Tuesday, August 16, 2005

Stupidity Is Not a Crime . . . Yet

Of the many corporate collapses of the past few years, K-Mart's bankruptcy was among the largest.  The pay and perks of its last CEO, Charles Conaway, drew the attention of the DOJ and SEC because he received $23 million for a little less than two years work while the company went down the drain.  In the environment created by Enron, WorldCom, Adelphia Communications, etc., many thought it was safe to assume that K-Mart must have been riddled with fraud, just like those other companies.  That has not turned out to be the case.  Aside from one criminal prosecution against two mid-level executives that went awry during the testimony of the government's second witness, resulting in the dismissal of the charges, there have not been any criminal prosecutions related to K-Mart's decline -- although federal prosecutors state that the investigation is continuing.  The SEC filed a civil suit related to the lone criminal case, but subsequently dropped it.  Now, an arbitration proceeding by the bankruptcy trustee against Conaway for breaching his fiduciary duty has resulted in a clear ruling in his favor, according to an AP story (here).  The arbitration panel stated: "This is not a case of fraud, deliberate mismanagement or corporate looting . . . The evidence shows that Conaway acted at all times in good faith and in what he believed to be the best interests of Kmart."  Well-paid and wildly unsuccessful is not a crime, at least at this point, and not even the basis for a civil claim. (ph)


UPDATE (8/15): A more extensive treatment of the arbitration panel's decision is available from the Detroit News here. (ph)


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