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Friday, August 29, 2003

Eisinger on OK WorldCom Charges

Jesse Eisinger's "Ahead of the Tape" column in the Wall Street Journal echoes my post from last night:

"Note to those Feds who cringe every time Oklahoma Attorney General Drew Edmondson denounces Bernie Ebbers and works on his klieg-light tan: You brought this on yourselves.

"For this is the result of federal investigators -- at the SEC and the Justice Department -- not enforcing the nation's antifraud statutes to the fullest extent of the law.

"Sure, some boardroom miscreants who dabbled in fraud actually get indicted. Some even go to jail. ImClone's Sam Waksal is in prison (though not for accounting fraud). Enron's Andy Fastow awaits trial. But most of the time, the wheels of justice fall off the wagon. Cendant's Walter Forbes (remember him?) is under indictment but still hasn't been brought to trial. The statute of limitations to bring criminal charges against Sunbeam's Al Dunlap expired. Many WorldCom executives have been charged, but they are small fries compared with Ken Lay, Jeff Skilling, Richard Scrushy and Mr. Ebbers (all of whom proclaim their innocence).

"And so ambitious pikers from the states step in. The Feds should have learned their lesson from Eliot Spitzer and seen this coming. In the case of WorldCom (now called MCI), public frustration is palpable. The accounting fraud was revealed well over a year ago.

"Now any possible case against Mr. Ebbers could be jeopardized, the Feds complain. It's true. We have national securities laws, national regulators and national authorities because the markets wouldn't function with 50 different sets of law (not to mention what Guam might say). That's all the more reason for the Feds not to give any local authority an opening to meddle.

"The Feds complain about how difficult it is to prove accounting fraud. But it is their culture that sets them up for second-rate results. They love to settle. When the SEC settles, the guilty party neither admits nor denies wrongdoing. This isn't a bit of harmless Kabuki theater in which we all know the truth. Indictments and convictions for accounting fraud are exceptions, not the rule. Settlements are less significant than prosecutions that result in prison. Prison deters white-collar criminals. Household names need to be busted quickly and some need to head to jail."