The charges leveled last week–of fraudulent acts that threatened epilepsy patients, mined retirees and put high-polluting ears on the street-were once the kind that led to a regulator’s slap on the wrist. No more. “What used to be a violation of a rule has suddenly become a crime,” says Aaron Marcu, a New York defense lawyer.
That’s painfully clear to business. Just ask Warner-Lambert, which will pay $10 million to the Food and Drug Administration on charges that it failed to report test results on the drug Dilantin. Or GM, which will pay $45 million to settle civil charges that it installed devices that stymied pollution controls on 470,000 Cadillacs. (GM did not admit guilt.) In public scoldings, the Feds emphasized the gravity of such offenses. The Securities and Exchange Commission chairman, announcing the indictment of 11 rogue brokers, praised firms such as Merrill for identifying the offenders. But, he insisted, those who “swindle” investors “will be prosecuted as criminals.”
Harsher treatment of office offenders isn’t entirely new. Insider traders Ivan Boesky and Michael Milken were hit with fines and jail time in the late 1980s. But those sensational cases attracted the attention of camera-loving prosecutors. And the big push started when Congress adopted new sentencing guidelines in 1987, mandating longer terms not only for drug pushers but for corporate miscreants. White-collar convictions jumped 6 percent, to 8,050 in 1994 from 7,607 in 1992, according to the Justice Department.
Individuals as well as corporations are feeling the lash. Three former executives of C.R. Bard, convicted this summer in a case involving the alleged marketing of unapproved heart catheters, face up to five years in prison. On Friday, Michael Monus, former president of the drugstore chain Phar-Mor Inc., was sentenced to almost 20 years on charges of fraud, embezzlement and tax evasion.
But does cracking down on corporations make for a better society? According to Columbia University law professor Gerard Lynch, the huge new fines could actually pervert the legal process, inspiring the government to pursue such cases primarily for the revenue. Other legal experts think the new severity is just plain wrongheaded. The judge who sentenced Monus said he meted out the 20 years only because the guidelines forced his hand.
There’s no doubt such a sentence will impress other wayward executives. And it may gratify employees who lost jobs when Phar-Mor went bankrupt. But for those who want to see the white-collar crackdown arrested, there’s hope. If Congress can pass a budget that forces agencies to cut back on enforcement, zealous prosecutors may well find the cuffs are on them.
