Paul's Criminal Justice Page

Paul's Justice Blog

 !! INTERNET EXPLORER USERS - IE is blocking a script for a scrolling navigation menu. Allowing the script improves website functionality !!

HomeReiman, The Rich Get Richer Corporate Fraud (Intro)

Getting Tough on Corporate Crime?

Enron and a Year of Corporate Financial Scandals

Jeffrey Reiman and Paul Leighton


This essay is published by Allyn & Bacon, and distributed as a supplement to Jeffrey Reiman's The Rich Get Richer & the Poor Get Prison, 6th ed (2001) starting in Winter 2003. 

Share this page: Enter e-mail address

Tough on Corporate Crime Intro + Huff and Puff and.. Do Little 
Hot Deals, Looting and Covering Up: Understanding the Frauds of 2002
Sarbanes-Oxley legislation & critique + Conclusion
Scoundrel Capitalism - Chart detailing the major wrongdoing

whole article as printable adobe.pdf

see 2004 update: A Tale of Two Criminals: We're tougher on Corporate Criminals, But They Still Don't get What They Deserve

“Why aren’t all of you in jail? And not like white-guy jail – jail jail. With people by the weight room going, ‘Mmmmmm.'"

Jon Stewart, on The Daily Show, discussing executives from Enron and their accounting firm, Arthur Andersen. quoted in Fortune, “White-Collar Criminals: They Lie, They Cheat, They Steal, and They Have Been Getting Away With It for Too Long,” [i]

The big crime story of 2002 was not the usual tale of murder and mayhem among the poor.  Though the murder rate went up that year—reversing a downward trend in homicides that started in the mid 1990s—the year’s crime story was a long and complicated saga of corporate financial shenanigans that caused a significant drop in stock market prices. Although the economic losses were widespread, Fortune magazine notes: “The not-so-secret dirty secret of the crash is that even as investors were losing 70%, 90%, even in some cases all of their holdings, top officials of many of the companies that have crashed the hardest were getting immensely, extraordinarily, obscenely wealthy.” [ii] 

At center stage was Enron, a multibillion dollar energy trading company, which declared one of the largest bankruptcies in history on December 2, 2001, with debts of over $31 billion!   Enron was subsequently accused of having perpetrated a massive “disinformation” campaign, hiding the degree of its indebtedness from investors by treating loans as revenue, hiding company losses by creating new firms with company capital and then attributing losses to them and not to Enron, and encouraging company employees to buy and hold Enron stock while its executives apparently knew of its shaky condition and were busily selling off their own shares.  Enron shares had fallen from $90 in September 2000 to $25 in September 2001, and would ultimately fall below $1 each, largely wiping out the pension plans of up to 20,000 employees. As Enron shares were tanking, Ken Lay, then CEO (whom Forbes calls, "Enron's Man Who Didn't Know Too Much"), was emailing concerned employees advising them to hold their shares and buy new ones.  Meanwhile, he himself cashed in $103 million of his own shares in the company. Jeff Skilling, Lay’s successor as CEO, cashed in $68 million, and Andy Fastow, the company’s chief financial officer, cashed in $32 million. [iii]

"If the president wants to make the case that his administration will not tolerate corporate wrongdoing, what better way than to indict his old friend and former Enron CEO, Kenneth Lay?"

Forbes, "Where Are The Indictments?" 8 July 2002


Why are we so willing to try juveniles as adults, and even execute them, because they are responsible for their actions, but so unwilling to apply high standards of personal responsibility for executives whose job is to run a company?

After 30 years of 'tough on crime' and mandatory sentencing schemes (even for 5 grams of crack) do we still not have decent laws to prosecute major financial crimes? 

Why, soon after the S & L crisis, did Congress go on a wave of “cavalier” financial deregulation, creating a “paradox of increasing financial deregulation coming on the heels of the most catastrophic experiment with deregulation in history” [Calivita, Pontell & Tillman, Big Money Crime: Fraud and Politics in the Savings and Loan Crisis

"civil forfeiture laws apply indiscriminately to property, regardless of the innocence of the owner, and render it subject to forfeiture if it is used unlawfully by anyone. Thus, the family home is fair game for forfeiture if a son, relative, or friend were to use it unlawfully--say, by using the telephone to arrange a drug purchase" [Cato Institute policy analysis]. But the assets of many CEOs - including Ken Lay - have not been frozen. [Additional asset forfeiture info from Drug Policy Education Group]

Enron turned out not to be an isolated incident and the list of companies touched by financial scandal soon included Tyco, Global Crossing, Quest, Worldcom, Xerox, Adelphia, MicroStrategy, ImClone and homemaker Martha Stuart, AOL-Time Warner, K-Mart and some major banks, such as Citigroup and J. P. Morgan Chase. Questions surfaced regarding President Bush’s sale of Harkin Energy shares right before bad news caused the price to fall; and other questions arose concerning the accuracy of the earning reports of Haliburton Oil for the years when Vice President Cheney was its CEO. [See Washington Post's Corporate Scandal Primer]

Investor confidence plummeted along with stock prices, and politicians tripped over themselves trying to appear tough on corporate crime. President Bush announced what he described as strict new measures and Senator Christopher Dodd (D-Connecticut) quickly said that Bush demonstrated a lack of leadership on the issue, although the Washington Post pointed out that Dodd himself had “led an effort in 1995 to limit shareholders’ lawsuits alleging fraud.” [iv]  Numerous other critics claimed that President Bush was too close to the problem to deal effectively with the wrongdoing: Enron had contributed about $2 million to Bush over the course of his political career (for a list of financial scandals matched to amounts contributed to the political parties by the suspect companies, see Citizen Work’s “Crookbook”). Congress passed the Sarbanes-Oxley Act, a more comprehensive bill than President Bush proposed, and one touted as the most sweeping financial reform since the Depression Era.  Federal agents did the “perp walk” with several handcuffed executives before the press and American public; but, considering the number of people and the amounts of money involved, arrests and indictments have been few.

These events will not surprise readers of The Rich Get Richer and the Poor Get Prison, which documents a large amount of serious but unpunished (or under-punished) white-collar crime, and the even larger amount of harmful white-collar behavior that doesn’t get labeled as crime though it takes more from people’s pockets than the crimes on the FBI’s Uniform Crime Index.  Harmful acts done by the executives of big corporations and their underlings are comparable in harm and evil to the street crimes people fear (see Chapter 2’s discussion with the Defender of the Present Legal Order, as well as the statistics in that chapter comparing criminal and noncriminal harms); but the criminal justice system “weeds out the wealthy” by either not including the harmful acts of businesspeople within the criminal code or, if they are made crimes, by not vigorously pursuing prosecution (see Chapter 3’s section “Weeding Out the Wealthy,” and the statistics in that chapter about who actually gets punished by the criminal justice system).   Should we view the recent “tough-on-corporate-crime rhetoric,” the new legislation, and the sight of executives in handcuffs as a sign that things are changing?


“Huff and Puff and . . . Do Little": Congressional Response to White Collar Crime

As we begin to answer the question about whether the U.S. is truly getting tough on corporate crime, it is necessary to note that what is at issue is not merely whether white-collar crimes are being punished adequately.   As The Rich Get Richer and the Poor Get Prison argues at length and with an avalanche of statistics, great if not greater threats come from those harmful acts of corporate execs that are not technically crimes.  The so-called “questionable bookkeeping” and “misstatements” that Enron and others engaged in were not mere technical rule violations without real victims.  One important consequence of the current spate of corporate crime and financial trickery is the elimination of many people’s retirement nest eggs, forcing many older people to put off retirement and many retirees to go back to work:  “In this age of the 401(k), when the retirement dreams of middle-class America are tied to the integrity of the stock market, crooks in the corner office are everybody’s problem.” [v]  Other families had college tuition money tied up in stocks, along with their dreams of a more comfortable future.

The problem is twofold.  There are the “unsavory” or “unethical” but not illegal practices that cause harm to many, and there are the white-collar crimes which are either not punished or, if punished, only lightly so.  To be sure, the Savings & Loan scandal, as the Watergate scandal before it, did lead to some toughening of white-collar crime sentences, and some crooks responsible for the S & L scandal went to jail much as some of today’s white-collar crooks will end up in jail.  On the whole, however, these are few and far between, and their presence on the front page or on the nightly news should not fool us.  They are the exceptions that prove the rule, and the rule is: the rich get richer and the poor—not the rich—get prison.  As a Fortune magazine writer put it recently:

Before Enronitis inflamed the public, gigantic white-collar swindles were rolling through the business world and the legal system with their customary regularity.  And though they displayed the full creative range of executive thievery, they had one thing in common: Hardly anyone ever went to prison. [vi]

Even in the highly publicized S & L scandal, few executives actually went to prison in spite of the first President Bush’s promise: “We aim for a simple uncompromising position. Throw the crooks in jail.” [vii]  And, for those who did go to prison, the average term was 36 months, compared to 56 months for burglary, 38 months for car theft and 65 months for drug offenses (see Chapter 3 of The Rich Get Richer and the Poor Get Prison for statistics on the treatment of S & L crooks compared to that of lower class criminals; see there also “The Savings and Loan Roster,” for a list of some “outstanding” S & L criminals and their fates).  

The fact is that corporate crooks have something that poor crooks lack, namely, political clout.  Attempts by the U.S. Sentencing Commission to propose stiffer sentences for corporate wrongdoing in the 1990s were met with powerful and well-funded lobbying efforts, with the result that proposed penalties were significantly softened.  In 1984, Congress established the U.S. Sentencing Commission to help create guidelines that would make federal sentencing more certain and uniform in criminal cases. The guidelines are in the form of a grid that judges use to plot both the severity of the offense and the nature of an offender’s past record to find an appropriate range for the sentence. The first set of guidelines issued in 1987 did not address corporate crime, although the 1990 ones did.  However, after a “steamroller of business lobbyists” greeted the 1990 guidelines, the Commission released a revised set of guidelines where the potential fines were “slashed,” mitigating factors were given more weight and aggravating factors (such as a prior record) were removed from consideration.  An offense that under the original plan carried a penalty of $64,000 carried, after lobbying, a suggested penalty of $17,500; another was revised down from $136 million to $580,000; and the maximum fine went from $374 million to $12.6 million. [viii]  Then Attorney General Thornburgh, who had called fighting “crime in the suites” one of his top priorities, “withdrew the Justice Department’s long-standing support for tough mandatory sentences for corporate criminals following an intense lobbying campaign by defense contractors, oil companies and other Fortune 500 firms.” [ix]

In March 2002, after the disclosure of Enron’s bankruptcy, but before a wave of other frauds was revealed, Fortune magazine observed: “The double standard in criminal justice in this country in this country is starker and more embedded than many realize. Bob Dylan was right: Steal a little, and they put you in jail. Steal a lot, and you’re likely to walk away with a lecture and a court-ordered promise not to do it again.” [x]

Consequently, to know if things are really changing, we need answers to three questions:  Are previously noncriminal but harmful corporate practices being made into crimes?  Are existing crimes being given tougher sentences?  And are the individuals convicted of corporate crimes getting the sentences that the law provides?  Neither past experience nor current clues give much ground for optimism.  An article in Business Week cautions us not to expect too much from Congress this time around.  Entitled “Congress Will Huff and Puff and . . . Do Little,” the article states,

the savings-and-loan scandals produced prosecutions and a regulatory overhaul.  But the S & L crisis was as much an accounting debacle as Enron is—and the accountants got off scot-free. . . .  Shrugging off their profession’s dismal performance, accountants successfully dodged reforms—despite a hue and cry that included televised congressional testimony by former S & L exec Charles Keating.  At the end of the day, “the S & L scandal did not result in any reforms—it resulted in just the opposite, a so-called reform act that made accountability less important,” notes Melvyn I. Weiss, a prominent securities lawyer  representing plaintiffs. [xi]

And a recent article in the Washington Post notes that Congress is already losing its zeal to correct the flaws that led to the Enron debacle.  Jonathan Weisman wrote in September 2002,

The recently devastated retirement accounts of employees from Enron Corp. and WorldCom Inc. initially fueled a wave of indignation among lawmakers in Washington and solemn vows to protect their investments.  But the anger that pushed tough new accounting standards past corporate opponents this summer has already faded [by September!], lawmakers and lobbyists say, allowing businesses to regain their strength on Capitol Hill. [xii]

Hot Deals, Looting, and Cover-ups: Understanding Corporate Fraud  [next page>

Sarbanes-Oxley legislation & critique + Conclusion [part 3]

Scoundrel Capitalism - Chart detailing the major wrongdoing

Wall Street Sees Chance To Put Off Reforms: Pitt's Departure, GOP Win Prompt Go-Slow Sentiment (Washington Post 11/8/02)

SEC in 'largest fine ever' fined Worldcom $500 million to settle all wrongdoing. See "Worldcom Stockholders Owe SEC Thanks for Almost Nothing" Washington Post 26 May 2003 E 01. "The $500 million comes to something like one-350th of the roughly $175 billion lost by investors on the stock and bonds. The $500 million is not only a pittance, it's also a pointless penalty that takes money out of the pockets of some MCI victims and puts it in the pockets of others." 


Additional Reading

Avaleso, Anne and Stephen Tombs, “Working For Criminalization Of Economic Offending: Contradictions For Critical Criminology?Critical Criminology: An International Journal 11, no. 1 (2002).

Barak, Gregg, Jeanne Flavin, and Paul Leighton, Class, Race, Gender and Crime  (Los Angeles: Roxbury, 2001).

Calavita, Kitty, Henry Pontell and Robert Tillman, Big Money Crime: Fraud and Politics in the Savings and Loan Crisis (Berkeley: University of California Press, 1997).

Cassidy, John, dot.con: the greatest story ever told (New York: HarperCollins, 2002).

Grabosky, Peter, Russell G. Smith and Gillian Dempsey. Electronic Theft. Cambridge U Press 2001. 

Korten, David, When Corporations Rule the World (West Hartford: Kumarian Press and Berrett-Koehler Publishers, 1995).

Simpson, Sally, Corporate Crime, Law and Social Control (Cambridge: Cambridge University Press, 2002).

Weisburd, David and Elin Waring, with Ellen Chayet. White Collar Crime and Criminal Careers. Cambridge U Press 2001. 


[i] Quoted in Clifton Leaf, “White-Collar Criminals: They Lie, They Cheat, They Steal, and They Have Been Getting Away With It for Too Long,” Fortune (March 18, 2002), p. 62 

[ii] Mark Gimein, “You Bought. They Sold,” Fortune (September 2, 2002), pp. 64-65.

[iii] Peter Behr, “Chairman Told Workers Stock Was ‘Bargain,’” Washington Post (January 19, 2002), pp. A1, A6; Daniel Altman, “Enron Had More Than One Way to Disguise Rapid Rise in Debt: Billions Were Listed as Trades Instead of Loans,” New York Times (February 17, 2002), pp. 1, 26; Peter Behr, “Skilling to Face Senators, Accusers,” Washington Post (February 26, 2002), pp. A1, A10; and Gimein, “You Bought. They Sold,” p. 68.

[iv] Dana Milbank, “A Roaring Bull Market in Political Trading,” Washington Post (July 10, 2002), p A8

[v] Leaf, “White Collar Criminals,” p. 64.

[vi] Leaf, “White-Collar Criminals,” p. 62

[vii] Calavita, Kitty, Henry Pontell and Robert Tillman, Big Money Crime: Fraud and Politics in the Savings and Loan Crisis (Berkeley: University of California Press, 1997). p. 131.

[viii] Amitai Etzioni, “Going Soft on Corporate Crime,” Washington Post (April 1, 1990), p. C3.

[ix] Michael Isikoff, “Justice Dept. Shifts on Corporate Sentencing,” Washington Post (April 28. 1990), p. A1.

[x] Leaf, “White-Collar Criminals,” p. 63.

[xi] Gary Weiss, “Congress Will Huff and Puff and . . . Do Little,” BusinessWeek (February 25, 2002), p. 116.

[xii] Jonathan Weisman, “Efforts to Restrict Retirement Funds Lose Steam: Indignation Wanes as Congress Considers Limits on Company Stock Holdings,” Washington Post (September 7, 2002), p. A1.

Rich Get Richer Main Page

Resources Chapter 1 Chapter 2 Chapter 3 Chapter 4 Conclusion
Students Summary Summary Summary Summary Summary
Professors Exercises Exercises Exercises Exercises Exercises


Search Web Search Search

Support this site

Amazon Hostway

Copyright © 2000 - 2010 Paul Leighton. Permission is freely given to link to these pages or use them for non-commercial purposes, including distribution of printed copies at or below cost. For other uses, please contact the owner