"I am deeply troubled about asserting these rights (refusing to testify)… It may be perceived by some that I have something to hide."
Ken Lay, former chairman and chief executive of Enron.

No one was surprised that Mr. Lay refused to testify yesterday. However, what may surprise many people in the coming months is how little jail time is handed out to those said to be responsible for the Enron debacle. To be sure, neither Kenneth Lay, Jeff Skilling, nor Joseph Berardino is likely to serve prolonged jail sentence. Perhaps this is the biggest crime of all.

Enron type problems within corporate America will not end until paid off accountants end up penniless in jail cells, and 'former CEOs' like Ken Lay (if he is guilty of course) are raped of all they own including their offshore holdings and seen picking up litter on the side of your local highway. As it stands now, few crooked accountants and executives fill U.S. jails. Rather, if caught they pay a fine, find another line of work and keep any hidden gains.

Additionally, public perception seems to operate in a strange manner. Soon after a big financial scandal is exposed the public quickly speaks of the Fisk's, the Milken's, and the LTCM's in the past tense: as if some major regulatory breakthrough has occurred and every investor is perfectly safe. However, and in light of how quickly calls for regulation of hedge funds disappeared following LTCM, will the financial markets really become safer post-Enron? Perhaps the best answer to this question can be seen by the constantly dwindling amount of investors attending shareholder meetings, and the complete lack of any 'new' standards coming out from the FASB. In the case of the FASB, clearly the next time accountants and CEOs subscribe to hide the truth they will not copy Enron's path. As such, when exactly are these 'new', or should I say 'old' standards set to arrive?…

Here are a few ludicrous suggestions to prevent the next Enron. That said, perhaps they are not as ludicrous as they first might first seem:

-- A mere 2,900 SEC staff are currently sitting in their perspective chairs trying to monitor literally millions of investors, analysts, companies, traders, etc. To realize how ridiculously low this number is look at the pumped up security at the Olympics following September 11, and compare this force to the pumped up security at the SEC following Enron (the same as before). There should be 100,000 SEC employees scrutinizing everything from phone calls on the NYSE floor to luncheons at the Hilton. Charge every investor and house 50 cents more per trade to fund this expansion.

-- SEC members like Enron management should receive bonuses, not for every merger or acquisition they complete, but for each conviction they achieve. If an SEC member does the legwork needed to lock away a CEO for more than a year reward them $1 million. Take it out of the CEOs pocket.

-- Any and all documents and phone calls from corporations, accounting offices and the White House need to be sent to a single computer and stored for eternity. Moreover, there needs to a 'shredding task force' that can infiltrate any business, or accounting firm with no notice. If such a firm were present in November 2001 the SEC, the U.S. department of Justice, and ten congressional committees would not be wasting copious amounts of time and money now trying to find a smoking gun.

-- Lastly, there needs to be a dramatic change in the investing public. The majority of shareholders need to be present at every shareholder meeting to determine what Management earn in pay, options, and bonuses. If Mr. Lay doesn't like it vote him out. If there aren't enough votes sell the stock (better yet don't buy the stock). Remember, every investor cries foul when the proverbial 'off balance sheet debts' hit the fan: they sue, bicker, and blame their misfortune on management. However, the last time I checked Buffett never purchased an Enron, and Templeton never owned a Nortel.

To be fair, the information the Buffett's of the financial world receive is far greater than any average investor could ever attain. However, this should not be an excuse for the investor. Rather, perhaps the 'illusive information' that cannot be attained from grilling management should be grounds for not investing? Isn't it true that every Enron shareholder knew that the company had hundreds of offshore accounts prior to November 2001? Yes, offshore accounts do not guarantee that fraud is running rampid. They also do not guarantee you know everything either…

From Lay To Milken
Once upon a time, the recently deceased Victor Posner wanted to buy a construction company called the Fischbach Corporation. However, since he had previously signed a contract stating that he could not take the company over unless someone else tried first (10% ownership) he was in quite the pickle. Mr. Posner decided to call up his buddy Mike Milken and asked him for some help. Milken quickly told his partner in crime, Ivan Boesk, to begin buying up Fischbach stating 'I guarantee you against any losses'. When it was all said and done, taken into account my slight embellishment of the events, Posner was convicted of fraud, and Milken was never charged for this specific crime. Rather, Milken plead out to a handful of other violations and he received a 10-year sentence plus a multi-million dollar fine. He served 22 months…

Over the years the case against Milken has come into question, and many people today argue that he was not so much a financial market manipulator but a F.M. innovator. Regardless, how the SEC and related parties reacted and pursued the Milken case was, and still is a testimony to how imprecise any legal attack is on 'money men'. U.S. attorney General John Carroll, who helped prosecute the Milken case, stated in 1992 that in the Milken case 'we're guilty of criminalizing technical offences… Many of the prosecution theories we used were novel. Many of the statues that we charged under hadn't been charged as crimes before". Given that Milken was once heralded as one of the most genius criminal minds in U.S. financial history what does this tell us, if anything, about those that chased him down?

Ken Lay is perhaps the most talked about and despised CEO in Wall Street history. Perhaps one day he, like Milken, will be back in the limelight being regarded as an innocent CEO trying his best to do everything to help the shareholder? If this is the case, even though I doubt it will be, it will be the result of the regulatory bodies being unable or unwilling to quickly catch criminals.

Whatever the case may be, millions of investors lost money in Enron because management, the company's auditors, and whomever else attempted to cover up the biggest fraud in U.S. history. The most shocking development is not that the criminals will not be brought to justice, but that in the near future people may start believing that tomorrow's criminals will be.

Brady Willett
BWillett@fallstreet.com
www.wallstreetwishlist.com

February 16, 2002