years in prison -- despite the defense's presentation of his background -- for taking part in a $300 million accounting fraud. Olis's former boss at the energy company signed a plea agreement, testified against Olis and was sentenced to 15 months.

A federal appeals court last year threw out Olis's sentence, and a federal judge in Houston on Friday reduced it to six years. That means Olis is likely to spend about two more years in prison.

"Not every case is Enron, and not every white-collar offender is one of the smartest guys in the room," said Washington defense lawyer Barry Boss, referring to the name of a book and documentary film about the Enron scandal. "We're such a vindictive country."

But white-collar criminals are unusually sensitive to deterrence, according to prosecutors and securities regulators. The sight of colleagues in handcuffs, or signing away their homes and fortunes, sends a powerful message.

What's more, legal experts say, former executives do not deserve lighter treatment than drug dealers or burglars simply because they broke accounting rules or lied -- crimes that are harder to unravel and whose victims are more diffuse.

"You want people to understand that just because they're in high places, they make a lot of money and they can hire fabulous lawyers, that they're not going to walk away with a slap on the wrist," said former Securities and Exchange Commission chairman Harvey L. Pitt. "If you ask me, 'Did Bernie Ebbers destroy lives?' I would tell you that his conduct did."

Historically, white-collar criminals have not received long sentences. Probation was common even for crimes that involved large losses, and even the most famous defendants received sentences that by today's standards appear lenient. Junk-bond king Michael Milken was initially sentenced to 10 years on fraud charges, but a judge reduced the sentence to 33 months, and he was paroled after serving only two years.

That began to change in the mid-1990s, after policymakers expressed concern that punitive sentences for nonviolent drug crimes carried life sentences while white-collar criminals often skated. In 1994, financier Tom J. Billman, who bilked savings and loans of $25 million and fled the country, was sentenced to 40 years in prison. He served about 10 years before being paroled in 2005.

Sentences became even longer when parole was abolished in the federal system and sentencing guidelines were repeatedly amended to increase prison terms for white-collar crimes.

Were the WorldCom and Enron scandals to happen today, the sentences for Ebbers and Fastow might be even longer. Angry lawmakers enacted even tougher penalties for corporate fraud after those companies filed for bankruptcy protection. But the stiff new punishments apply only to people who committed crimes after 2002.

"On a personal level, you've got to feel for people" like Ebbers who will probably die in prison, said University of Texas law professor Henry T.C. Hu, "but overall I think the system's got it right."