It was July 2002 in Washington, and the heat was on the president to respond to a devastating series of corporate scandals that had cost investors billions of dollars.
Houston energy trader Enron Corp. had collapsed seven months earlier amid revelations of shady business partnerships, thrusting former chief executive Kenneth L. Lay and his long history of political donations to the Bush family into the harsh spotlight.
Now corporate corruption was making headlines again with revelations that a multibillion-dollar accounting fraud had struck telecommunications giant WorldCom Inc. Prominent Democrats seized the news to argue that the president and vice president, both former energy industry executives, were too cozy with corporate America. Lawmakers from both parties maneuvered to be the first to investigate claims of accounting fraud and call for corporate leaders' scalps.
Within two weeks of the announcement that WorldCom had filed the largest bankruptcy case in U.S. history, President Bush signed an executive order creating a government-wide task force to root out business crime. Bush told reporters a few months later that the multi-agency task force "is sending a clear warning and a clear message to every dishonest corporate leader: You will be exposed, and you will be punished. No boardroom in America is above or beyond the law."
Today, more than two years after the task force's creation, federal prosecutors and securities regulators have helped convict a number of high-profile chief executives, including the former leaders of drugstore chain Rite Aid Corp. and cable television provider Adelphia Communications Corp. Government lawyers have indicted many more -- including Enron's Lay, WorldCom's Bernard J. Ebbers, and HealthSouth Corp.'s Richard M. Scrushy -- all of whom pleaded not guilty and are awaiting trial.
There have been some losses and charges that prosecutors are overreaching in an effort to bring high-profile cases, but federal prosecutors involved in the task force have convicted more than 500 corporate wrongdoers as of last month, according to a task force report. That is out of 900 suspects criminally charged, with many of those trials still pending.
"I think the proudest legacy is . . . we have sent a message of deterrence that has found its way into every corner of corporate America," said Deputy Attorney General Jim Comey in an interview. "I believe we have changed behavior."
Lawyers on both ends of the spectrum said the political overtones of Enron, whose executives and political action committee contributed millions of dollars to the Bush campaign and whose former vice chairman Thomas E. White became Army secretary, helped set in motion an aggressive federal effort to prosecute corporate criminals.
"Had Lay not had the kind of connection to the Bush administration that he did, I don't think you'd have seen this level of activity out of the Justice Department," said Michele A. Roberts, a longtime Washington defense lawyer. "It began with the need to distance the White House from Enron, and it stoked a fire that was ready to burn."
Despite a few mentions by Democratic presidential nominee John F. Kerry of Enron and Vice President Cheney's former company, Halliburton Co., in this month's debates, nonpartisan analysts said the Bush administration mostly has neutralized the corporate fraud issue by acting quickly.
"The one thing Republicans never can appear to do is to be perceived as coddling" crooked chief executives, said Stuart Rothenberg, an independent political analyst, said. "I think they were suitably outraged and upset over corporate abuses."
The Bush administration has been tough on crimes against investors, but it has not been tough on business across the board. When it comes to areas such as environmental protection and occupational and drug safety, corporations often have had their way, according to critics.
Earlier this month, the Environmental Integrity Project, a public interest group founded by a former Environmental Protection Agency lawyer, issued a report criticizing the agency's lax enforcement in cases against big power companies. The Labor Department's Occupational Safety and Health Administration has slowed down rulemaking on workplace safety and has been more closely allied with trade associations and businesses since the Bush administration took over in 2001, according to critics. And the Food and Drug Administration has been criticized for allegedly trying to suppress negative findings about popular drugs. Agency spokesmen have vigorously denied those allegations.
Task Force's Message
The Bush administration Corporate Fraud Task Force follows other federal task forces created in previous administrations to tackle problems such as gun violence and campaign finance. Former prosecutors say the task force helped to focus a vast bureaucracy, marshal resources and send a message to prosecutors nationwide that they could win acclaim by attacking sophisticated business fraud, which in the past was sometimes thought to be too difficult and time-consuming to pursue.
The work of prosecuting corporate crimes spread out from the elite securities fraud unit in Manhattan over the past two years to prosecutors in Birmingham, Harrisburg, Houston, Los Angeles, Newark and Topeka.
"I think you see state, local and federal prosecutors all over the country doing sophisticated white-collar fraud prosecutions," said Mary Jo White, the Manhattan U.S. attorney in the Clinton era. "It's good, in terms of the deterrence message it sends."
But, White cautioned, the newfound interest in business investigations also may have led to overreaching by inexperienced prosecutors unschooled in distinguishing between crimes and violations of accounting rules, historically the turf of private litigants and the SEC.
Not all of the prosecutions have been successful. Late last year federal prosecutors in Detroit dropped securities fraud and conspiracy charges against two former Kmart Corp. executives in the middle of the trial, after a pivotal witness contradicted herself on the stand. Separately, a jury acquitted two former Qwest Communications International Inc. officials in April after a seven-week trial. The men had faced more than a decade in prison based on allegations they had improperly inflated revenue at the telecommunications company. A Denver jury deadlocked on charges against a third man, who ultimately pleaded guilty to a misdemeanor document-falsification charge last month.
Defense lawyers in some corporate fraud cases also complain that prosecutors have begun to exert heavy pressure on companies to turn in their own employees to prevent the company itself from being charged, under guidelines issued in January 2003 by then-Deputy Attorney General Larry D. Thompson. Thompson, now the top lawyer at PepsiCo Inc., declined to comment through a spokesman.
"They've done probably one of the best jobs in American history in obtaining convictions and ferreting out corporate crime," said Robert J. Giuffra Jr., a former chief counsel to the Senate Banking Committee who represents several clients in corporate fraud probes. "The question ultimately is, where should the line be drawn? . . . The entire Fortune 500 is not a criminal enterprise."
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.
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."