Monday, November 21, 2005

How Long Does It Take to Commit a White Collar Crime?

A New York Times article (here) on the front page of the Business Section discusses the current situation of Daniel Bayly, a former senior Merrill Lynch executive who was convicted (along with four others) in the Enron Nigerian Barge trial in 2004.  Bayly is in a federal prison serving a 30-month term, and the article discusses his situation and the broad support he has received from a number of former Merrill Lynch CEOs (although not current management).  The subheadline of the article in the print version caught my attention: "A 5-Minute Phone Conversation, a 30-Month Prison Term."  The conversation at the heart of the government's fraud case involved a discussion between Merrill Lynch bankers and Enron CFO Andrew Fastow in which Fastow gave assurances that Merrill Lynch would not be at risk in the transaction.  The parties structured the deal to permit Enron to report earnings on the "sale" of the barges when, as found by the jury, that was not its real economic purpose, and the transaction permitted Enron to misstate its earnings. 

The subheadline caused me to wonder how long it takes to commit a white collar crime.  Many economic and corruption offenses involve conduct over weeks, months, even years, and often involve a series of small steps that, taken together, can culminate in criminal violations.  That does not mean, however, that a five-minute telephone call can't be the basis for a significant crime.  Many street crimes occur in a much shorter period of time, and there's no reason why white collar offenses need to take longer.  The key to white collar crimes is the intent of the participants, and it may be that a single conversation (or a few short discussions over a limited period) might make it more difficult to infer the requisite intent, but a single meeting can be the key to a crime.  The fact that one or more participants do not recall the meeting or conference call as significant does not mean it was not, and it may be that one's perception of what is important (or problematic) will change when the entire scenario comes clear.  Enron did not collapse due to the Nigerian Barge transaction, and the amounts were comparatively small, although even a penny a share is important to a company struggling to meet Wall Street's expectations. 

It may be that Bayly and the other Merrill Lynch executives were made into scapegoats for a company that was fundamentally flawed, and their business decisions were bad, but not criminal (see Tom Kirkendall's post on the Houston's Clear Thinkers blog here on the prosecution).  But the short amount of time it took to make a decision does not mean that it was not part of a crime, and the fact that a person did not wake up in the morning with a plan to engage in fraud or corruption does not mean that the result of small decisions can have very significant consequences. Just a thought. (ph)

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I have never seen anything more wrong. Bayly a criminal, or Bayly held up as a testament to 1990's greed: hah!

The man epitomized decency. He was a saint and a prude one at that.

The injustice was the prosecution's total lack of discrection (the judge practically concurred at sentencing). They knew all you had to do was try someone in Houston and say "Enron."

Posted by: Brad Wilson | Nov 29, 2005 10:23:03 PM

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