Yesterday's triple score by federal prosecutors -- the unsealed indictment of former Enron Corp. chief executive Kenneth L. Lay, the conviction of Adelphia Communications Corp. chief executive John J. Rigas for corporate looting, and the denial of a new trial for Martha Stewart -- marks the opening years of the 21st century as a period of unprecedented peril for once-highflying corporate leaders.
Compared with previous cycles of boom and bust, more high-profile chief executives have been indicted and convicted of more serious charges than ever before. Prosecutors are going after executives at the highest levels, seeking redress for the millions of middle-income families, many of whom were new to the stock market, whose mutual funds and retirement savings accounts were hurt when prices collapsed amid charges of wrongdoing and puffery.
"This was the greatest period of malfeasance since the 1930s, and the only reason we didn't have indictments in the '30s was we didn't have the laws yet," said Charles Geisst, a business historian at Manhattan College.
"This is obviously the greatest round, there was more money lost than ever before," Geisst added. "And prosecutors can't get away with going only for the mid-level guys, they have to go to the top."
Consider the prosecutorial scorecard in the 949 days since Enron filed for bankruptcy protection in December 2001.
Convicted: former chief executives at Adelphia, ImClone Systems Inc., Martha Stewart Living Inc. and Rite Aid Corp.
Indicted: former chief executives at Enron, WorldCom Inc., HealthSouth Corp., Tyco International Ltd. and Westar Energy Inc.
Forced from office: Dick Grasso at the New York Stock Exchange, Jean-Marie Messier at Vivendi Universal SA, Joseph P. Nacchio at Qwest Communications International Inc., Gary Winnick at Global Crossing Ltd. and Charles Conaway at Kmart Corp.
The image of Lay being led away in handcuffs yesterday followed similarly humiliating "perp walks" by Tyco's L. Dennis Kozlowski, Adelphia's Rigas, ImClone's Samuel D. Waksal and others.
The message, legal experts say, has gotten through: No chief executive is safe.
"In corporate America, you only need a few spectacular examples to scare the hell out of them," said former D.C. prosecutor E. Lawrence Barcella Jr. "If I were a corporate executive now, I'd have notice that everything is on the table."
Indeed, the administration's two-year-old Corporate Fraud Task Force has opened investigations across the country, many of which resulted in indictments.
Meanwhile, civil penalties imposed by the Securities and Exchange Commission have exploded over the past few years. Since 1986, the SEC has reached a dozen financial settlements that called for companies to pay $50 million or more, and nine of the 12 have come in the past year, according to a recent speech by SEC enforcement chief Stephen M. Cutler.
Of course, waves of corporate malfeasance are nothing new. The 1980s included the dazzling rise and fall of financiers Ivan F. Boesky and Michael R. Milken. The savings-and-loan scandal put several executives behind bars, including Charles H. Keating in the early 1990s.
The savings-and-loan crisis and Wall Street trading scandals of the 1980s are a virtual road map to some of the prosecutorial tactics currently on display, from allegations of chief executives using a company as a "personal piggy bank" to handcuffed corporate titans walking into a courthouse.
The ebb and flow is familiar. First comes a period of "permissive regulatory oversight," said Washington defense lawyer Abbe D. Lowell. Then the economy shifts and business undergoes a heightened level of government scrutiny, leading to prosecutions and "a cry to get scalps."
Finally, Congress passes tough-on-corporate-crime laws that expand criminal penalties for such things as bank fraud, health care fraud and, more recently, securities fraud.
But the difference this time, said Washington defense lawyer William H. Jeffress Jr., is that now "the numbers are a lot bigger, the people better known, and the penalties a lot higher."
Several defense lawyers pointed to the 2002 collapse of accounting firm Arthur Andersen LLP after it was indicted on obstruction of justice charges for destroying papers related to client Enron as an early signal of the Justice Department's tough corporate crime strategy. Prosecutors pursued charges even though they led to the collapse of the firm.
Ira H. Raphaelson, a former U.S. attorney who now defends corporations and business executives, said, "When Congress politicizes criminal prosecution, it can sometimes result in people who would not ordinarily be prosecuted getting prosecuted on adventurous theories." Some prosecutions that arise when corporate cases are politically popular may fizzle later.
For instance, several Wall Street executives who were charged by then-U.S. Attorney Rudolph W. Giuliani in the 1980s eventually were acquitted, pleaded guilty to lesser crimes, or saw their cases dismissed or overturned on appeal.
"It's easy to get the low-hanging fruit early," Barcella said. "Then, in two or three years, you've gotten the low-hanging fruit, the medium-hanging fruit and now you're starting to reach to find something else."
There have been tough times for prosecutors in the current crackdown. The first case against Kozlowski ended in a mistrial, as did the first prosecution of former Credit Suisse First Boston technology banker Frank P. Quattrone. Quattrone was subsequently convicted; Kozlowski will stand trial again. Martha Stewart, however, was turned down yesterday in her effort to win a new trial. She had cited alleged perjured testimony by a government witness.
There have been some near misses for chief executives as well, especially on Wall Street. New York Attorney General Eliot L. Spitzer took a hard look at Citigroup chief Sanford I. Weill over Weill's relationship with his firm's onetime star stock analyst, Jack Grubman, but ultimately decided a case could not be made.
While investigating the $139.5 million salary and benefits payment made to NYSE chief executive Grasso, Spitzer deposed chief executives of major investment banks who sat on the exchange's board and approved the payment. But he ultimately declined to name any of them in his lawsuit against Grasso, who lost his job over the controversy.
Still, Spitzer emerged as a towering figure on Wall Street, capable of inspiring dread among executives on the receiving end of his subpoenas. In response, top Wall Street firms including Morgan Stanley and Bear Stearns have hired Spitzer deputies to help them understand and react to the New York attorney general's aggressive approach.
New York lawyer Stanley S. Arkin, who has represented clients in the current mutual fund trading investigations as well as during Wall Street trading abuses in the 1980s, said prosecutors wield more power nowadays because of federal sentencing guidelines that increased prison terms for corporate officials in 2001 and again in 2003.
In earlier waves of prosecutions, defendants didn't have to fear "a heinous, overarching system of justice that shifted power so greatly to prosecutors and made resistance to power so pricey," Arkin said.
But Arkin said the current spate of white-collar prosecutions has had some positive effects as well, reminding chief executives and corporate board members that "they have to be a heck of a lot more sensitive and scrupulous as to who really owns a company -- the shareholders."