Ken Lay, R.I.P. at 64. A few thoughts.
1. I’m not running for office, and I don’t think this blog counts as journalism, so I must be a fool. I think that Lay deserved prison time. (Whether or not Lay would have been sentenced to a life term, as Larry Ribstein claims here, or its functional equivalent is unclear). Now, did he deserve as much time as a murderer? (Assuming that murder was a federal crime). It is a tough question, as I admitted in January. Ribstein describes Lay’s crimes as follows:
He was convicted for lying about [Enron being a Ponzi scheme] at the tail end. Some people bought in at that point because they didn’t know the truth, and maybe that was partly Lay’s fault. But others (not Lay) got out – the gains and losses of these traders net out.
Alot of the people who feel hurt here simply hung onto their stock too long. But did they get hurt by Lay? If he had told the truth at his first opportunity, or even just remained conspicuously quiet, they just would have gotten hurt sooner.
Let’s put aside the factual disputes [But note: weren't the locked-in employees owed some sort of duty by their boss?], and also put aside the point on timing [But note 2: if the truth had been revealed earlier, perhaps JKS wouldn't have quit, or the firm would have been saved, etc. Lies fester.] Larry’s argument would seem to prove too much – there will often be non-wrongdoer “winners” from fraud, as there are winners from murder, theft, etc. Does this mean that fraud ought not be criminal in the ordinary case?
The punishment point is more troubling to me. Is fraud as bad as murder? On considered reflection, of course not. But that doesn’t mean that fraudsters ought not be punished like murderers. Ordinary deterrence intuitions suggest that punishment needs to be ratcheted up as enforcement goes down. Thus, murder is almost always prosecuted. Stock market manipulation and lying to banks to secure loans almost never are. Larry would have punishment in corporate law instantiate lex talonis. But punishment in this arena dances to Becker’s drum, not Markel’s. To make the laws against securities fraud work, we need tough penalties, or many more prosecutions. I’d rather the former than the latter.
2. Peter Henning says that the criminal conviction has now been expunged,and that “the plaintiffs cannot rely on it as proof in their case, if my dim memory of collateral estoppel serves me right.” My memory of CE is also obscure, and I wonder if any of our regular and/or expert commentators care to weigh in on this civil procedure problem. Separately, can the civil plaintiffs use Skilling’s conviction against either Skilling or the Lay estate before it becomes final? It is hard to believe that the civil trial has to be stayed for the pendency of the coming appeals, but such would seem to be the consequence of the rule that Henning has unearthed.