Saturday, May 27, 2006

NEW STATE OF PLAY --

The tactics and strategies used in the successful prosecution of the former Enron chief executives, Jeffrey K. Skilling and Kenneth L. Lay, highlight the transformation that has occurred in recent years in the investigation and prosecution of white-collar crime, a change that has brought many of the techniques applied to drug cases and mob prosecutions into the once-genteel legal world of corporate wrongdoers.

No longer are defendants allowed to surrender themselves quietly, outside the view of the press. Now, as Mr. Skilling and Mr. Lay learned firsthand, there are "perp walks" where the handcuffed defendant is brought in by law enforcement for booking. Cases are not resolved with a fine or a short stay in a "country club" prison; now defendants face decades of real jail time, sentences that can preclude them from being considered for minimum-security prisons.

Witnesses are squeezed, with threats against family members and stints in solitary confinement. Those who fail to cooperate are indicted, or deemed unindicted co-conspirators, a designation that places potential witnesses in a state of indefinite legal limbo. And companies that want to settle a criminal case can often do so only by taking the once unusual step of waiving their right to protect the confidentiality of their communications with their lawyers.

"Our prosecutors will use the tools legally available to us to solve these crimes and bring the perpetrators to justice," said Bryan Sierra, a Justice Department spokesman.

Legal experts yesterday heralded such aggressive approaches as crucial to the government's securing convictions of Mr. Lay and Mr. Skilling. "Prosecutors in white-collar cases are looking at the range of legal tactics that are available to them that they have used for years in other kinds of cases, and they are not just ruling out those tactics because it is a white-collar case," said Christopher Wray, the former head of the Justice Department's criminal division and now head of the government investigations practice at the law firm of King & Spalding.
Some of the tactics, e.g. forcing waivers of privilege and cutting off executive legal expenses, have been heavy-handed and will probably be seen as unwise over the long-term.

Having said that, the new emphasis on white collar investigations and prosecutions will certainly lead to a change in corporate culture. The only question is what that change will be.

I suspect that the effort to push-back against Sarbanes-Oxley is not much more than a summer shower at this point, but if it builds into a real thunderstorm, much of the gain reformers have realized since Enron will likely be lost. On the other hand, if Sarbanes-Oxley can weather the present situation, which is more likely in the wake of the Lay/Skilling verdit, we may be in for a long-term shift.

The wisdom of that shift, I'll leave for another time.