June 01, 2006

Information costs
Posted by Larry Ribstein

As I've said, one of the problems with criminalizing agency costs is that it diverts attention from the important task of finding out what actually happened. Criminal trials are about fastening guilt on particular people. While tremendous resources are being spent for and against this end, we lose the bigger picture – what really went wrong. The defendants have very strong incentives not to lay it all out. The prosecutors are lasered in on what they need to convince the jury of. Meanwhile our obsession with throwing a couple of people in jail obscures important potential lessons for the future like what was the legitimate part of Enron’s business and what, exactly, went wrong.

Conglomerate Forum: Enron, Enron

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Comments (4)

1. Posted by John Davidson on June 1, 2006 @ 8:31 | Permalink

what went wrong

anyone who has actually spent 2 weeks in the pits knows what went wrong. The supreme court decided Central Bank of Denver. The result was that accountants and lawyers could freely tell clients to break the law. People like Lay and Skilling bought such services,freely. Its pretty simple to understand the "my lawyer said it was ok defense" especially when no penalty attaches to the lawyer.

Any one who believes otherwise has to ask, why didn't these smart lawyers and accountants fail to mention United States v. Simon, 425 F.2d 796 (2nd Cir. 11/12/1969)

2. Posted by Jake on June 1, 2006 @ 22:11 | Permalink

Professor Ribstein's theory that "criminalizing agency costs" in the Enron matter "diverts attention from the important task of finding out what actually happened" is mystifying. Enormous time, effort, and money have been expended over the last five years to "find out what actually happened" with Enron. Fertile ground for law professors to plow, and they have not neglected the opportunity. Not to mention Congress, the class action bar, the SEC, the IRS and many other parties who have or are looking into the matter.

3. Posted by Lisa Fairfax on June 2, 2006 @ 7:40 | Permalink

I think I am with Larry on this one. Thus, while it may be true that as Jake points out we have more information--you have to wonder if it is complete or accurate given the context in which it was created. Moreover, one of the problems with using the criminal justice system to root out wrongdoing is that the system focuses on individuals. Thus, we tend to believe that we have resolution of the problems once those individuals have been "brought to justice." But prosecuting individuals not only diverts our attention away from the possibility that we have some structures that need to be re-examined, but also prevents us from engaging in that re-examination.

4. Posted by John Davidson on June 2, 2006 @ 8:39 | Permalink

TK at Houston's Clear Thinkers has a great post up today, "VE under the Enron microscope" It lays out the dope on how VE aided and abetted the fraud, as soon as Central Bank of Denver was decided.


There are some great posts around that explain the work done by Milberg Weiss to get around Central Bank (a touch ironic).

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