SAN FRANCISCO (AFX) -- Public sympathy was in short supply across the nation on Thursday after a Texas jury delivered a raft of guilty verdicts that could mean life in prison for the chief architects behind the epic rise and collapse of Enron.
Regulators and politicians said the decision should boost confidence in U.S. capital markets by showing corporate corruption won't be tolerated.
'The verdict makes clear that high-level corporate executives who deceive the investing public for personal gain will be held fully accountable,' said Christopher Cox, chairman of the Securities and Exchange Commission. 'The result ... is a victory for all Americans, whose jobs and economic security depend on the integrity of our capital markets.'
For most Americans, the corporate fraud cases that were epitomized by Enron underscored the importance of accurate financial statements and served as a reminder to be more cautious when trading stocks.
'This is the book-end on that whole process that included prosecutions, but also a lot of changes in the regulatory structure,' said David Wray, president of the Profit Sharing/401(k) Council of America, an association for companies that offer profit-sharing and 401(k) plans. 'The system is clearly more trustworthy after all this.'
Ken Lay, founder and former CEO, was found guilty on all six counts of fraud and conspiracy charges, along with four counts of bank fraud. Jeffrey Skilling, who served as CEO for about six months, was found guilty on all securities-fraud counts but was acquitted of insider-trading charges.
Some observers predicted a chilling effect on the confidence of executives, with some smaller, private firms being dissuaded from going public.
White House spokesman Tony Snow said the Bush administration has 'no tolerance for corporate corruption.'
One of the best outcomes from the Enron prosecutions, said some observers, may be that corporate executives will find it much more difficult to claim -- as Lay and Skilling did -- that they didn't know about wrongdoing taking place on their watch.
'It's a great sign, in particular for shareholders,' Les Satlow, portfolio manager for Cabot Money Management in Salem, Mass. 'The mindful-ignorance defense hopefully has been shattered.'
Nell Minnow, co-founder of The Corporate Library, a leading shareholder watchdog group, hailed the outcome. 'I'm very happy with the verdict,' she said. 'I want to see them go to jail. I don't want a community-service thing.'
In the wake of the Enron disaster, Congress passed the landmark Sarbanes-Oxley Act that requires CEOs and chief financial officers to sign off on their companies' financial statements.
Rep. Michael Oxley, who as chairman of the House Financial Services Committee co-wrote the law, said, 'The end of the trial will mark the end of a dark era.' Oxley, in a written statement, added, 'The jury's verdicts help to close a notorious chapter in the history of America's publicly traded companies.'
During the trial, prosecutors punctured the 'grandfatherly' image nurtured by Lay for many years, said Christopher Bebel, a former SEC attorney and federal prosecutor.
'Instead he came across as a vicious tyrant,' said Bebel, who attended parts of the trial. 'That made it hard to believe that subordinates would cross him by repeatedly organizing massive frauds behind his back.'
Class-action impact
'It's a great victory for the justice system,' said class-action lawyer William Lerach, whose firm of Lerach Coughlin Stoia Geller Rudman Robbins LLP is leading a civil suit on behalf of Enron shareholders. 'It will have an impact on corporate executives and their lawyers, accountants and bankers, probably making them all more cautious going forward.'
'It won't eliminate corporate and Wall Street fraud though,' he added. 'It's a constant fight to keep it under control, but this is a victory for the little guy.'
Lerach's suit on behalf of about 50,000 investors has recovered roughly $7.3 billion from investment banks including J.P. Morgan Chase , Citigroup and CIBC, exceeding the $6.1 billion that Wall Street forked over to former shareholders of WorldCom in similar litigation.
But the Enron debacle and Thursday's verdicts have left some individual investors feeling more cautious.
Nadine Poulet, 44, who works at an accounting firm in Chicago, said she hopes the case 'wakes people up' and is a lesson to those in upper management that they will be held accountable for their actions.
But she also added she's less confident as an investor in the wake of the scandal.
'It represents what's going on in business,' Poulet said. 'If people are going to get away with it, they're going to try.'
Jerry McCabe, a 50-year-old manager at a Chicago insurance firm, said the scandal 'gives you doubt about some of the financial information you get.'
Indeed, the regulations that followed Enron's demise may be making executives less confident too and encouraging owners of private firms to remain private rather than going public, some observers said.
Although the merits of Sarbanes-Oxley can be debated, the costs of complying with the law have prompted some executives of young companies to think twice about holding an IPO.
'In a way, we're all paying for the sins of Enron,' said Marc Fleury, chief executive of JBoss, who agreed last month to sell his open-source software company to Red Hat Inc. for $350 million. He said the costs of compliance with new securities laws were a factor in his decision to sell, rather than go public.
Such decisions have led to lingering concerns for observers like Charles Payne, founder and principal analyst for Wall Street Strategies, who said, 'The legacy of Ken Lay and others shouldn't be that some small business can't go public or stay public because of mind-boggling costs just to stay compliant with rules that are Draconian.' This story was supplied by MarketWatch. For further information see www.marketwatch.com.