In Enron's Wake: Corporate Executives on Trial

Abstract

The post-Enron fraud prosecution cycle has put an unparalleled number of corporate executives on trial in roughly three years. While guilty pleas and cooperation agreements have been strategically significant in developing these cases, the number of CEOs, CFOs, and other senior managers who have gone to trial belies critics' assertions that mid-level managers who plead guilty become scapegoats, while their superiors go scot free.

This article addresses a broad array of questions about these trials. Drawing on data I compiled on major corporate fraud cases that went to trial between March 1, 2002 and January 31, 2006, the article tracks twenty-three prosecutions arising out of scandals at seventeen major companies and firms. The data set is incorporated into the article as Appendix 1: Corporate Fraud Trials, March 2002-January 2006.

The data provide a baseline for examining which cases have gone to trial, who has been tried, and what the outcomes are. Does the government enjoy a high degree of success at trial, or are high-profile executives more likely to win juries over to their side? En route to evaluating how well prosecutors have fared, the article explores the prevalence of multi-defendant trials and the frequency and significance of split verdicts in those trials.

The article then turns to cases that have ended in mistrials. It considers whether mistrials have been a source of major government setbacks by examining how often mistrials are declared, why some trials came to an end before the verdict was in, and whether prosecutorial decisions to dismiss or retry a case after a mistrial are a reliable gauge of the relative strength of the case.

The corporate fraud trials provide a unique opportunity to gain insights into the dynamics of high profile white collar prosecutions and to tentatively assess what seems to work (or not) and why. Although at first glance the trial results seem surprisingly mixed, the article finds that the government enjoys a respectable, if not spectacular, conviction rate; that prosecutors, ever confident of the underlying merits of cases that end in mistrials, are far from reluctant to retry them; and that the government's willingness to shift strategies to secure convictions after mistrials has paid off handsomely to date.

Keywords: acquittal, CEO, charging practices, complexity, conviction, cooperating witness, credibility corporate fraud trials, Enron, executives, guilty plea, Ken Lay, mistrial, prosecution, retrial, trial, verdict