OK, gang, you can come out from under the covers now.
Those Enron bullies are bound for the crowbar hotel. Ken Lay and Jeff Skilling have been found guilty of the big lie that was Enron. They face a maximum of 350 years combined time in the slammer.
So it's safe to play in the street again. Or at least, that's been the popular spin from the pinstriped crowd that get rich off the pawns who invest while wearing blinders. Those two men in the slammer means your investment dollars are safer.
It's nothing but a preposterous notion, of course. Yet, that's what the brokers on Wall Street and Bay Street, the securities commissions and the U.S. government want you to believe. They want you to believe that the May 25 verdict in a Houston courtroom, where former Enron bosses Lay and Skilling were convicted of conspiring to commit securities fraud and other crimes while at the seventh-largest public company in the U.S., marks the end of an era in the corporate world.
They want you to feel all warm and fuzzy because they've nailed the two heaviest hitters in the lineup of corporate cheaters. They want to believe that they've nipped white-collar crime in the bud.
Unfortunately, many investors will buy it hook, line and sinker. Just as they bought Enron stock, bidding up the market cap of the energy trading company to over $60 billion US and keeping the faith in Lay even after the ultimate red flag - Skilling's resignation four months before the company filed for bankruptcy protection in 2001.
But if you think that a portrait of Lay and Skilling sporting prison stripes is a signal that all is well again in the investment world, think again.
Skilling and Lay - or "Kenny Boy" as his old crony President George W. Bush used to refer to him - are the poster boys for corporate greed.
But does that mean there won't be more corporate cons cooking the books and fleecing naive investors?
Not a chance.
Just as the jury came in on Lay and Skilling, the news came out on a fresh scandal about greed in the U.S., in which a score of companies are being probed over suspected backdating of grants of stock options to executives.
If that headline doesn't grab you, maybe the one about Fannie Mae did. The U.S. government-sponsored mortgage company was fined $400 million US in relation to accounting chicanery that was tied to management bonuses. Ho-hum. Another story about greed.
We're giving even money that a freshly minted scandal surfaces before this story even goes to press.
Face it, gang, as long as the investment bankers and the analysts and the media and the investors massage the egos and line the pockets of pinstriped hoodlums such as Lay and Skilling, there will be more billion-dollar corporate scams, more families put into financial ruin by filthy-rich executives, more billion-dollar pension funds obliterated and more investors hookwinked.
A smooth-talking swindler in a tailored suit with a story to tell can certainly still get an audience on Bay Street or Wall Street, where the brokerages can casually pay their way out of hot water.
The banks were major players in the Enron game, financing the big lie and pumping the story and misleading investors with glowing research reports, even as the dominoes began to fall.
Yet, the banks, including Canadian Imperial Bank of Commerce, while paying billions of dollars in settlement money, have not faced criminal prosecution as a result of their dealings with Enron. CIBC settled with the U.S. Department of Justice by paying the U.S. Securities & Exchange Commission $80 million US as a result of its financial transactions with Enron. CIBC has also paid out $2.4 billion US as a result of class-action lawsuits from Enron shareholders.
Two other Canadian banks, Toronto-Dominion and Royal Bank of Canada, were also involved in financings with Enron and also face class-action lawsuits. Settlements in those cases have not been reached.
So it's business as usual at U.S. and Canadian banks that dealt with Lay and Skilling as they orchestrated the biggest fraud in U.S. history.
If you characterize the verdict against two men as the end of an era, you should face cruel and unusual punishment. You should be forced to read the tens of millions of pages of records from the Enron investigation.
Let's be honest. If you choose to invest in public companies, blind faith will get you a trip to the woodshed. You need to remove your blinders and don a bullet-proof vest. You need to view every company with a discerning eye and a healthy dose of fear and skepticism.
* You cannot always trust the numbers in the financial statements. Nor can you trust those who sign off on the numbers.
* If a company comes down with a bad case of 'Nortel-itis' and restates its earnings, you need to find one good reason to stay invested in that company.
* If a CEO or CFO resigns for "personal reasons," you, too, need to take it personally and re-evaluate your position in the stock.
* If the CEO's annual compensation is more than $100 million in a year when your stock has tanked 30 per cent, that's a heck of a wakeup call.
Unfortunately, the crackdown on white-collar crime in the U.S. hasn't seemed to catch on very well in Canada. If you're a CEO or former CEO who has been cooking the books in the U.S., you must be quaking in your boots in the aftermath of the verdict in the trial of Lay and Skilling.
On the other hand, if you're cooking the books in Canada, you probably don't have a lot to worry about.
Lay, Skilling, Bernie Ebbers, Dennis Kozlowski, John Rigas and other white-collar criminals convicted in the U.S. must be kicking themselves for not setting up shop in Canada, where we still don't even have a single securities regulator to oversee the financial markets.
The biggest corporate fraud in Canada in the past decade was the Bre-X gold-mining scam. Yet, no charges were laid against any of the Bre-X brass after an RCMP investigation.
An Ontario Securities Commission action against former Bre-X senior geologist John Felderhof for alleged insider trading continues to drag on without a resolution almost a decade after the collapse of the Calgary company.
So don't expect the Enron fallout to have any lasting impact on the landscape of the financial markets, particularly in Canada.
As long as there are financial markets, bull markets will breed new scams and lambs will continue to be led to the slaughter by executives obsessed by power, money and greed. That's the way it works, gang.
You can dress Lay and Skilling in prison stripes and you can throw away the key. But how do you put greed behind bars?
* SAGE WORDS: "This closes the door on the poor-man defence."
- former Securities & Exchange Commission chairman Harvey Pitt on the convictions of Ken Lay and Jeff Skilling.
(Gyle Konotopetz can be reached at gyle@businessedge.ca)
