Hammer Falls On White-Collar Crime

2005 Was A Punishing Year For Scandal-Tainted CEOs

(AP) 
For judges considering the staggering harm done to investors and employees of these scandal-scarred companies, the sentences were not close calls, said Eric Chaffin, a securities lawyer at Seeger Weiss LLP and a former white-collar prosecutor in New York.

"The judges, when they really see the real victims and see that there's really strong fraud in these companies, they're going to make somebody pay the price," he said.

Some paid literally. A New York judge signed off on settlement deals that forced investment banks, auditor Arthur Andersen and former WorldCom officials to cough up $6.1 billion, much of it to be divvied among 830,000 investors and institutions who lost money in the accounting fraud.

That settlement included $25 million paid by former WorldCom board members out of their own pockets, and forfeiture of homes owned by Ebbers and former WorldCom finance chief Scott Sullivan.

And investment banks and former directors agreed to pay more than $7 billion in a similar settlement over the Enron collapse, including $13 million paid personally by 10 former board members.

But the year was not without at least one high-profile setback for government prosecutors, who had run up a winning streak worthy of the Harlem Globetrotters in securing guilty pleas and convictions in their crackdown on corporate crime.

In June, HealthSouth Corp. founder Richard Scrushy was cleared of fraud charges, despite the testimony of five former CFOs who implicated him in a $2.7 billion to inflate earnings.

"I'm going to go to a church and pray," announced Scrushy. "I'm going to be with my family. Thank God for this."

It was also a better year for Stewart, the celebrity face of the era of corporate scandal, who donned a poncho and walked out of a West Virginia prison in March after serving five months for lying about a 2001 stock sale.

After about half a year of house arrest, she roamed free again — and turned up in a daytime talk show and a spin-off of Donald Trump's "The Apprentice."

Lest anyone think the Enron trial marks a close to allegations of corporate wrongdoing, there were new cases to consider in 2005.

Phillip Bennett, the former chief of commodities brokerage Refco Inc., was accused of taking part is a conspiracy to sell $583 million in stock to the public based on falsified financial statements. He has pleaded not guilty.

And New York Attorney General Eliot Spitzer sued insurer American International Group, former CEO Maurice "Hank" Greenberg and an ex-CFO, accusing them of misleading investors and regulators about that company's finances. Greenberg retired from AIG in March, pressured by the board of directors amid regulatory probes.

"In my perception there is not a cooling off" by prosecutors and regulators, said Melinda Haag, who this year helped successfully defend former McKesson Corp. CFO Richard Hawkins against conspiracy charges in a 1999 alleged accounting scheme.

"It's obvious that law enforcement authorities still have a great deal of interest in corporate America and in policing corporate America," she added.

But the year will be remembered as a time of harsh reckoning for executives whose very names — WorldCom, Tyco, Adelphia — became synonymous with corporate greed, excess and fraud.

The moment was captured by Gino Cavallo, who worked for years at WorldCom and lost tens of thousands of dollars in retirement money in the fraud. He attended Ebbers' sentencing in July.

"The man's 63," Cavallo told reporters in a hallway outside the courtroom. "He's going to die in jail. How much sterner could you get?"