Motivated to Prosecute

Former WorldCom chief executive Bernard J. Ebbers was escorted in handcuffs when he turned himself in earlier this year. The Corporate Fraud Task Force was created a month after his company announced its bankruptcy in 2002. (Daniel Acker -- Bloomberg News)

By far, the most controversial decision top Justice Department authorities made in the recent wave of corporate fraud prosecutions was to charge one of the country's largest accounting firms, Arthur Andersen LLP, with obstructing justice for allegedly tampering with documents for client Enron. Andersen was convicted in June 2002 and quickly unraveled, putting more than 25,000 U.S. employees out of work and further reducing competition in the already concentrated accounting industry.

"I think history will judge it to be a colossal mistake," said Rusty Hardin, a Houston defense lawyer for Andersen. "Almost without exception, any time prosecuting attorneys make decisions under the pressure of public clamor, they will make the wrong ones. . . . Thousands of employees of Andersen were taken down in the rush to show we're serious about corporate crime."

Government lawyers contended in a 2003 Justice Department report that Andersen had a rotten corporate culture and "a history of major audit failures that led to substantial restatements of corporate revenue" at Enron, WorldCom and Waste Management Inc. A federal appeals court upheld Andersen's conviction earlier this year.

Congressional Help

Prosecutors and SEC officials got a crucial boost from Congress in their effort to root out fraud when lawmakers overwhelmingly passed the Sarbanes-Oxley Act a month after the WorldCom scandal news broke. The law forced chief executives and chief financial officers to certify the accuracy of their financial statements -- a move that could eliminate a common excuse, that corporate leaders simply didn't know or understand the nitty-gritty of their companies' books.

Congress also budgeted millions of dollars to help the SEC beef up its depleted ranks and renew its focus on enforcement work. The agency has hired more than 1,000 accountants, lawyers and economists since late 2002 -- a 27 percent increase in its professional staff, a spokesman said. In fiscal 2002 alone, the agency filed almost 50 percent more financial fraud and reporting cases than in the previous year.

The administration's record fighting accounting fraud -- and racking up obstruction-of-justice convictions this year against domestic entrepreneur Martha Stewart and technology investment banker Frank P. Quattrone -- wins high marks even from frequent critics such as Joan Claybrook, president of the Ralph Nader-founded advocacy group Public Citizen. Prosecutors, for their part, cite the Stewart and Quattrone obstruction cases as sending a message that the integrity of government investigations must be protected at all costs.

But some high-profile defendants have accused the government of playing politics with its prosecutions. Enron's Lay has suggested his prosecution was opportunistic -- writing in an opinion piece in The Washington Post last month that his indictment was "curiously issued two weeks before the Democratic National Convention."

"The maneuver meant that I had been accused and thus 'taken off the table' as a political issue for this year's election," Lay wrote, adding that the indictment against him was flimsy and "reeks of politics."

If Enron was the match, the backdrop of the go-go 1990s provided plenty of kindling. Investors flocked to the stock market in greater numbers than ever before. Photos of chief executives graced the covers of business magazines. Then the Internet bubble burst, retirees lost billions of dollars, and New York Attorney General Eliot L. Spitzer used a trove of e-mails to crack open the behind-the-scenes operations of Wall Street investment banks that were publicly praising companies that they disparaged in private.

A Sustained Crackdown

Current and former prosecutors said the administration's business fraud crackdown still has plenty of life in it. The fraud investigations in the pipeline will take time to investigate. Blockbuster trials involving former Enron and HealthSouth leaders won't come until next year at the earliest, and legions of new SEC lawyers likely will dig up enough material to keep them busy for years to come.

"Rarely do you live through historic times and know that you're living through them," said Linda Chatman Thomsen, deputy enforcement director at the Securities and Exchange Commission. "In the securities world, these are historic times."

The Justice Department's Comey said the task force will not live forever. His mission in the third, and possibly final, year of the initiative is to "deliver, to execute on what we've started" in a series of 2005 trials. Whatever comes of the task force in 2006, Comey said, high-level regulators at the SEC, the FBI and Justice likely will continue to meet and share valuable information and strategies about pursuing corporate crime.

"Once you crank up the behemoth federal enforcement machine," said George J. Terwilliger III, a Justice Department official in the George H.W. Bush administration, "it carries on for a long time of its own momentum."