Thursday, May 25, 2006

Justice served and justice not served.

Today a Houston jury convicted Enron Founder Ken Lay and former C.E.O. Jeffrey Skilling of conspiracy and fraud in the biggest corporate financial scandal in American history.

The jury found that Lay and Skilling lied to cover up financial irregularities and business failures. The collapse in late 2001 caused the loss of over $60 billion in the stock market, including $2.1 billion in pension plans, much of it in the pension plans of Enron employees who were forbidden to sell their shares even as Lay, Skilling and other executives were dumping millions of dollars worth of their own shares. The collapse cost the jobs of thousands of Enron employees, as well as the employees of the accounting firm Arthur Anderson, which also went under as a direct result of the Enron scandal.

Four and a half years later, Lay and Skilling were convicted. But each is still free, pending appeals after posting a five million dollar bond. They will be formally sentenced on September 11 (ironically, not only the five year anniversary of the attack on America, but also very nearly the five year anniversary of when Ken Lay dumped more than $15 million worth of Enron stock, for which he was convicted of insider trading). Although today's verdict will certainly be appealed (these guys have the money to hire lawyers until the cows come home) it is likely that they will be sentenced at that time to quite a long time in jail.

So, finally, in that case, justice has been served.

But what of those for whom justice has been denied?

What of the thousands of Enron employees (as well as Arthur Anderson employees), at least some of who are still unemployed or because of their age are having trouble finding work (and are now subject to the tender mercies of a social safety net that has been shredded by Republican cuts)? People who did nothing other than go to work every day and work their tails off trying to make Enron successful. Will they receive justice in this case? Maybe satisfaction, if they watch Lay and Skilling go to jail, but the daily diet of sidewalk concrete and bill collectors isn't going to change.

What of the former employees who lost billions in the collapse as the stock price imploded? Many of those employees were essentially paid in Enron stock as a part of their salary-- and when they were prohibited from selling it, they were stuck with a worthless piece of paper. Any time you buy stock, you are advised that it is entails a risk. But what if that stock is part of your employment package? Should simply accepting a job entail a similar risk with money that you rightfully earn? I will agree that some of the employees who put more than the required proportion of their pension -- in some cases, 100% -- of their pension plan into Enron stock were foolish, but let's face it-- not everyone is an educated investor and it is not fair for us to assume that people will all be smart investors. This is one reason why the President's Social Security plan failed to catch hold with the public-- the purpose of Social Security is not to be an investment portfolio that carries any sort of risk at all, but to guarantee that people too old to work will at least have food to eat and a roof over their head. If they want more, then they need to provide it themselves, but it guarantees survival when wages are no longer coming in. A pension plan is similar, except that the expectation is that instead of having a subsistence level retirement as Social Security is designed to provide, a person who works for years at a job and earns a pension should reasonably expect to have a better-than-subsistence level retirement. But the Enron workers were in essence to watch daily in late 2001 as their own graves were dug and they could do nothing at all about it. But will they ever recover that loss? Not bloody likely.

What about the other investors in Enron who believed what they were told about the company? Everyone from individual investors to corporations to public pension plans? They lost tens of billions of dollars simply because they believed what they were given to read. Even the smartest investor is only as good as the information they have available. Anyone who is investing in the stock market has a right to feel confident that they are being told the truth. Again, the investors who lost money in Enron may have some satisfaction at seeing Lay and Skilling convicted, and they may also be feeling a little more confident after the shock of what happened by seeing some of the reforms that have since been made, but it is unlikely that they will ever see even a fraction of what they invested in full faith and trust restored.

What about the consumers and California and other states who paid millions in higher energy bills due to what we now know was an artificially manipulated market that Enron created when things started to get desperate for them? By creating energy shortages, they drove bills higher, caused many people there to suffer from rolling blackouts on the hottest days of summer, and put the change in the bank (which only delayed the inevitable).

What about the millions in contributions that Enron gave to campaigns? Obviously, the most visible beneficiary of this is none other than President Bush. The Center for Public Integrity, a Washington-based nonprofit group, said Ken Lay and his wife had given $139,500 to Bush's political campaigns over the years. Other Enron employees had given another $460,000. But it isn't just Bush. Many other politicians-- mostly Republicans but a few Democrats as well-- were beneficiaries of Lay's and Enron's largesse over the years. This raises a number of disturbing questions. First, do we have people in office today who were essentially put there by Enron? Considering the closeness of the 2000 election, the case can be made the President may very well only be there because of the small (in the general scheme of the election) but not insignificant edge given him by Enron. And there are others who the same question could be asked about. Second, how much influence does a C.E.O. or other boss have over political donations? I am an advocate of open records on campaign financing (and sometimes visit sites such as fund race and open secrets which give you information on who gave how much political money and to whom) and would never suggest that we do anything to limit access to this information. But everything has a price, and the price here is that it opens the door for an unscrupulous employer to pressure employees (even if just by means of subtle rewards) for giving money to a candidate, or perhaps in other cases, not giving money to a candidate. And even if the boss says nothing on the subject, those employees who want to 'suck up' to the boss and stroke his (her?) ego are more likely to donate money to candidates the boss approves of than disapproves of. A third disturbing question is this: Enron itself donated a ton of cash, not only to political causes but to all sorts of causes, even to the extent of buying naming rights to the Houston Astros' new baseball stadium. What business does a company in as much trouble as Enron have giving away that much money?

Justice was done today in the trial of Ken Lay and Jeffrey Skilling. But it almost certainly will never be done in the lives of all those who they destroyed.


brian said...

Just wanted to let you know that your caption comment on Shayna's blog was wonderful. Have a good weekend

Eli Blake said...

Thanks, Brian.

shrimplate said...

Bush will shamelessly pardon them. He may even do this before the sentencing... well, I wouldn't be shocked if he did.

Eli Blake said...

I doubt if he will do it before the September 11 sentencing, with the election only two months after that. He may do it not long after, or perhaps during the 'traditional' pardon period, when he is packing up his office after the 2008 elections (which might force them to spend two years in prison anyway.)