Integrity Matters
September 28, 2005

Prosecution of corporate criminals offers hope

Question: (E-204)

Dear Jim:

With more and more convictions for corporate bigwigs, do you see integrity on the upswing?


Not yet, though I haven't given up hope.

More convicted felons are being forced to pay fines and serve prison sentences. A few have publicly apologized, though it's unclear whether their contrition is sincere or just good theater.

My realistic side says this law enforcement fad will lose steam, as it has before, only to reappear when too many sleazy operators are exposed.

Punishing a few crooks tends to reassure people, but human nature suggests that another batch of financial criminals will be ready when opportunity presents itself.

Today's financial and legal evildoers oversee pyramid schemes complete with stock manipulations, insider trading and frivolous lawsuits.

Major corporations have paid hundreds of millions in fines to the federal Securities and Exchange Commission. In addition, there have been large settlements in connection with federal securities class-action fraud suits and state derivative suits.

In theory, at least, any monetary recovery in a federal securities class-action lawsuit should be divided among shareholders to recover personal investment losses caused by the misleading disclosure. But all too often, such awards enrich plaintiffs' attorneys and very little is divided among those who've been directly harmed by irresponsible and criminal corporate officers.

In federal and state cases, the actual corporate wrongdoers - the officers of the organizations - often don't pay the fines or admit to wrongdoing, and insurance companies pay the judgments.

That doesn't warm my heart very much. But a friend of mine is an example of how things can turn out differently.

Recently, shortly after being hired by a public company, he uncovered accounting irregularities and promptly informed the board of directors' audit committee and the firm's independent auditors. The company reported its own subsequent internal investigation to the SEC, and several senior officers of the company were fired. Immediately, the company adopted significant changes in its accounting and internal control procedures.

Yes, one person can make a difference. He was and is a whistle-blower.

He knew his actions would indict his fellow executives and members of the board. He persevered.

Throughout the year-long ordeal, the whistle-blowing chief financial officer maintained the highest level of integrity.

He was uncompromising in rooting out the problems. He challenged those in charge, even though his own position was on the line, all the time.

He wanted to do the right thing for shareholders, employees and himself. He is the only remaining senior corporate officer still with the company. Obviously, integrity won the day.

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