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U.S.: Trials Open For Three U.S. Executives In Continuing Corporate Scandals

  • Andrew Tully

The U.S. government has begun trials of three prominent business executives on charges that have shaken Americans' faith in their country's corporate culture. But some wonder whether they are simply "show trials," or a sincere effort by the government of U.S. President George W. Bush to crack down on corporate malfeasance.

Washington, 30 September 2003 (RFE/RL) -- Two prominent business executives went on trial in the United States yesterday on charges of illegally using hundreds of millions of dollars of their company's money for their personal use.

A third man -- a banker who made millions by overseeing investments during America's so-called dot-com era -- went on trial separately yesterday on charges of ordering subordinates to destroy documents being sought by investigators.

The two trials are the most prominent so far in a campaign by the U.S. Justice Department to crack down on corporate malfeasance, which has badly strained the confidence of investors at a time when the U.S. economy is struggling.

Some observers say they worry that these and similar cases may be merely "show trials" -- efforts to restore confidence in the American corporate system by making it appear that the administration of U.S. President George W. Bush will not tolerate executives who loot their companies.

These observers note that American executives recently charged with corporate crimes were arrested and led off in handcuffs before television cameras. They note that such men are not dangerous criminals, and that the Justice Department is unnecessarily dramatizing their cases.

Melodrama or not, however, these cases are legitimate and are being prosecuted in an appropriate fashion. That's according to Lawrence Mitchell, a professor of law at George Washington University in Washington and author of the book "Corporate Irresponsibility: America's Newest Export."

"I don't think these are show trials at all. These guys did bad stuff. They got caught. And I think that they would have been tried really under any other set of circumstances historically, as well," Mitchell said.

In an interview with RFE/RL, Mitchell says the damage they did to their companies, and to investor confidence, is deserving of public trials and the disgrace that goes with them.

Another law professor, Herman Schwartz at American University, also in Washington, says for that very reason -- public disgrace -- these are show trials. In an interview with RFE/RL, Schwartz says that in a democratic society, show trials are not necessarily meant to protect the state by punishing wrongdoers, but to serve as a deterrent to others.

"Yes, these are show trials, but that's not wrong, because part of the purpose of enforcement is what we call 'general deterrence,' to deter other people [from committing the same crime] as well," Schwartz said.

Perhaps the more prominent of the trials involves Dennis Kozlowski, who once rode high as the chief executive officer of Tyco International Limited. He is on trial in New York with Tyco's former chief financial officer, Mark Swartz, on charges of spending corporate money on themselves without the knowledge of Tyco's auditors and board of directors.

In one case, Kozlowski is accused of spending Tyco funds on art and furniture, including a $6,000 shower curtain and a $15,000 antique umbrella stand. He is also accused of having Tyco pay half the cost of a $2 million birthday party for his wife on the Italian island of Sardinia.

Prosecutors say Kozlowski and Swartz also had themselves paid $84 million in questionable bonuses.

The defendant in the second trial, also in New York, is Frank Quattrone, who earned tens of millions of dollars with the international bank Credit Suisse First Boston to bring public investment to the booming technology companies during the 1990s.

The government says Quattrone suggested that the bank's employees destroy documents needed into an investigation of whether the bank was giving preferential treatment to some investors in new stocks whose value was expected to rise quickly.

Kozlowski and Swartz each face up to 30 years in prison if convicted of all counts against them. Quattrone faces 25 years in prison if convicted of all counts.

Mitchell says such prison sentences are appropriate for executives convicted of corporate crime. The law professor notes that so-called "common criminals," such as drug dealers, routinely face similar sentences for crimes involving only small fractions of the sums involved in these two cases.

"My understanding is that if you're a relatively minor drug dealer, that 30 years is going to happen pretty quickly, and that's without the kind of massive financial damage these guys have done. I think it's about time that white-collar criminals started getting punished like other criminals," Mitchell said.

Executives convicted of financial crimes routinely serve their terms at minimum- or medium-security prisons. Cynics say these prisons are hardly more restrictive than university campuses.

Some commentators suggest that executives convicted of massive fraud should be sent to maximum-security prisons like the notorious Attica Correctional Facility in the eastern U.S. state of New York.

Both Mitchell and Schwartz agreed that "hard time" -- a sentence served at a prison housing hardened criminals -- would be overly punitive for people not convicted of violent crimes, regardless of the financial implications. Mitchell says a judge passing sentence must -- as he put it -- "take sociology into account."

"Hard time at Attica -- I don't think that's really necessary, hard time for anybody [involved in these cases]. For ordinary people who are not used to being in and out of prison, that kind of thing is pretty horrifying," Schwartz said.

Most legal observers also agree that none of the three defendants in these two criminal cases is likely to face the full 25 or 30 years in prison, even if convicted on all counts. Mitchell says that in the current climate, that would be regrettable.

"I believe the deterrent effect of a 30-year sentence for [corporate criminals] who are constantly getting three to five [years in prison] -- if they're getting anything [at all] -- is fairly substantial. For a lot of these guys, that's the rest of their lives," Mitchell said.

Schwartz disagrees, saying it is fair that the length of sentences should be lighter for nonviolent crimes, just as the prisons where such sentences are served should be less punitive.

"Of course, it's fair [to give shorter sentences to corporate criminals]. They didn't kill anybody. Twenty-five, 30 years is what people serve for murder. Twenty-five, 30 years? That's a lifetime, especially if a guy is 40 or 50 years old. He's going to die in prison," Schwartz said.

Schwartz criticizes politicians who say corporate criminals should receive the same terms, in the same prisons, as people who steal at gunpoint. He says it is fine for the government and citizens to have a heightened awareness of corporate crime and the damage it does to the country and its economy.

But it is another thing altogether, Schwartz adds, for this awareness to degenerate into vengeance.

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