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.There was, then, a general reluctance to intervene.This also arosebecause in that mercenary and fiercely competitive world, star players displayed noloyalty whatsoever to their company and, if they were not satisfied, then they would sim-ply decamp to the competition taking their entire team with them.They could virtuallyhold senior management to ransom." This lack of understanding and the institutionalized dependency on the reward systemblinded people to the fact that many of the new instruments contained a high measureof undisclosed risk.It became clear later from testimony, e-mails and recorded phone-calls that many dealers were contemptuous of their clients and did not feel obliged toinform them of the risk.A former director and senior derivatives saleswoman at BankersTrust, for instance, spoke of an amoral culture : She said: You saw practices you knewwere not good for clients being encouraged by senior managers because they made alot of money for the bank. One salesman noted, Funny business, you know.Lurepeople into that calm and then just totally f& them (Partnoy, 2003: 55).This was cyn-ical, predatory and rapacious while also many investment analysts, who were meant tobe giving objective advice to clients, had effectively become a covert marketing instru-ment for their companies." The seductions of the new economy and of a shareholders democracy attracted invest-ments from many new players including public and professional bodies: financial advi-sors encouraged universities, schools (including a school board in the Shetland Isles) andmany individuals to take out investments, to change their mortgages and to reinvest theirlife savings.And, as mentioned, many industrial and internationally operating compa-nies took to dealing on their own account." In this cumulative system failure one might think that the regulators and controllers wouldact as a restraining influence.But regulation was not only weak but also virtually116 Corporate and White-collar CrimeThis SAGE ebook is copyright and is supplied by NetLibrary.Unauthorised distribution forbidden. 05-Minkes-3706:06-Minkes-Ch-05 5/29/2008 12:55 PM Page 117co-opted by the industry: the prime regulator was the SEC (Securities and ExchangeCommission) which operated a revolving door with the industry, with executives and reg-ulators frequently swapping roles.Many of the discrepancies which occurred wereplea-bargained to a settlement with a slap on the wrist fine following a nolo contendereplea (as Geis quipped, amounting to the company saying I didn t do it and I won t doit again (in Braithwaite, 1984: 15) but there was no conviction and, crucially, nogrounds for further criminal or civil actions.This was no real deterrent." Of particular concern was that the key controlling agency, the accountant firms, wereessentially colluding in covering up the discrepancies (as with the shredders workingovertime at Arthur Andersen to destroy incriminating evidence when Enron started tounravel).These firms had become entwined with the companies they were meant to auditbecause they wanted to keep their business and because their consultancy branch hadplaced large numbers of personnel inside the firms to steer many of their primaryprocesses.Andersen had a close relationship with Waste Management in the 1990s,saw it as a crown jewel client bringing in high revenue from auditing (but even morefrom consultancy), every chief financial officer and accounting officer had worked atAndersen and umpteen former Andersen staff had gone to work for Waste Management.This intimate relationship was clearly a conflict of interest.Then, in 1996, a thoroughaudit revealed that the company had overstated its earnings by $1.4 billion! This wasthe largest corporate financial restatement ever until then, and the SEC fined Andersen$7 million for approving Waste Management s inaccurate financial statement.Subsequently, following a criminal trial in the wake of Enron, Andersen disappeared asa firm and accountancy firms have also since then divested themselves of their consul-tancy branches.These systemic characteristics (well analyzed by Partnoy, 2003), led to manyvictims individual and institutional losing large sums of money (for indi-viduals their pension, life-savings or mortgage, and for institutions their invest-ments of public money which affected public spending and collective pensionfunds).One German company, Metallgesellschaft, lost $1.4 million andOrange County in California lost $1.7 billion of public money.Indeed, the fallon the NYSE after the collapse of several major companies was greater thanfollowing the attack on the Twin Towers in Manhattan and other targets on9/11.If we examine the conduct of senior executives at Enron and other firms,as well as in the investment banking sector, then an accumulation of factorshad effectively created a criminogenic environment (Fusaro and Miller, 2002).Today the key issues behind the recent financial scandals are the complex instruments usedto skirt legal rules; the rogue employees who managers and shareholders cannot monitor;and the incentives for managers to engage in financial malfeasance, given the deregulatedmarkets.(Partnoy, 2003: 402)The rapaciousness of the players, however, was such that it not only threat-ened the stability of markets but even the very collapse of the capitalist sys-tem.These corporate crooks almost brought the system they were feeding offcrashing around down around their ears: the global consequences, with theGreat Crash of 1929 in mind, would have been truly catastrophic.117Individuals, Corporations and CrimeThis SAGE ebook is copyright and is supplied by NetLibrary.Unauthorised distribution forbidden
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