Enron Verdict

[August1991]

Why would we want a hodge podge of "private arbitrators" Where a little cash slipped into someone's hands could make decisions affecting others.

And this has never, ever happened with government? The difference is that corruption in one company gives you Enron, whereas corruption in government gives you Saddam Hussein.

*Thinking out loud* I'm not certain I agree that this case should have gone to court. Are Skilling and Lay really guilty of theft? Or are they guilty of merely misrepresenting the truth? If the latter, the best place to judge a corporate manager's behaviour is in the marketplace. Anyone who buys shares in a stock market should go in with their eyes wide open and an understanding that it is a risky place. I wonder whether a jury of 12 ordinary people can really reduce risk or provide more certainty to investors.

Furthermore, it appears that some people will go to jail following the Liberal Sponsorship scandal but I doubt any politician (ie. Jean Chretien) will. Yet, as opposed to corporations where shareholders voluntarily make investments, governments get their money through obligatory taxes. It seems to me that we are curiously lax where we should be strict and curiously strict where we should be lax.

If a store sells you a shoddy product, you are free to shop elsewhere. If a local elementary school teacher is incompetent, what do you do?

In the end, the jury just could not swallow the defense put forward by Enron's Ken Lay and Jeffrey Skilling.

The eight women and four men rendered their verdict after less than six days of deliberations in federal court and found former Enron chief executives Lay and Skilling guilty of fraud and conspiracy in the demise of the energy company that was once the darling of Wall Street.

Reuters

[BHS]

Excellent points, August.

[theloniusfleabag]

Those boys should be drawn & quartered. I read an interview with Mr. Haskayne, a philanthropic millionaire who donated a substantial amount of money to the University of Calgary. He was of the same mind, but perhaps not so extreme.

If the latter, the best place to judge a corporate manager's behaviour is in the marketplace. Anyone who buys shares in a stock market should go in with their eyes wide open and an understanding that it is a risky place.

Fraud is a serious charge. If one is led to believe that their investment is doing well, and that they should invest more, and they have no way of finding out otherwise, how can the individual be held in blame? The stock market numbers corroborated the Enron books, at least that is all anyone had to go on, and that is the same with every company (no one can conduct an audit on a huge company such as Enron to see if the 'product' being sold is legit).

The other message is that no company can be trusted, and no one should ever invest in one. A dangerous and unproductive way to do business. Caveat Emptor is one thing, but fraud is something else entirely.

[BHS]

The other message is that no company can be trusted, and no one should ever invest in one. A dangerous and unproductive way to do business. Caveat Emptor is one thing, but fraud is something else entirely.

Going into real estate?

[theloniusfleabag]

Dear BHS,

Going into real estate?

No, the hours suck. It is my understanding that a 'caveat' is a lien (mostly on real estate properties).

from...

http://www.century21.com/learn/glossary.aspx?term_id=184

Caveat

A formal notice, that asks a court to suspend action until the party which filed the challenge can be heard.

'Caveat emptor', on the other hand, is 'Let the buyer beware', which applies to a broader spectrum than purchasing items.

I spoke with one of my customers, who's specialty is corporate litigation. He told me "Yeah, it's fraud". This is because they posted their numbers publicly (and legally), and the numbers were false. Had it been simply a case of 'word of mouth' advertising, then caveat emptor could apply.

[August1991]

The stock market numbers corroborated the Enron books, at least that is all anyone had to go on, and that is the same with every company (no one can conduct an audit on a huge company such as Enron to see if the 'product' being sold is legit).

Thelonious, you can go ahead and have Skilling and Lay drawn and quartered (or more likely, they can go to jail for an eterenity) but I think this will be a much better incentive to reducing the chance of future Enrons:

Andersen's vast global accounting empire, which boasted 85,000 employees in 84 countries and more than $9 billion in revenue last year, lies in tatters after its U.S. arm was found guilty of obstructing justice in the Enron investigation.

Link

[Riverwind]

Thelonious, you can go ahead and have Skilling and Lay drawn and quartered (or more likely, they can go to jail for an eterenity) but I think this will be a much better incentive to reducing the chance of future Enrons...

Not really. I have personally met some pretty unethical CEOs who were more than happy to suck as much money as possible from a company and did not give a damn if it went bust because they would get a golden parachute and find a job elsewhere.

You cannot expect the average shareholder to police this kind of activity because the shareholders that have the time to learn enough about a business to evaluate the CEO's performance are usually denied access to most of the information that they would need to make an informed decision (i.e. we can't give you information because it would undermine our competitive position).

People on the board of directors could do a better job of monitoring CEOs, however, the public cannot depend on the board to do its job unless each individual is personally liable for the failure of the company (financially and/or criminally).

In short, it is naive to think that anyone running a large public traded corporation has an incentive to look after the interests of that corporation and the small shareholder. The gov't needs to step in and provide an incentive - the possibility of being drawn and quartered is about as strong as you can get.