Friday, October 16, 2009

Surprising Turn in Enron Case by US Court

The US Supreme Court announced on 14th October that it would hear an appeal from Jeffrey Skilling, the former CEO of Enron who was convicted of fraud in 2006. This is a sign that the high court is considering curbing use of the “honest services” fraud statute to prosecute corporate corruption.
In fact, the idea that Skilling and other top executives at Enron did not benefit from the fraud personally is absurd. According to the government’s own indictment, “Between 1998 and 2001, Skilling received approximately $300 million from the sale of Enron stock options and restricted stock, netting over $89 million in profit, and was paid more than $14 million in salary and bonuses. The move is very surprising because the court had already agreed to hear two other cases involving the relevant law, which makes it a crime to “deprive another of the intangible right of honest services.” These include cases brought by former Alaskan legislator Bruce Weyhrauch and media mogul Conrad Black. The law has been frequently used to prosecute executives for corporate corruption. Generally when appeals in similar cases are already pending the court is to hold the later cases until the earlier ones have been decided.
As we know that the Enron collapsed into bankruptcy in December 2001, four months after Skilling resigned as CEO. This was the largest bankruptcy in US history. As per the facts Enron made fictitious earnings, by the insider dealings of Enron’s top executives. More than 20,000 workers lost their jobs and life savings as a result of Enron’s fall. The government showed anger over Enron and a series of further corporate corruption scandals by prosecuting a number of executives, including Skilling and Lay. Because Skilling was found guilty in May 2006 of 12 counts of securities fraud, five counts of making false statements to auditors, one count of insider trading, and one count of conspiracy. Skilling was convicted along with Kenneth Lay, the longtime chairman and CEO of Enron. Lay died in July 2006, and his charges were subsequently vacated. The rise of Enron in the 1990s was bound up with the deregulation of the energy markets, which the company was able to exploit in part thanks to its political connections. It was hailed as a poster company for the “new economy,” and when it collapsed it exposed the rot of much of American capitalism, based on fraud, speculation, and debt even much more.
Skilling’s lawyer Dan Petrocelli was arguing along similar lines in his closing arguments in 2006 said that if the government’s arguments were accepted, “We might as well put every CEO in jail.” The essential argument is that corporate wrongdoing is pervasive and should not be the subject of criminal prosecution. As the court has declined to hear some 2,000 cases filed for its fall term, including several that involve fundamental questions of democratic rights. However, the well-financed attempt by the former Enron executive to get out of prison is, for the court, deserving of a special hearing. The prosecutions were from the beginning conducted on a very narrow basis, intended to cover over the fundamental questions and leave the underlying roots of criminality intact. In particular, the prosecution and the media sought to deliberately obscure the deep political ties between Lay, Enron, and the Bush administration. In the course of the trial, the government made the concession that the fraud carried out by Skilling was not intended for private gain. Skilling’s lawyers are seizing on this admission in their appeal, arguing that the Supreme Court should rule that it unconstitutional to prosecute employees at private companies for fraud where no private gain is proven. They are also arguing that Skilling could not receive a fair trial in Houston because of the widespread hostility to Enron and its executives.
As per the brief filed in Supreme Court by Skilling’s lawyers states that, if broadly interpreted, the law has the effect of “impermissibly criminalizing whatever wrongful or unethical corporate acts a given prosecutor decides to attack.” Those who want to limit even further the ability to prosecute executives already attacked the honest services statute. In February, Justice Antonin Scalia wrote a protest over the court’s decision not to hear another challenge to the law, saying that it had “been invoked to impose criminal penalties upon a staggeringly broad swath of behavior.”
Scalia denounced the law for allowing “headline-grabbing prosecutors in pursuit of local officials, state legislators and corporate CEOs who engage in any manner of unappealing or ethically questionable conduct.”
If the court upholds a narrower reading of the fraud statute, it could have far-reaching implications. Attorneys for HealthSouth CEO Richard Scrushy and former Alabama governor Don Siegelman, for example, hailed the court’s decision. The two were convicted of corruption and insider dealing in 2006.
Justice Scalia’s dissent, which was vigorous even by his own muscular standards, seems to have had an impact. In the following months, the Supreme Court agreed to hear not one but two cases exploring the honest services law.” This will be the third Enron-related case the Supreme Court has decided. In 2005, the court reversed the 2002 conviction of Enron’s accounting firm, Arthur Andersen. The company had shredded vast amounts of paperwork after the initiation of the fraud investigation into Enron. In a unanimous ruling, the court said that jury instructions given by the judge were flawed. As Andersen had already declared bankruptcy, the government did not reprosecute the case.
Earlier this year, the court ruled that Enron broadband executive Scott Yeager could not be retried on some charges because he was previously acquitted on similar charges in another case.
Enron’s collapse reflecting that the company was not an aberration, but basic tendencies of capitalist development in the United States—including the immense growth of speculation and fraud, in which the accumulation of massive sums of money was largely or entirely divorced from actual production.None of those who are responsible for the crisis have been convicted. Indeed, many of these firms, the most powerful banks in the country, were also instrumental in facilitating Enron’s crimes. Far from being held to account, they are now doing better than ever, posting record profits and bonuses even as the conditions for millions of people continue to deteriorate. Even Obama administration, has not shown any interest in curbing the speculative activities of these individuals.

UAE May Have New Corporate Law in 2010

The new corporate law intended to ensure that the UAE’s listed companies exercise full transparency might be introduced in 2010. As UAE already have rules and regulations covering corporate governance. But the new proposed law will make it compulsory for listed companies to abide by all ESCA (Emirates Securities and Commodities Authority) rules and regulations.”
According t Mariam Al Suwaidi, deputy CEO for Issuance, Research and Legal Affairs at the (ESC), Spoke in the first Abu Dhabi Corporate Governance Conference, organised by the capital's Centre for Corporate Governance that the new law would be more transparent and seek full clarity from listed companies. Al Suwaidi said that there are some ambiguities in the current rules and regulations, and also with regards to the interpretation of some articles.

UAE is still at the stage where these rules are voluntary. The need for greater transparency laws for companies has been felt more acutely in recent times. The current crisis has underlined the need to reinforce good governance in the country. There are lots of companies adopting improved standards of corporate governance and all this shows a new culture is being created in the country.” UAE may also introduce a law to better protect foreign investors, amid an increase in civil court cases in the wake of the global financial crisis.

Strengthening the corporate laws in the UAE and increasing accounting transparency would enhance the UAE’s reputation as a safe financial and business destination to entrust investors’ money.