< The criminalization of business mindset | Main | Hope for Jamie Olis? >
February 26, 2006
While the price of asserting innocence is high, pleading guilty is lucrative
Alexei Barrionuevo, who has been doing a fine job covering the day-to-day developments in the Lay-Skilling trial for the New York Times, and his Times colleague Kurt Eichenwald -- who has written the best overall book on the Enron scandal, Conspiracy of Fools (Broadway 2005) -- collaborated on this article in today's Sunday Times that addresses one of the more troubling aspects of the government policy of criminalizing corporate agency costs (see previous posts here, here and here, among others) -- the exorbitant cost of a defense to charges in such a case.
The article lucidly points out that Ken Lay -- who at one time was worth about half-a-billion dollars and now is almost broke -- has paid or dedicated about $10 million to his defense team, which is on top of another $20 million that his lawyers were paid from Enron's D&O insurance policies before the proceeds of those policies were locked up in connection with the directors' settlement in the Enron class action securities litigation last year. Inasmuch as Lay's co-defendant, Jeff Skilling, has reportedly paid over twice as much out of his pocket than Lay to his defense team and presumably received about as much of the insurance proceeds as Lay, an estimate of $70 million in defense costs for the case is certainly well within the ballpark of accuracy.
And as enormous as the defense expenditures have been, you can bet that the cost of the prosecution is much higher.
So, what are we to make of this extraordinary expenditure of resources? My sense is that it is a stark reflection of the folly of engaging in the the type of criminalization of corporate agency costs -- which is legalese for the prosecution of merely questionable business decisions -- that has been a large part of the Enron Task Force's largely ineffective trials to date in the Enron-related cases.
While the Task Force has properly obtained plea bargains from former Enron CFO Andrew Fastow and the relative few of his cohorts who effectively embezzled money from Enron, the Task Force prosecutors have not limited themselves to such clear cases of theft and fraud. Rather, the Task Force has spent a