Of breaches of the peace, home invasions, and securities fraud.

• Author: Hurt, Christine
• Position: Symposium: Corporate Criminality: Legal, Ethical, and Managerial Implications

1. INTRODUCTION

   As a response to the corporate scandals of the first part of this decade, the federal government created new legislation and amended current laws (1) to punish corporate misconduct more severely. New crimes were created, and penalties for existing crimes were increased. (2) In addition, resources were shifted toward prosecuting corporate misconduct, reflecting the new priority placed on cleaning up U.S. boardrooms and restoring investor confidence in the U.S. capital markets. (3) Revelations of earnings manipulation and other financial frauds at large publicly-held companies such as Enron Corp., WorldCom, Inc., Rite Aid, and HealthSouth Corp. shocked an already-slowing stock market reeling from the bursting of the technology bubble and the attacks of September 11, 2001. Personal stories of retirement accounts with disappearing assets as well as tales of employees with lost livelihoods filled the media, creating even more ill will toward companies and their wealthy executives under investigation. (4)

   The most compelling narrative from this era focused on the employees of Enron Corp. These employees, the story tells, were enticed to work at this innovative, maverick company by promises of Enron stock. In addition to stock grants, all employees who participated in the Enron 401(k) pension plan had large amounts of Enron stock with their holdings. (5) Employees could direct their contributions into a menu of balanced investments, including Enron stock, although the matching contribution was made wholly in Enron stock. (6) This strategy of encouraging employees to hold employer stock, which was well-touted in the business literature (7) and allowed under the Employee Retirement Income Security Act of 1974, (8) worked well to invest employees, at least short-term, with the growth of Enron. Elevators in the Enron building on Smith Street in downtown Houston had television screens that featured market news, with a stock ticker showing Enron's stock market price at all times. However, the story turns dark when, as officers knew that Enron's projects were failing and that outlooks were negative, chief executive officer Ken Lay urged employees at firm meetings to keep buying Enron stock. (9) In a final cruel joke, administrative changes were made to the firm's retirement plan, effectively freezing employees' accounts so that they were unable to sell even non-employer contributed Enron stock at the time that bad news began to pour out of the company in the fall of 2001. (10)

   The response to the Enron debacle was the formation of the Enron Task Force, (11) comprising assistant U.S. attorneys from other locations, joined together to bring down the fiercest threat to the U.S. investor. Beginning with middle management, the Task Force was able to construct, through testimony given in exchange for leniency, a criminal case against the two figureheads of Enron: Ken Lay, former CEO and Chairman of the Board, and Jeff Skilling, former President and CEO. (12) Lay and Skilling symbolized to the nation all that was wrong with corporate greed; two millionaires who fiddled while their empire burned, taking its investors and employees down with it. Lay was charged with multiple counts of conspiracy to commit securities and wire fraud, securities fraud, and wire fraud. (13) He was also charged with four counts of bank fraud, and those counts were tried in a separate bench trial. (14) Skilling was charged with conspiracy to commit securities and wire fraud, and multiple counts of securities fraud, false statements to auditors, and insider trading. (15) Lay was found guilty on all counts and faced a maximum prison term of 165 years; Skilling was found guilty on nineteen counts in his indictment and faced a maximum prison term of 185 years. (16) After Lay's death in July 2006, his conviction was vacated on all counts. (17) Skilling was sentenced to slightly longer than the minimum allowed under the Federal Sentencing Guidelines, twenty-four years. (18) Skilling's sentence is being appealed. (19)

   In the wake of Skilling's sentence, many debated whether the punishment fit the crime. Under Texas state law, no single crime carries with it the minimum sentence of twenty-four years; (20) even the minimum sentence for first-degree murder is five years. (21) Therefore, Skilling's minimum sentence can be compared to the sentence for someone who murdered five people, without passion and without any mitigating circumstances. (22) The ultimate question then that has been bandied about in newspapers, magazines, television shows, and the blogosphere then becomes: Is Skilling as bad as a serial killer? Can Skilling's actions, and their effects, be likened to multiple murders?

   Skilling's sentence is not an aberration in federal criminal law, or even in white collar criminal law. In recent years, due to changes in federal laws and the Federal Sentencing Guidelines, other corporate actors have received similarly long sentences for similar acts of financial fraud. (23) Because of the availability of these lengthy sentences, prosecutors are able to threaten other corporate officers and employees, also with unblemished criminal records, to plead guilty in exchange for shorter but still substantial sentences. (24)

   The remainder of this brief essay will address the question of what the severity of Skilling's sentence, and the increased penalties available for corporate fraud generally, reflects about the values held by American society. This essay seeks to answer the question of whether these penalties are skewed and disproportionate, such as a hypothetical punishment of the death penalty for littering, or whether these penalties do, for better or worse, reflect the fact that corporate actors strike at the heart of what our society holds most dear. This essay concludes that ironically, and perhaps unfortunately, increased penalties for financial frauds represent an attempt to protect our most treasured possessions: not our bodies or our homes, but our retirement funds. These new penalties reflect our society's fears for our retirement castles and peaceful capital marketplaces.

2. THEORIES OF PUNISHMENT

   Many legal philosophers have explored the large topic of punishment, including the reasons why a society chooses to punish certain activities and refrain from punishing others. This essay will not attempt to either fully present that literature or add to it. Instead, this analysis begins with the premise that prohibition and punishment of an action should reflect a given society's placement of value on the liberty interest that is being violated by a certain action.

   This liberty interest that is being violated may be either directly or indirectly violated. When Person A hits Person B, Person A is violating Person B's interest in bodily safety. One might also argue that Person A is also violating other Persons' interests in being free from fear of bodily safety by creating a violent environment. When Person A engages in prostitution with Prostitute C, one might argue that Person A is violating an interest of Prostitute C's in not being exploited that she (or he) may not waive or that Person A is violating the interests of third-parties who may be negatively impacted by the spread of disease or other collateral effects of prostitution. The punishment of assault and prostitution reflects values that at least some portion of the citizens hold: the value of being free from bodily injury and the fear of such injury, the value of being free from disease or at least living in a society that is not riddled with disease, or even possibly the value of living in a society where the laws reflect the morality of the voting majority.

   Not all citizens may agree on these values, either to their extent or to their validity. Therefore, laws in a given society will change over time as groups of citizens persuade lawmakers that previous laws are obsolete or misguided or that new laws are necessary. (25) Whereas in one era the interest in not being cuckolded was exceptionally strong, not only for moral reasons but for reasons of certainty in property distribution, this interest may not seem as strong in a different era. (26) Therefore a state with a long-standing criminal law against adultery may decide to abolish this law (27) or at least not prosecute it. (28) On the other hand, a state may determine that citizens have an interest in being free of unwarranted emotional distress and so may recognize new civil actions against those who intentionally, (29) and in some states negligently, (30) inflict severe emotional distress on others or create criminal prohibitions against certain types of activities that inflict such distress, such as stalking. (31)

   A corollary to the premise that prohibitions and punishments of certain acts should reflect the values that a society holds is that the severity of such punishments should also reflect a society's relative values on certain interests. For example, a citizenry's interest in having clean streets may not be as strong as its interest in being free from bodily injury, so littering would be punished in a much less harsh way than assault or murder would be.

   Unfortunately, as a society evolves and new crimes are continually added and few repealed, the end result may not seem consistent over time. Some laws currently in force may seem silly to modern citizens and may in reality not be prosecuted, or unfortunately, selectively prosecuted. In addition, the resulting array of punishments may not seem cohesive when certain crimes are compared to others. In the federal system, some estimate that there are currently over 4000 statutory crimes and as many regulatory criminal provisions promulgated by agencies. (32) Therefore, one would not be surprised if the punishments to 8000 violations or so did not precisely adhere to the relative values inherent in those prohibitions. This essay seeks to question whether the federal...