As noted on this blog before, Holman Jenkins is one of America’s most insightful commentators on business issues. In his Wall Street Journal ($) column today, Mr. Jenkins addresses the injustice that occurred recently in the 24 year sentence given to former mid-level Dynegy executive, Jamie Olis, whose sad case was previously discussed here and here. Mr. Jenkins decries the sledgehammer approach that the Justice Department now takes in white collar criminal prosecutions:
Mr. Olis did wrong, but it’s hard not to see his sentence as punishment for insisting on his right to a jury trial. He didn’t loot the company for his own enrichment. The deal at the heart of the conspiracy may have involved deceptive accounting but it apparently yielded a real gain to the company in the form of $79 million in tax benefits. More to the point, whether or not the sentence was just, the metric that produced it was downright fishy.
A year ago Mr. Olis would have done five-to-six, but in a post-Enron mood, Congress insisted on double-digit penalties in cases associated with large stock-market losses. Rolled forth during the trial, therefore, was a government expert witness who — in exactly the kind of calculation that provokes eye-rolling when put forward by Wall Street analysts to “explain” stock prices — determined that Mr. Olis had caused between $500 million and $1.4 billion in damage to Dynegy’s 200,000 shareholders.
Mr. Jenkins’ column contains a graph that shows how Mr. Olis’ conduct had nothing to do with Dynegy’s stock price, followed by an “unspeakable” observation:
The deal for which Mr. Olis was prosecuted had nothing to do with the run-up in Dynegy’s stock price. Project Alpha wasn’t born until March 2001, and was exposed only in April 2002, by which time investors had already given up the fantasy of riskless profits from trading energy on the Internet.
Indeed, it’s a fine judgment whether such frauds were actually occasioned by pressure to protect unrealistic valuations awarded in the bubble market. What’s more, an unspeakable but unavoidable thought is that, somewhere, thousands of investors who picked the right moment to sell have no beef now with any of this scofflaw behavior — they benefited from it, to the tune of millions of dollars in some cases.
Then, Mr. Jenkins concludes by pointing out the injustice of forcing businessmen to choose between defending themselves and a life sentence:
Certainly in a system so addicted to plea-bargaining, some sort of safeguard is needed against extorted guilty pleas. Forget about white-collar convicts: One of these days, when reformers are done springing death row inmates with DNA evidence, they’ll start scouring the jails for people who pleaded guilty to crimes they didn’t commit because they feared the death penalty.
At this point, the only protection from the government’s sledgehammer approach to white collar criminal prosecutions is the judiciary. Unless the trial judges balance the playing field by forcing the government to drop duplicative charges and resist putting on far-fetched damage calculations, injustices such as the Olis case will continue.
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