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Erstwhile technology kingmaker Frank Quattrone has joined Martha Stewart in the rogues' gallery and may soon join her in serving prison time, now that a Manhattan jury has found him guilty of obstruction of justice. And while I applaud prosecutors for demonstrating that obstructing a criminal investigation of possibly illegal acts is a bad thing, I'm not sure corporate America truly understands that those illegal acts are actually wrong.
Neither Stewart nor Quattrone were prosecuted for the activities that originally attracted regulators' attention: In her case, selling a firm's stock after talking to that company's CEO and just before important news became public; and in his situation, arranging kickbacks for Quattrone's employer, Credit Suisse First Boston, in return for favorable allocations of IPO shares.
Maybe this society really does consider the cover-up worse than the crime. Look no further than the impeachment of President Bill Clinton.
But I have a sneaking feeling that prosecutors in both cases had an easier time explaining deception than what might be the underlying crimes themselves.
It seemed obvious that Stewart sold her shares of Imclone after finding out that Sam Waksal, the CEO of Imclone, sold his shares after hearing that the FDA wouldn't approve his company's cancer fighting drug, Erbitux. His actions were not public knowledge, so acting upon that news could easily been seen as insider trading. Yet Stewart wasn't charged with criminal insider trading, but securities fraud. Unfortunately for the prosecution, the fraud accusation was built on such a thin premise -- that Stewart lied about her innocence to prop up the stock of her own company, Martha Stewart Living Omnimedia -- that a judge dismissed the charge.
The Securities and Exchange Commission has filed a insider trading civil complaint against Stewart that doesn't require proof beyond a reasonable doubt to be upheld. The SEC will only have to prove that she "likely" committed that wrongful deed, but even if they succeed, it won't add any jail time. Only criminal cases can do that.
Meanwhile, neither Quattrone nor CS First Boston have had criminal charges filed against them, even though most kickbacks are illegal. Consider those currently making headlines: Top U.N. officials under fire for alleged Iraqi kickbacks in the oil-for-food program; drug companies allegedly paying doctors and hospitals so they would purchase a company's medication; shenanignas in government and/or private contracts, such as Halliburton admitting to $6 million received from an unnamed Kuwaiti company helping supply troops in Iraq. But in the CS Suisse First Boston scheme, no criminal case has been filed, only an SEC settlement.
That may be why Wall Street was surprised, even shocked, at Mr. Quatttrone's guilty verdict. He was found guilty - only after the prosecutors' first try ended in a mistrial -- of covering up a crime that he was never formally accused of committing. The message is clearly that a cover up is easier for a jury to understand and therefore easier for the feds to prosecute than white collar crime itself.
At no time did prosecutors drive home the fact that the underlying activity was simply wrong. There's nothing that will deter greedy, manipulative corporate executives from committing crimes, but I do see a change in how they communicate those dastardly deeds. Whether intended or not, the message that remains for many executives ends up being "Don't get caught" instead of "Don't do it."
Until we get tough with the underlying crime of lying, cheating and stealing, executives will continue to push the envelope and see how much they can get away with. The only thing they won't push as quickly -- the send button for their outgoing e-mail.
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