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Source link: http://archive.mises.org/5195/is-ken-lay-really-a-criminal/

Is Ken Lay Really a Criminal

June 19, 2006 by

Yes, Enron employees lost their paper millions when the stock crashed, but so did Skilling and Lay. There is no evidence that Lay was secretly selling all or most of his stock in hopes that he could jump ship and swim to the proverbial Caribbean island to live his last days in splendor. Still, the government stepped in and stripped these people of their freedom and relieved them of their money, too. Stockholders will get nothing. FULL ARTICLE

{ 15 comments }

edhopper June 19, 2006 at 7:38 am

Did you even follow the trial?
No he did not sell “most or all” of his stock. But he sold a lot of it while telling his employees to buy more. Under Skilling and Lay, Enron became a criminal enterprise of market manipulation and accounting fraud.
Yes he is a criminal, and a jury confirmed it.

tom June 19, 2006 at 9:55 am

Great article! These high profile cases are like the show trials held by Stalin in the former Soviet Union.

The oppressive laws of the Soviet Union were such that every person was always in a state of illegality. It was, therefore, an easy matter for the state to proscecute those that it found undesirable for whatever reason.

US financial law is in a similar state. No one is certain before the fact whether an action is in violation of the law. Only ex post, will one find out that the law has been broken. Lay and Skilling, along with other executives, were scapegoats for the finanicial bubble created by the government’s central bank.

Another interesting issue has to do with plea barganing. It appear to me that a good way to clean up the US legal system would be to illiminate plea barganing. Every case should go to trial. This, of course, would be a costly reform, but money well spent. I think the government would oppose this even if fully funded, because then it would deprive them of scapegoats and their ability to get rid of “undesirables”.

Harry Valentine June 19, 2006 at 10:38 am

What’s been happening in America in regard to seeking scapegoats to cover up government economic trickery is nothing short of deplorable. It speaks volumes about the standards of morality being upheld by people connected to the US government. Bureaucrats and state officials almost never acknowledge their role in causing economic upheavals. The standard of morality of seeking scapegoats for the errors of government was set by the Fuhrer. His legacy evidently lives on as government officials seek scapegoats to prosecute for the economic errors of the state.

Max Chiz June 19, 2006 at 10:40 am

minor nit:

>the mens rea standard should apply here, but prosecutors (and the jurors) decided that getting popular convictions are more important than applying the bedrock standards that for centuries separated the English and US legal systems from those based upon some form of Justinian (and later Napoleonic) code in which defendants are assumed guilty until proven innocent and law is reduced to rules passed by legislators solely to protect and promote the power of the state.

The Napoleonic code was a strictly “civil”. You are probably referring to the French Penal Code of 1810 and the 1808 Code of Criminal Instruction.

While I am not able to read French, and therefore only know the contents of these codes second hand, what I have read leads me to conclude that while mens rea was not a component of a criminal act, there was a presumption of innocence in the sense that the burden of proof was on the prosecution. Furthermore, at the time those codes were passed, they provided unprecedented legal protections for the accused including the first requirement that the court provide indigent defendants with an attorney. Finally, they were much more liberal than they are given credit for. There were no religious crimes or other crimes of “despotism and superstition”. The crimes that were left tended to have a very libertarian slant to them (it mostly focused on violent crimes like murder, theft, etc). For example blasphemy, heresy, sacrilege, witchcraft, incest, beastiality, and same-sex intercourse all seem to have been decriminalized.

Don B June 19, 2006 at 10:43 am

While I might not give Ken Lay the pass the Mr. Anderson seems to, it does seem that it was largely a show trial, though not the complete sham of the M. Stewart trial. But, more importantly, whether Lay was the bad guy or not, it was corrupt government policy that created his opportunity, and the perceived need, for fraud and manipulations on the part of Enron and Lay. Take away the Fed, and the corporate and capital gains taxes, and there would never have been either motive or opportunity for Enron’s game. If Lay belongs in prison, then so do Greenspan and most of Congress.

Max Chiz June 19, 2006 at 10:55 am

Another feature of the Code of Criminal Instruction that may shed some light on the attept to protect defendants rights is the inquisitorial system.

When a crime was committed, the prosecutor would file a motion with a Juge d’instruction requesting that he open in investigation into the crime. Durring the investigation the judge would hear motions from both the defense and the prosecution reguarding the investigation. Based on those motions he would order the police to interview witnesses and search scenes. If the investigation revealed enough evidence the judge would order a jury trial

The intention was to avoid the sorts of abuses common in the grand jury system, and to interpose an independant judge between the prosecutor and the investigator of the crime so that the investigator could remain objective (as he would be gathering evidence for both sides). While I’m not sure how well adding yet another government agent works in practice, the INTENTION of the system was to keep the police and the courts as objective as possible.

Michael June 19, 2006 at 10:59 am

With all due respect to William Anderson, with whom I agree about 99.95% of the time, Ken Lay was running a fake trading floor to fool analysts and investors. That’s the kind of behavior which may be acceptable under an anarchocapitalist society, but is that the kind of behavior we want to be defending? For details on the fake trading floor: http://www.click2houston.com/news/1248368/detail.html

Some highlights:

According to former Enron employees, on the sixth floor of the company’s downtown headquarters was a set, designed to trick analysts into believing business was booming.

“It was an elaborate Hollywood production that we went through every year when the analysts were going to be there to be impress them to make our stock go up,” former employee Carol Elkin said.

Elkin worked for Enron for five years as an energy analyst. She was once even commended by then-Chief Executive Officer Jeffrey Skilling.

Elkin said that the phony trading room was staffed by her and other employees to resemble a real trading operation.

“They would build out the sixth floor of 1000 Smith in what I called a Hollywood set,” Elkin said. “They would build out a set with a big, 36-inch flat panel screens and the teleconference conference rooms.”

Elkin said that it was all an act, and that no trades were actually made there. The people on the phones were talking to each other.

“They would ask us to go alternately, in like hour shifts down to the sixth floor,” Elkin said. “And sit and pretend that we lived and worked there.”

Elkin said that it fit the company’s culture that Enron couldn’t just be a good company — it had to appear at least, to be the best, even if the truth was all smoke and mirrors.

As a humorous aside, that same woman in the above excerpt “is now one of many employees that are suing Enron, hoping to recover 401k savings that were lost when the company collapsed.” I feel SO sorry for her, let me tell you.

Don B June 19, 2006 at 12:00 pm

Monetary debasement is a societal malefactor on many levels; nothing brings out the greed in people like a little inflation.

tom June 19, 2006 at 12:06 pm

I think the “fake” trading floor, where it is said, “the phony trading room was staffed by her and other employees to resemble a real trading operation”; and “Elkin said that it was all an act, and that no trades were actually made there” seem to be in conflict with other reports.

For example, it appears as if the trading floor was real and operational, but “Employees were ordered to act as if they were making deals for a 1998 annual analysts’ conference, months before the trading centre was ready.”

“Then Enron chairman, Kenneth Lay, and the firm’s ex-president, Jeffrey Skilling, led a rehearsal the day before the charade.”

And to the point that “no trades were actually made there” there is this: “Despite the mirage, the deals EES ultimately executed were legitimate.”

“‘EES went on to successfully close a great many profitable deals, so in hindsight the temporary ruse seemed OK in the end and bought us some time to really develop our infrastructure,’ Joseph Phelan, an ex-director of EES, told Reuters.”

“Though it was ultimately profitable, EES in 1998 was very small and deals were few and far between.”

“EES promised to manage the energy needs of large industrial customers for a fee, and eventually signed several major companies in deals worth over $1bn.”

And finally from the BBC, “Although the deceptions allegedly practised at EES were not illegal, they are seen as part of a culture of dishonesty that culminated in the misleading accounting that ultimately brought the firm down last year.”

So, the “fake” trading floor was real. Trades did take place. The allegations were not illegal. “Rehearsals” took place before the trading floor was operational, which is alleged to dupe analysts for a “1998 annual analysts’ conference.”

Sources:
http://www.guardian.co.uk/enron/story/0,11337,653726,00.html

http://news.bbc.co.uk/1/hi/business/1833221.stm

M E Hoffer June 19, 2006 at 3:04 pm

As a compare and contrast, would that it be that the MSM could find the same vitriol for FNM as they have for ENE…

“Fannie Mae” and the other GSEs deal in #’s that Lay and Skilling only dreamt about, let alone dreamt up…

http://www.opednews.com/articles/genera_alex_s_g_060616_america_92s_fannie_has.htm

Vivek Sagar Minocha June 20, 2006 at 12:23 pm

It’s a thought-provoking article. Let me pose two questions: 1. What is a jurisdically proper borderline between a criminal and a civil offence? 2. Is it not true that governments the world over, including India and the US, indulge in politically correct but essentially unsound fiscal policies and succeed in diverting the public gaze toward the monetary authority?

Bill Small Investor June 20, 2006 at 7:03 pm

The oddest thing about this case is the number of people buying Enron stock for 401Ks and other investment without the slightest bit of diversification. And these folks were TRADERS? No wonder the company crashed and burned and they lost tons. I realize that some of the folks were secretaries and what not but still, the traders should help their less trained counter parts. Wouldn’t you think so?

Person June 20, 2006 at 7:29 pm

Is it physically possible to begin investing without being warned against putting all your eggs in one basket? An on a similar note, why did unions in the 50′s demand retirement pensions to be paid from future earnings? I mean, if you’re going to extort concessions from your employer, why not something that has value? Exponentially growing pension obligations make it so that it has to exponentially increase profitability, plus you put all your eggs in one basket. Why not ask for a raise and invest it?

Patrick Barron June 21, 2006 at 8:28 am

Now David Safavian is the latest victim of the show trials sweeping the nation. Read as you might what crime he committed but all you will find is that he lied and misled investigators about his full relationship with Jack Abramoff. Just what constitutes lying? Well, Martha Stewart was convicted of lying for saying that she was innocent. Nice, huh? And just what constitutes misleading investigators or failing to fully cooperate? Safavian left a paper trail a mile wide that he was considering joining Abramoff and others on a golfing trip to Scotland for which he reimbursed Abramoff to the tune of $3,100. Sounds like a reasonable price to me for airfare, room and board, and couple rounds of golf. As Professor Anderson asks, where’s the mens rea?

John Powers June 22, 2006 at 1:06 pm

At about the same time that Enron was going into bankruptcy, other companies in similar industries were also having financial problems. Dynergy and Williams also saw shares drop about 95% of their value. However, the CEO and CFO of those comapnies are not going to prison. What is the difference? I suppose:

1) Dynergy and Williams were not written up in the press for having “caused” California’s electricity “crisi”. Enron drew the vendetta of many irate California lawmakers.

2) Enron declared bankruptcy, literally wiping out pension and 401k savings (rather than just losing 95% of it). As long as some value remained, the authorities have decided that there must not be criminal enterprise. Bankruptcy is perceived as some kind of code word for criminality.

I second the above. Everything is illegal in business. You just haven’t been charged yet.

JBP

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