Same as voluntary manslaughter

Posted by Marc Hodak on December 7, 2007 under Scandal | Comments are off for this article

Let’s say your boss walked into your office and asks you to backdate a letter so that a decision looks like it was made earlier than it really was. You don’t feel perfectly comfortable with this, but you say, “OK.” If you had stopped in your busy day to think about this particular act, and realized that neither you nor your boss would be personally enriched by it, and that the company and its shareholders may very well benefit from it, you’d probably wouldn’t think it’s such a big deal. You wouldn’t think that you’d end up with a criminal conviction leading to up to 20 years in jail. But that’s what basically happened to Stephanie Jensen.

Here is the prosecutorial logic. When someone says “OK” to her boss’s improper request, that’s conspiracy. 10 years. When one signs a letter that is ultimately used to misstate accounting results, even if you have no control over the accounting or understanding of the intricate rules involved, that’s fraud. 10 years. Normally, criminal fraud requires that someone personally benefit from their deceit, but in securities law, any impact on disclosed financial results can be presumed to lead investors astray to their detriment.

Jensen is only lucky that she’s not facing the full fury of post-Enron sentencing madness. The political appetite to punish what most sane people would consider marginal behavior became completely unhinged during the Enron/WorldCom scandal. Here is a taste of the unchecked attitude toward the sketchiest business behavior by Senator Leahy, Chairman of the Senate Judiciary Committee in 2002:

Today’s report includes a tough new crime of securities fraud, which will cover any scheme or artifice to defraud investors. Working with Chairman Sensenbrenner, we were able to retain the provision as I wrote it with a higher 25 year maximum jail term. That will cause scam artists to think twice. (Their emphasis)

Taken to the extreme, that means saying “OK” to your boss’s request to do something you may not quite understand is illegal, and may not actually harm anybody. Now, even the most self-righteous, ambitious prosecutor would be unlikely to actually pursue a low-level employee on something as simple as an “OK.” But the prosecutor would have this tool as leverage against this employee in getting their cooperation.

One could only wish that congresspersons were held to anywhere near the same criminal standards. Unfortunately, the media promotes the political vanity that lawmaking is a noble exercise in power free from conspiracies, while business is a messy financial affair where conspiracies abound.

Larry Ribstein makes another excellent case for the fact that Jensen merely lost the criminal backdating lottery.