Thursday, July 14, 2005

Ebbers so humbled

Bernie Ebbers is going to jail for his crimes as head of Worldcom. He was behind an eleven-billion dollar fraud that resulted in the company going bankrupt. Yesterday, a federal judge sentenced him to 25 years in a low-security federal prison.

Jeralyn Merritt argues at TalkLeft that the sentence is too harsh, that a nonviolent criminal shouldn't be given what is, in effect, a life sentence (Ebbers is 63). I think he got off easy, and the sentence may not be enough to deter other corporate criminals.

Let's look at what he did. Ebbers helped destroy $120 billion in value — Worldcom's market cap peaked at $120 billion in 1999, and was down to $280 million when it filed for bankruptcy.

Maybe that's too harsh. The whole telecom sector has had problems, so it wasn't all Bernie's fault. So maybe we should just consider his accounting fraud, which was a mere $11 billion.

But even that may be too high. Criminals usually don't act for the joy of destruction (except for the pigfelcher who slashed my tires a few years ago) — they're in it for the money. So we shouldn't look at the damage Ebbers did, but what he hoped to get away with.

What did Ebbers gain? His highest net worth was about $1.4 billion. But the company had some value before he destroyed it, and its stock did, too. Let's look at his most direct illegal gains: a relatively puny $400 million in sweetheart "loans" from Worldcom's board.

So Ebbers got a year for every $16 million. That doesn't sound like a huge deterrent to me, especially since the chance of prosecution is small: Forbes calls the case "a freak".

I've said before that the Mafia is in the wrong business(es). The crooks can make more money, with less risk, by going legit.


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