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Copyright 2004 The Washington Post http://www.washingtonpost.com <http://www.washingtonpost.com> The Washington Post March 3, 2004 Wednesday Final Edition SECTION: A Section; A08 LENGTH: 1342 words HEADLINE: Targeting the Top in Corporate Crime; Prosecutors Are Working to Hold Former Executives Accountable BYLINE: Jeffrey H. Birnbaum, Washington Post Staff Writer BODY: In the span of just two weeks, federal prosecutors have indicted two of the iconic figures in the corporate scandals that cascaded in the aftermath of the 1990s stock market boom. The charges highlight what legal experts see as a sea change in the way the federal government deals with corporate miscreants. More than ever, executives themselves will be held accountable for their actions. Last month, Jeffrey K. Skilling, the former chief executive of Enron Corp., was handcuffed and brought to court in Houston on charges of securities fraud. And then yesterday in New York, Bernard J. Ebbers, former chief executive of WorldCom Inc., was charged with his own versions of securities fraud. The indictments "send a powerful message," says Henry T.C. Hu, a securities professor at the University of Texas at Austin School of Law. "The fact that you bring criminal indictments against these two major CEOs, Skilling and Ebbers, will remind all executives tempted to stray from the straight and narrow that there are real consequences to their actions." The public has seen many of these scandals in caricature. The $6,000 shower curtain L. Dennis Kozlowski, former chief executive of Tyco International Ltd., was said to have bought with company funds. Or the 100 expensive bedroom slippers allegedly purchased with corporate money by former Adelphia Communications Corp. chief financial officer Timothy J. Rigas. But to company executives such cartoonish accusations have serious, real-world implications. John C. Coffee Jr., a specialist in white-collar crime at Columbia Law School, says that the days are over when executives who misappropriate funds will face a relative slap on the wrist. "In the past, executives would settle cases with the Securities and Exchange Commission without admitting or denying guilt and then pay off plaintiffs' lawyers with shareholders' money," he said.He said that now, criminal, not civil, charges are strong possibilities in major cases and the executives and their own assets are on the line. Critics of the Bush administration have long wondered if the Justice Department would ever get around to indicting such bigwigs. For nearly two years the White House has talked a lot about its desire to crack down on the kingpins of corporate wrongdoing. Such promises were instigated by the entry of Enron, the nation's seventh-largest corporation, into bankruptcy court in December 2001. And then, more than seven months later, WorldCom revealed billions of dollars in accounting irregularities. The resulting spate of accounting scandals became known as Enronitis and led in 2002 to the most sweeping rewrite of the nation's securities laws, the Sarbanes-Oxley Act. Still, as the leaders of these two giant companies stayed out of the reach of prosecutors, Democrats and shareholder activists roundly criticized the president and his administration. Now the indictments are stacking up. The most senior executive associated with the Enron debacle, former Enron chairman Kenneth L. Lay -- a fundraiser for both presidents Bush -- has not been charged, though the investigation continues. Former WorldCom chief financial officer Scott D. Sullivan was indicted 18 months ago in New York. Sullivan pleaded guilty to the charges and is expected to testify against his former boss. Former top executives of an entire rogues' gallery of post-bubble firms -- from Tyco to Adelphia -- have been shackled, brought before a judge or both in just the last few months. And while it isn't certain that they will be found guilty of those charges (white-collar crimes are among the hardest to prove), their historic volume leaves little doubt that prosecution of corporate impropriety is now a federal priority. The Securities and Exchange Commission has made clear that it intends to go after executives and not just companies. In a speech last month, Stephen M. Cutler, the SEC's director of enforcement, said the agency would focus on disciplining individual officers and directors more aggressively than before. "The role of officers and directors is far too important to allow those with questionable commitment to the interests of shareholders to serve," he said. Kirby D. Behre, a corporate criminal defense attorney in the District, said there's a "brave new world" for companies and executives: "Everybody's wised up and been scared straight." President Bush also may reap political benefits from the flow of criminal filings. Ever since Enron went into bankruptcy court, he's weathered harsh attacks by Democrats for being too close to corporate executives. Sen. John Kerry (Mass.), the leading contender for the Democratic presidential nomination, never tires of tying him to "special interests" or "lobbyists." But now, analysts say, the president and his advocates will almost certainly use the indictments to demonstrate his fealty to average folks and not just their bosses. "Democrats won't stop talking about Bush's closeness to business," says Stuart Rothenberg, a nonpartisan elections analyst. "But anytime a Republican president goes after business and can be seen as cheerleading protection for consumers and investors that helps inoculate him fromthose kinds of populist attacks." Charlie Cook, a political analyst, isn't as sure that the indictments will neutralize the president's problem with corporate coziness. "Even when President Bush's popularity was at its peak," Cook said, "his perceived closeness to special interests was like a low-grade fever." And clearly the Democrats don't intend to let up on the issue. Tony Welch, spokesman for the Democratic National Committee, said yesterday, "The White House knows that there's the impression out there that it's linked to seeking favors and political donations. That's ingrained in many voters and it's a battle they'd rather not be fighting." Still, the administration was far from shy in taking credit for the indictments yesterday. Although career attorneys developed the charges, Bush appointee John D. Ashcroft, the attorney general, took the unusual step of flying to New York to announce them.


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