Corporate Scandals Yield Few Plea Deals
Top Executives Take Best Shot in Court
washingtonpost.com
By Brooke A. Masters and Carrie Johnson
Washington Post Staff Writers
Sunday, January 11, 2004; Page A01
Federal court in lower Manhattan will begin to resemble a society ball later this month, when the trials of several corporate heavyweights converge within a few blocks' radius.
Martha Stewart. The WorldCom chief financial officer. The Rigas family of Adelphia Communications. Technology banking star Frank P. Quattrone. Within weeks, each of the defendants is expected to bet the future on a jury, in an unusual convergence of high-powered legal cases.
Why are some of the nation's most powerful corporate leaders choosing to roll the dice on the justice system when the vast majority of criminal cases end in plea bargains?
New guidelines that demand prison time even for cooperating offenders have stiffened the spines of executives facing charges for the excesses of the 1990s. And many corporate titans about to go on trial think they have done nothing wrong.
On Friday attempts to settle two Enron Corp. cases broke down, potentially setting the stage for those trials to go forward in Houston. Negotiations collapsed when Lea W. Fastow, former assistant treasurer and the wife of ex-finance chief Andrew S. Fastow, couldn't be assured that her sentence would be no longer than five months. Even if the couple had agreed to settle, Andrew Fastow would have faced 10 years in prison for admitting a role in the events that led to the demise of the energy company.
Attorneys for Stewart, for whose securities fraud and conspiracy trial prospective New York jurors began filling out questionnaires last week, insisted their client has no interest in cutting a deal with the government.
"We're going to trial because she believes and insists she is totally innocent of the charges," said Robert G. Morvillo, Stewart's lead attorney.
Even if defendants are willing to settle with the government, in some cases they simply may not have the goods prosecutors are demanding -- that is, they may not have evidence that implicates corporate superiors in the alleged fraud. Cooperating with prosecutors can frequently win a defendant a reduction in any prison term.
In the WorldCom Inc. case, for example, discussions between former chief financial officer Scott D. Sullivan's lawyers and the Manhattan U.S. attorney's office broke down, sources said, after Sullivan failed to provide hard evidence that former WorldCom chief executive Bernard J. Ebbers approved the firm's accounting choices.
"Sullivan hasn't turned on Ebbers because he has nothing to offer," said Ebbers's attorney Reid H. Weingarten. "Sullivan doesn't think his accounting decisions were criminal and Bernie didn't participate in those decisions."
Sullivan's attorney Irvin B. Nathan declined to comment about his client's decision-making process, but he said that it is not unusual for high-profile defendants to reject a plea bargain. "If people believe they have been improperly charged or overcharged [because of who they are], they want their day in court," Nathan said.
Some targets of criminal probes are already at the top of prosecutors' food chain, said Robert S. Bennett, a Washington criminal defense lawyer who has represented Enron and HealthSouth Corp. "The higher someone is, you're not in a situation where you're able to trade up," he said. "You're dealing with the up."
One reason prosecutors continue to work hard to secure a deal with the Fastows is that Andrew Fastow could guide investigators through a maze of documents and conversations that they hope will lead to charges against two of the company's former executives, Kenneth L. Lay and Jeffrey K. Skilling. Lawyers for Lay and Skilling maintain that they were unaware of complex financial details and that they depended on accountants and lawyers to make sure deals passed muster.
Many high-profile defendants, including former Tyco International Ltd. chief executive L. Dennis Kozlowski, who is on trial in Manhattan, and John J. Rigas, the former chief executive of Adelphia Communications Corp., who is scheduled for trial in February, maintain their expenditures were approved by lawyers and board members. Executives caught in criminal probes frequently have raised the defense that they relied upon such outside advisers.
The instinct to go to trial has been reinforced by sentencing guidelines and the Bush administration's hard-line stance on not granting breaks to defendants who plead guilty, defense lawyers said. In September, Attorney General John D. Ashcroft issued a memo to U.S. attorneys, instructing them to charge defendants with the most serious readily provable crime, a step that some critics argue will reduce the discretion of individual prosecutors and possibly lead to longer prison sentences for defendants. The move came after Justice Department lawyers pressured the U.S. Sentencing Commission to increase penalties for white-collar crimes.
"In the post-Enron, WorldCom hysteria, the Department of Justice has adopted, literally, a 'free no prisoners' approach to sentencing in white-collar cases," said Barry Boss, a Washington defense lawyer and an adviser to the Sentencing Commission. "On the political front, it has lobbied successfully for greater statutory penalties and guideline ranges in white-collar cases, and in the courtroom, prosecutors are seeking draconian sentences for these offenders."
Nathan, the lawyer for WorldCom's Sullivan, called the guidelines "completely out of hand."
"At the end of the day, the sentence for a white-collar matter has become tougher than one for murder or treason," he said. "What choice does it leave to individuals?"
Columbia University law professor John C. Coffee Jr. said much of the problem stems not from the sentencing guidelines, but from prosecutors' fear of being perceived as soft on corporate crime. The guidelines, he notes, have always allowed prosecutors to ask a judge to give less than the standard sentence in exchange for cooperation with the government. But the Justice Department has not been offering that option in most plea negotiations.
"Prosecutors can't take the risk of settling a high-profile case for four or five years. There are lots of people who have lost a lot of money, and anything under 10 years will be subject to a lot of criticism," Coffee said.
Defendants who were considering taking a deal may have reconsidered after last month's sentencing of former Fred Alger Management Inc. executive James P. Connelly Jr., some lawyers said. Connelly pleaded guilty to trying to obstruct New York state Attorney General Eliot L. Spitzer's mutual fund investigation, and Spitzer's office did not push for jail time. But the New York state judge in the case gave Connelly one to three years in prison anyway, saying that obstruction was a serious crime that had to be punished.
Conversely, the obstruction-of-justice trial last fall of former Credit Suisse First Boston banker Frank P. Quattrone may have given some defendants hope that they could win at trial. The jury in that case deadlocked after four weeks of testimony and argument. Outside legal experts said the initial mistrial demonstrates how difficult white-collar cases can be for the government.
Like many fraud and obstruction cases, the Quattrone trial focused on the banker's intent. Jurors said afterward that three of them believed the government had failed to prove that Quattrone was deliberately trying to hinder a federal investigation when he sent a two-line e-mail urging subordinates to "clean up those files."
"I've got to believe Quattrone emboldened some of them," said University of Texas law professor Henry T.C. Hu of other former executives on trial. "It was an awfully important case to the government, and they devoted a lot of resources to it, and yet there was a mistrial."
Ordinary people may balk at spending a lot of money to defend themselves against charges when there is a good chance they can lose -- 86 percent of all federal court criminal defendants pleaded guilty in 2002, the most recent statistics available. But the latest crop of defendants has almost infinite resources and may make a different calculation, Hu said.
"If you go to trial there's a chance of clearing your name, but if you plea bargain there's a 100 percent chance you will be forever tainted," he said.
Veteran defense lawyers cautioned, however, that the batch of corporate fraud trials scheduled for early this year still could be winnowed if defendants reach last-minute deals with prosecutors. A widely publicized case involving former executives at Rite Aid Corp. came to a swift and unexpected resolution last year after chief financial officer Franklyn M. Bergonzi struck a plea bargain with prosecutors just five days before the trial was to begin. Former Rite Aid chief executive Martin L. Grass eventually pleaded guilty as well.
"The more pressure to settle comes just before trial," said Gerald B. Lefcourt, a former president of the National Association of Criminal Defense Lawyers.
© 2004 The Washington Post Company |
