Anyone who remembers the early 2000s remembers the tremendous collapse of Enron. Enron began as a Houston-based energy company and then repositioned itself as an energy-trading market maker. When Enron’s business ventures began to lose money, CFO Andrew Fastow created a series of off-balance sheet partnerships, into which he and CEO Jeffrey Skilling moved Enron’s mounting debt. Because Enron’s financial performance looked better to outsiders than it actually was, the stock price soared to around $90 per share. During the salad days, Skilling and his cohorts sold off a massive amount of stocks to profit from the inflated price. Employees were advised to invest their retirement money in Enron stock.
When the dot.com bubble collapsed, Enron’s stock price fell. Skilling and Fastow could no longer hide Enron’s debt because they’d financed their off-balance sheet partnerships with Enron stock. Skilling bailed in August 2001 and sold a large number of his Enron shares before Enron filed for bankruptcy in December 2001. The company’s stock price plummeted from $90 to $0.40 per share, decimating employee retirement funds.
Prosecuting Andy Fastow and Jeffrey Skilling required a team of law enforcement and legal professionals including the FBI Enron Task Force. Because Skilling’s mental state was questionable due to an earlier nervous breakdown, someone with a master’s in forensic psychology, a degree that you can explore here, probably evaluated his mental competency. Because Fastow is already out of prison, and Skilling may be out as early as 2017, many assume that the government is lenient on white-collar crime. These beliefs may be rooted in misconceptions about the lives of white-collar inmates.
Misconception: White-Collar Criminals Enjoy “Club Fed”
Journalists coined the term “Club Fed” to describe alleged luxurious conditions in federal prison camps. In the 1970s, Club Fed was alive and well. At Lompoc, a federal minimum-security prison about 175 miles northwest of Los Angeles, prisoners could order chili from a restaurant called Chasen’s in Beverly Hills. They played golf at a neighboring course and, on occasion, visited local prostitutes. Inmates could wear their own clothes and find work outside of prison grounds. They could even enjoy weekend furloughs.
Nearly four decades later, federal restrictions have made conditions at minimum-security camps more like those at regular prisons. Also, because drug offenders have swelled the federal prison ranks — from 21,000 in 1970 to 193,000 in 2007 — the culture of minimum-security facilities has changed dramatically. Now, white-collar criminals from Wall Street’s upper echelons mix with low-level drug dealers. None of the drug offenders has been convicted of a violent crime, but many have violent pasts.
Misconception: Government Doesn’t Care About White-Collar Crime
Since the 2007 collapse of Lehman Brothers and the banking crisis that almost brought down the global economy, no Wall Street banker has been charged with wrongdoing. Many Americans assume that the government doesn’t prosecute white-collar crime because officials receive kickbacks and campaign donations.
In truth, white-collar crime is difficult to prosecute. The FBI’s economic crime squad, which pursues financial criminals in league with organizations like the National White Collar Crime Center (NW3C), has to sift through complex financial transactions to build a case, which takes at least a year in most cases. Also, because so much financial crime is global, the FBI has to depend on law enforcement officers in foreign countries, and these officials aren’t always cooperative. Also, especially when investigating the financial shenanigans behind the 2007 banking crisis, law enforcement officers have a difficult time proving criminal intent.
Misconception: White-Collar Criminals Do Minimal Jail Time
In reality, sentences for white-collar crimes have grown longer thanks to beefed-up federal mandatory sentencing laws. Furthermore, convicted criminals that receive sentences of 10 years of more serve time in medium to high-security correctional facilities alongside violent criminals. Jeffrey Skilling’s 24-year sentence was the longest sentence ever issued for a white-collar crime, although recently, a judge knocked 10 years off of the original sentence.
Even though conditions are tougher than they used to be for white-collar criminals, more could be done to hold institutions and their members accountable. In the savings-and-loan crisis of the 1990s, over 1,000 people received felony convictions. By contrast, only 10 people have been convicted in the 2007 banking crisis, which caused 40 times as much financial devastation.
About the Author: Hillary Scherzer is an independent journalist who reports on businesses and the financial markets.