October 25, 2006
Is Defending Skilling Defending the Indefensible
Posted by Christine Hurt

Obviously there was some back and forth in the blogosphere yesterday about Jeff Skilling's sentence:  Dave Hoffman (see my comments there); Larry Ribstein (responding to Dave); Ellen Podgor and Peter Henning; and Geoff Manne (with the best title).  Nancy Rapoport has an article on Jurist also impressively titled, "A Fish Called Jeffrey."  In blogging about Enron and in presenting my paper The Undercivilization of Corporate Law, I've found that when one speaks out in support of Skilling, Lay or other Enron defendants, one gets some "pushback" to say the least.  I've tried to sort out some of the arguments that get thrown out at the defenders of our modern-day indefensibles.

1.  The "How Can You Defend Fraud" Argument

In speaking out against Skilling's sentence, one might be disputing one or more very different findings by the court:

a.  What subordinates of Skilling are accused of doing is in fact a crime.  For example, that Andy Fastow's use of special purpose entities to line his own pockets was a crime.

b.  Skilling knew or turned a blind eye to subordinates, who were committing crimes that were explicitly or implicitly endorsed by him. 

c.  What Skilling himself is accused of doing is in fact a crime.  For example, that changing financials by one penny a share under fairly flexible rules is accounting fraud.

d.  That a jury can find that Skilling committed crimes or knew/should have known about the crimes of others based on the testimony of witnesses who benefitted greatly from so testifying.

e.  Willful blindness is a valid theory of criminal guilt.

f.  That the various prosecutorial tactics utilized in the Enron trial were just.

g.  That even if the practices is not just, they are warranted because the individuals eventually brought to justice are guilty.

h.  The sentencing guidelines justly calculate a sentence using important variables, including whether a defendant cooperates or shows remorse and whether the defendant utilized a sophisticated means for the crime.

i.  The harm done by Skilling's actions (or the actions of his subordinates) was $80 million.  Using recognized theories of causation and financial modelling, we know that the accounting fraud decreased shareholder wealth by $80 million.

j.  A 24-year sentence is proportionate to the crimes committed and will effectively deter would-be corporate fraudsters in the future.

I don't dispute all of those building blocks to the sentence, but I definitely don't agree with them all.  To applaud the sentence, I think I would have to agree with all of them.

2.  What About Drug Dealers? or Why Don't You Complain When Young Drug Users Get Sent Up the River?

I think this is a red herring.  First of all, I don't agree with the sentencing guidelines as applied to federal drug offenses, either.  The reason I don't write articles or blog posts about the injustices of the drug laws is because that is not my field.  I don't teach Criminal Law and don't have the time to get up to speed in every area of the law that seems inconsistent or unfair to me.  That may seem cold, but that's how life goes.  I'm outraged by a lot of U.S. laws and policies in various areas, but I leave the hard-core academic dissection of those laws and policies to others.

Second, I don't see a zero-sum game here.  If I defend Skilling's sentence, how am I ratifying the sentences of drug dealers?  Shouldn't those who hate the drug sentences jump on the "overcriminalization" bandwagon instead of sneering at us corporate geeks who came late to the protest party?  I think the strawman corporate law professor who is content to see young people put in federal prison for the rest of their lives for using or selling drugs does not exist.

Third, I do think that the current corporate misconduct cases highlight prosecutorial discretion abuses and disproportionate sentencing in a way that the less-publicized drug cases do not.  When a non-criminal law person hears about a lengthy sentence for what seems to be a smallish drug crime, then that person may rationalize the outcome in several ways.  Perhaps we might assume that there are facts not reported that support the sentence.  More likely, a person might assume that the reason for the extreme outcome is that the defendant was poor and without resources to successfully defend the case.  Even with the best public defender in the country, resources are still necessary for experts, scientific evidence, etc.  In addition, a person might also assume that the disproportionate outcome was the product of jury bias if the defendant is non-white.  Therefore, injustices in the prosecution of federal drug crimes might be categorized as socioeconomic and discrimination problems.  Because these problems are well-known and advocates highlighting these problems seem to have reformed the system as much as they ever are going to under current conditions, then outside observers may just shake their heads.  These stories may not prompt anyone to question basic prosecutorial practices and the sentencing guidelines.   However, when we see white, wealthy, educated, male business people receiving extreme sentences in cases in which we know all the business facts, corporate law professors may be inclined to say, "Wait, there must be something wrong here that is not just a product of unequal resources but something much bigger."

3.  If you are outraged about (white) white collar criminals receiving disproportionate punishments, then you are a victim of your own race and class biases.

Hold on there.  My friend Miriam Cherry writes at Prawfsblawg:  "Without being too banal, I suppose it boils down to social class, race, and the artificial abstraction of harm associated with white collar crime."  I guess this argument is an extension of the "why don't you speak up when drug dealers go to jail" argument.  If white collar criminals are white and drug defendants are black, then by being sympathetic to white collar criminals, we are showing our own preference for white guys.  Does this go back to Skokie?  If you want the NAACP and the ACLU to have free speech, then the KKK has to have free speech, too.  So, if you're outraged about young black people being sent to prison for smallish drug crimes because of the stupidity of the sentencing guidelines, then you can't be happy that a white guy finally feels the pain, too.  However, you might be able to see the silver lining -- now that white guys are feeling the pain, maybe more people will open their eyes to the injustices that affect everyone.

4.  Maybe if you had lost your retirement because of Jeff Skilling, then. . . .

I also don't buy this argument.  Yes, employees of Enron who had much of their retirement accounts invested in Enron stock saw all of that disappear.  No, they were not required to have their accounts full of Enron stock, but they were encouraged to do so by Ken Lay's statements and by the fact that the stock had risen quite high, making it look like an attractive investment.  Of course, we can say that no one should be that undiversified, particularly when your human capital is undiversified, but that fact was not being stressed to employees.  And, when the stock was plummeting, their accounts were frozen for a short but important time period.  And there were some employees who were historically employees of stable utility companies who were acquired by Enron who did not understand that their retirement plans were no longer in a stable utility company stock.  I think that what the leaders of Enron did was wrong and that the result for many people was horrible.  I can repeat all the finance theory that puts the risk of loss on the risk-takers (Why did so many people who were so close to retirement have so much stock in their accounts?  Many Enron employees also benefitted from the high stock price by selling.  Many Enron employees chose not to sell as the stock was on slow decline because they didn't want to pay taxes on the gains.)  All of that does not take away the pain of the loss.

However, we do have a civil system and a lawsuit that is underway to attempt to get compensation to the injured.  So, if I had lost my retirement because of Jeff Skilling, I would be a plaintiff in the civil lawsuit.  (And remember that anyone who was in the market in 2001 lost a significant portion of their retirement during that time.  My mother's retirement account was full of Texas Instruments stock, and she lost quite a significant portion of her account during that time.)  I have no problem with the financial penalties assessed against Skilling and hope that they eventually do make their way to the victims.  However, putting Skilling in jail does not replenish those retirement accounts.

5.  What Lay and Skilling did was just as bad as what serial killers do.

No it's not.  The penal code has long reflected the various values that we as a society put on certain types of property and liberties that we hold.  At the top of that list is life and bodily integrity.  Therefore, we have differing punishements for theft, theft in someone's home, theft with a weapon, and theft when someone gets killed.  Murder has always been at the top of any list and is the only class of crime for which the death penalty currently can be assessed (and then only a subcategory of murder).  From time to time, anomalous provisions will reflect an idiosyncratic value attachment, such as a Texas statute making it a felony to steal any part of a cow.  Cattle at one time were very valuable and therefore a stiff penalty was needed.  Are we now saying that we value retirement accounts over life or bodily integrity?  (I can see over a cow, but not over life or bodily integrity.)  If we are now saying that our greatest fear isn't death or bodily harm but that we will have to live without our retirement accounts, then maybe there's something really, really wrong about our society.  Maybe greed is not isolated to the executive suite.

"Lawstudent" commented to Dave's post with this:  "Could someone please explain why there should be a magic dividing line between violent and nonviolent offenses? To me, proportionality should be based on harm, not violence. Surely there are non violent harms that are greater than violent ones. I would rather be punched in the face than loose my life savings at mid life or retirement. In fact, I would probably rather be robbed at gunpoint for my pocket money than loose my life savings."

I think Lawstudent is making this argument.  And maybe in our lives where the threat of violent bodily harm or death is fairly abstract that the threat of losing money makes that possibility seem sharper some how.  Yes, I would take a punch in the face rather than having a $200k retirement fund drained.  (For economists, yes I would take $200k to be punched in the face.)  I don't think the second example is the same though.  Yes, I would let myself be robbed at gunpoint to save my $200k retirement fund if I knew that the robber would not shoot me.  However, I'm not sure that I would take $200k in order to put myself in a situation where a robber has me at gunpoint and the outcome is uncertain.  To put another way, if a robber has me at gunpoint, will I give $200k to get out of that uncertain situation?  We know that most people with no armed combat training give whatever they have to offer.

And, to finish the point, according to the Texas Penal Code, the punch is a Class A Misdemeanor and the aggravated robbery is punishable in a range of 5-99 years, not a minimum of 24 years.  No state crimes have that minimum according to the Texas Penal Code.  In fact, some crimes are capped at 20 years (all crimes besides first degree felonies).  So Skilling could not have been put in jail in Houston for over 20 years for manslaughter, murder under the influence of passion, trafficking children under 14 or other humans where death results, or having sex with a child.  He also could be sentenced to jail for as little as 2 years for any of those crimes.  (Obviously, if these crimes were against multiple people, then the penalties could run consecutively.)

O.K., I guess that's enough.  I better put on my Teflon armor. . . .

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