Ronald Moskowitz, former chief executive officer of Ferrofluidics Corp is serving an eight-year prison term for defrauding investors, the very crime for which President George W. Bush wants tougher penalties.
Moskowitz's prison term is evidence that federal prosecutors, spurred by corporate accounting scandals to focus on crime in the ranks of top management, already have the means to bring executives to justice when they deceive shareholders.
"There are more than enough laws that empower federal prosecutors to go after corporate wrongdoing," said E. Lawrence Barcella, a Washington defense lawyer and former US prosecutor.
PHOTO: AP
Bush's call for longer prison sentences for executives convicted of fraud and a demand by some Democrats in Congress for even harsher sanctions underscores a shift in focus by law enforcement. Since Enron Corp filed the biggest bankruptcy in US history in December, prosecutors are investigating an increasing number of companies whose size dwarfs those snared in the past.
Moskowitz, 63, was convicted of overstating his company's 1992 net income by US$1.6 million, a fraction of the US$3.9 billion in expenses hidden by WorldCom Inc.
Former WorldCom CEO Bernard Ebbers said Monday he didn't do anything wrong and invoked his constitutional right against self-incrimination in refusing to answer questions from a congressional committee. Scott D. Sullivan, WorldCom's fired chief financial officer, also invoked his Fifth Amendment right.
Charging executives in the current round of accounting probes may be difficult because prosecutors must prove that managers purposely used complicated accounting tricks to deceive investors.
"They are enormously complex and hard to explain to the jury," said Michael A. Perino, a securities-law expert at St. Johns University law school in New York. Still, the latest accounting scandals probably will spawn prosecution of cases previously left for the Securities and Exchange Commission to seek civil penalties, he said.
Critics say the penalties have amounted to little more than wrist slaps for executives who earn millions.
The Bush administration, which has argued for rigorous enforcement of existing laws instead of new legislation, yesterday proposed doubling to 10 years the maximum prison term for fraud.
Legal experts say prosecutors already can put executives in prison for securities fraud, obstructing justice and falsifying business records. It is the pace of enforcement that is picking up -- particularly in cases of misreported earnings and revenue figures.
Just last month, former Rite Aid Corp CEO Martin Grass was accused of conspiring with two other former executives to inflate earnings in the drug-store chain by more than US$258 million.
In June, the former chairmen of AremisSoft Corp were indicted on charges they fabricated US$90 million in revenue. James Comey, the US attorney in New York, said that "AremisSoft stands among the most egregious alleged frauds perpetrated on the United States."
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