The Enron file: Will anyone end up going to jail?
Despite the appearance of clear misdeeds, proving criminal intent in white-collar cases is difficult.
It's proven easy for Congress to subject corporate executives involved in Enron's spectacular bankruptcy to public scolding via televised hearings.
But it may be far more difficult for the Justice Department to win criminal convictions - with heavy fines and possible jail time - against Kenneth Lay, Jeffrey Skilling, and other ex-officials of the once-proud energy giant.
That's because white-collar crimes of the type alleged in the Enron case are notoriously difficult to investigate. Convictions turn not just on what people did, but on their intentions. Prosecutors must build a picture of such intentions piece-by-piece, through inferences drawn from documents that are often ambiguous, and recollections that are often hazy.
But the feds may have one advantage in an Enron prosecution that they don't always have in such cases: panic. Executives fearful of their futures due to the high profile of the case might quickly turn and testify against each other. "Start with lower downs and pressure them with a simpler case," says Franklin Velie, a former federal prosecutor with the law firm of Salans Hertzfeld & Heilbronn in New York.
What has come out of the Enron affair so far is mostly smoke, from a legal standpoint. Reports of document destruction and the misleading of shareholders, combined with the fact that employees lost millions from their retirement plans while top bosses reaped millions, certainly look bad. But exactly who knew what, and when, remains unproven.
Congressional hearings have produced much information in recent weeks. But some testimony has been contradictory - and in any case, hearing rooms are not courtrooms. A witness can be made to look guilty by lawmakers, under the television lights. But it takes a prosecutor and trial to threaten defendants with jail.
That's why Mr. Lay, the man who built Enron, decided to take the Fifth Amendment and not answer questions during his appearance before the Senate Commerce Committee on Feb. 12. His lawyers convinced him that to testify openly would give prosecutors a roadmap for their inquiries, and lay him open to possible perjury charges, for the more serious Justice Department phase of the Enron probe.
For the Justice Department, one of the difficulties of the case is that many of the prosecutors who presumably know Enron best - those based in the department's Houston office - have had to recuse themselves from the investigation, due to family or professional ties to the firm.
A special task force of prosecutors from elsewhere around the nation, plus a team of FBI agents, thus began their Enron probe almost from ground zero. Initial charges may be expected by summer, and will probably be filed in Houston.
The task force's frame of allegations for the case is simple: Enron executives knowingly misstated their firm's profitability, and reaped millions while unknowing investors and company employees lost billions in investments.
Specific charges could include everything from fraud to insider trading. Some aspects of the Enron case lend themselves to prosecutorial success. The visibility of the case will increase pressure on defendants, and thousands of people can prove massive financial losses.
"It's very straightforward in proving that significant damage was done," says Dana Hermanson, an accounting professor at Kennesaw State University in Georgia.
But complex white-collar crime cases can take months, if not years, for investigators to untangle. And unlike some other recent cases, the Justice Department has no insider guide ready to tell them all, in exchange for leniency.
In general, criminal convictions in such cases are difficult. A study by Mr. Hermanson in 1999 showed that only 27 people ended up going to jail out of 200 financial-statement fraud cases.
Unlike in civil cases, white-collar criminal convictions require higher standards of proof. It is not enough just to prove people did things that turned out badly: They had to intend criminal action.
Memos saying "this is wrong, but let's do it anyway" are seldom produced. Those involved can always point fingers at each other, or at lawyers or accountants who said everything looked OK to them. "These men are not dopes. My guess is they were pretty careful," says John Fahy, a former federal prosecutor in New Jersey.
Thus the Justice Department's best bet may be the approach it has used against organized crime - start with foot soldiers, and work up. Apparent document shredding at both Enron and Arthur Andersen may give them the leverage to take just such a step.