As the Associated Press has reported, “Former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling were convicted [today] of conspiracy to commit securities and wire fraud in one of the biggest business scandals in U.S. history.” (Curious about what Stephen Bainbridge has termed the Left’s penal philosophy? Check out “Bend over Kenny-Boy” at Air America. Foul and cruel).
Securities Fraud? Read “Communism in Capital Markets” to find out what I think of that charge. Wire fraud? Observe what libertarian economist Pierre Lemieux has to say: “Mail and wire fraud are just manufactured crimes by the Surveillance State—crimes that do not exist in civilized countries. Fraud, defined in its politically correct, anti-business, catchall sense of today, has come to mean what the state does not like.”
But mainly, has intent been proven? Have the self-righteous prosecutors, preening for the cameras, proven beyond a reasonable doubt that the men at the helm of this once-fantastic corporation intentionally made predictions that didn’t pan out? Or that their exuberant optimism, which translated—if my recollection serves me—into aggressive bookkeeping, was intended to deceive and defraud?
Has this been proven? Hardly. Even so, as Bill Anderson has repeatedly maintained, cases like this belong in civil court.
As for the market, it certainly doesn’t need the prosecutors or the regulators. The market punctured the dot.com hype, and it did the same to Enron. If you recall, the saga began when Enron came up with an innovative way to trade energy. Soon, other companies got a whiff of the initial exorbitant profits, entered the same market, and competed away the Enron advantage, putting the squeeze on the company’s margins.
When the company emerged as no more than hedge funds and hot air, the same self-regulating market saw companies wooing the wary investor with open accounting practices, offering transparent, cash-flow-based financial statements, as well as vouching that their auditors do not double up as consultants, ala Arthur Andersen.
However, the people were angry, even though many of Enron’s employees had made the kind of money off the company you and I will not see in our lifetimes. They hoisted their pitchforks, and Bush responded with regulation first (The “Sarbanes-Oxley Act” aka the Corporate Corruption Bill), and prosecutions later. All very sad.