Trends in Corporate Fraud Enforcement

In 2005, former WorldCom, Inc. CEO Bernard Ebbers was indicted for conspiracy, securities fraud and filing false statements with the Securities and Exchange Commission (SEC) after WorldCom announced that it had overstated earnings. After a New York jury found Ebbers guilty, Judge Barbara Jones sentenced 63-year-old- Ebbers — a first-time violator — to 25 years in prison, of which he must serve at least 21. Judge Jones commented that, while she recognized that this was “likely to be a life sentence for Mr. Ebbers,” anything else “would not reflect the seriousness of the crime.” Separately, Ebbers agreed to pay $5.5 million in cash and to hand over his home and other assets worth as much as $40 million to resolve claims filed by WorldCom shareholders — a settlement commentators estimate will chew up most of Ebbers' estate.

As the change in approach from the Milken case illustrates, today the enforcement environment for business crimes is harsh. Statistics, however, suggest that 2003 might have been the high-water mark. In addition, in the past 6 months, courts and juries have handed prosecutors a number of high-profile setbacks. Corporations and their employees may find that regulators' and prosecutors' zeal, while still intense, has moderated somewhat.