Where White-Collar Criminals Belong:
Jail
By Howard Gleckman WASHINGTON WATCH JANUARY 2,
2002
Crooks who defraud investors deserve the same punishment as the rest of the bad guys
-and the means exist to mete it out.
The collapse of Enron is the nation's biggest financial scandal since the
savings-and-loan failures of the late 1980s. What should be done about it? For one
thing, we need to rethink the role of auditors. And some lawmakers and investor groups
are calling for a new round of securities regulation. But they're missing the point.
More rules aren't the answer.
What we really need is better enforcement of the regulations already on the books. If
Enron's board, its top management, or its auditors did break any laws -- and it's
important to remember that there's no hard evidence so far that they did -- the best
response is a simple one: Put them in prison. It will, to borrow a phrase, discourage
the others.
Securities & Exchange Commission Chairman Harvey Pitt has the right idea when he says
the point of investor-protection laws isn't to bust crooks after they've ripped off
their victims, but to stop them from trying. To do that, state and federal authorities
need to send a tough message: Whether you're working out of teak boardrooms or
basement boiler rooms, if you do fraud, you'll do time. Says Indiana Securities
Commissioner Brad Skolnick: "The increased likelihood of jail time is the only thing
that will deter investment scams."
RARELY CHARGED. Unfortunately, this country has a long and sad history of
letting hustlers, stock market manipulators, and other white-collar con artists off
the hook. Unlike the lowlifes who smash windows and swipe CD players, crooks whose
weapon of choice is an annual report rarely go to jail.
Indeed, most white-collar criminals are hardly ever even charged with criminal
offenses. The SEC focuses nearly all of its enforcement efforts on civil actions. The
penalty, even for the most outrageous rip-offs, is rarely more than a fine or an order
to return money to the victims. Cases that are referred to prosecutors -- and most
involve crimes such as embezzlement rather than securities fraud -- are usually
dropped. More than 43% of those who are busted for fraud are never prosecuted,
according to Justice Dept. statistics. Prosecutors say the cases are too complicated
and a huge drain on their time and resources.
And law enforcers admit privately to another reason: Because those white-collar crooks
who are convicted serve little or no jail time, prosecutors have little incentive to
go through the effort required to get a conviction.
SHORT STAYS. Here are some more telling numbers from Justice. Overall,
convictions for white-collar crime fell by 7% from fiscal 1999 to fiscal 2000. Some
70% of those convicted of felony burglary in 1996 (the last year for which data are
available), went to jail, and the average stay was about 42 months -- or three and a
half years. But just half of those convicted of fraud in 1996 went to prison. And if
you did go, you'd get out, on average, in less than two years.
Even more striking is what happens to repeat offenders. In 1996, state courts were
twice as likely to send three-time burglary offenders to jail as three-time con
artists.
That's one reason why state courts actually see a higher percentage of repeat
scamsters than they do repeat burglars. By their nature, folks who do scams are
masters of risk analysis. And when you look at the cost/benefit ratio, it's clear:
White-collar crime pays.
LOWER PRIORITY. Post September 11, odds are that these criminals will beat the
system even more easily. The few big criminal securities-fraud cases that do go to
court are brought by the Justice Dept. But Attorney General John Ashcroft is
aggressively shifting resources to focus on terrorism. That means fewer prosecutors
will be available to bring these complex cases before judges and juries. And that's
going to send exactly the wrong message to those who would rip off unwary investors.
I don't know if the certainty of prison is going to stop a kid from robbing a
7-Eleven. But I'm willing to bet it will stop a guy in a suit from manipulating a
financial statement.
Gleckman is a senior correspondent in Business Week's Washington bureau.
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