Conviction of Lay and Skilling

According to a news article, former Enron employees are rejoicing in the conviction of Ken Lay and Jeff Skilling for “conspiracy to commit securities fraud and wire fraud.” A colleague in my office declared it was “fantastic” that the men were convicted.

While I have acknowledged my belief that this case should have been in civil court, I think we need to understand the substance of the charges under which the men were convicted. One can commit “securities fraud,” yet not actually break any laws. From what I understand, the various actions at Enron (the hiding of losses via some clever accounting) was not illegal per se.

Instead the feds declared that the actions were done to prop up the stock price of Enron, making the stock price higher than it would have been had such actions not been taken, which constitutes the fraud. Candice E. Jackson and I have labed many federal “crimes” to be “derivative crimes.” That is, they are fictitious entities that are “derived” from other actions.“Securities fraud” generally tends to be a derivative crime, although it can be derived from legal actions, as described above. (Lay also was convicted of illegal sale of stock, although it seems that the sale actually was legal, acting on advice of his attorney. Thus, the jury threw the ancient doctrine of mens rea out the window as well.)

Conspiracy is a derivative crime, as is “wire fraud,” so we have Lay and Skilling convicted of derivatives of derivative crimes. I hate to say it, but we are dealing with legal absurdities. But the former Enron employees can be happy that Lay and Skilling will spend at least 30 years in prison. Had the jury recommended death by torture, I’m sure that the public would have rejoiced.

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2:03 pm on May 25, 2006