June 02, 2006
Alternatives to Incarceration?
Posted by Matt Bodie

Several commenters have expressed some concern about the severity of criminal sanctions for Lay & Skilling's actions.  My question is then: what punishment would be appropriate?  Are the civil sanctions sufficient?  Larry believes they are enough: "[C]onsider the other deterrence mechanisms we have at our disposal – crushing civil liability, loss of a prestigious job and livelihood, the destruction of a hard-earned reputation. Petty crooks and drug dealers don’t worry a lot about these things, but corporate executives do." 

But is the civil liability really "crushing"?  Can't most of these folks survive the damages and fines and live fairly comfortable lives after that?  And sure, your reputation is hurt, but having your freedom and millions still in the bank probably eases the pain.

For me, one of the most important aspects of the criminal conviction is the loss of the bankruptcy homestead protection.  Perhaps you've seen pictures of Skilling's gated mansion -- his "homestead."  Under Texas bankruptcy protections, Skilling and Lay could shield their homes from repossession to pay outstanding judgments.  However, housing is only protected up to $125,000 if you've been convicted of securities fraud.  I'm not sure if this new provision is retroactive, but sanctions like this actually put some bite into non-incarceratory punishment.

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