Does Kozlowski's Sentence Fit the Crime?

  • Share
  • Read Later
EZIO PETERSEN / UPI / LANDOV

Former Tyco CEO Dennis Kozlowski

Are white-collar criminals due for a sympathy vote? Everyone expected the punishment to be harsh when L. Dennis Kozlowski, the former CEO of Tyco International, and former Tyco finance chief Mark Swartz were sentenced Monday, and indeed it was: up to up to 25 years in prison. But now defense lawyers and, increasingly, many others are wondering if white-collar criminals are being treated too harshly. Some violent crimes, including rape and manslaughter, can result in less than 20 years in jail.

Kozlowski and Swartz aren’t exactly sympathetic figures. They were found guilty of looting their company of hundreds of millions of dollars. Before Monday's sentencing, Assistant District Attorney Owen Heimer told the court that Kozlowski "should not be shown any leniency. He stole. He committed fraud. He committed perjury. He engaged in a shocking spree of self-indulgence."

Yet the injuries that Kozlowski and Swartz inflicted were purely financial, and nowhere near the magnitude as the frauds at WorldCom and Enron—companies that collapsed and wiped out shareholders and many employees’ 401(k) accounts. "Tyco is not Enron," Thomas Curran, a former New York City prosecutor who is now a defense lawyer, told the Associated Press. "Tyco is a real company with a real business plan that still employs thousands of people. ... There are no retirees eating cat food because of Dennis Kozlowski."

The former Tyco executives entered the courtroom Monday with one-time WorldCom Chairman Bernard Ebbers already having been sentenced to 25 years in prison for the $11 billion accounting fraud that toppled his company (which has emerged from bankruptcy as MCI) and Adelphia Communications founder John Rigas having been sentenced to 15 years in prison for looting and fraud at his company. His son and former finance chief, Timothy Rigas, got 20 years.

This is the new reality for white collar criminals. When the stock-market bubble burst five years ago, the wave of corporate frauds that came to light inflamed the public. Since then, bruised investors have been demanding amends. Twenty years ago, a similar rash of Wall Street fraud resulted in only a few honchos like Michael Milken going to prison, and spending less than two years there. Now the pendulum has swung the other direction. In addition to jail time, Kozlowski and Swartz must pay a total of $134 million in restitution; in addition, Kozlowski was fined $70 million, Swartz $35 million.

A chorus of dissent from business leaders, investors and even some regulators is rising. SEC commissioners Paul Atkins and Cynthia Glassman have argued against large fines against law-breaking corporations, reasoning that big fines only injure innocent shareholders. Christopher Cox, the new SEC chairman, is expected to lean the same direction. Meanwhile, even in the halls of congress there has been concern that the tough Sarbanes-Oxley corporate reform bill has placed too great a burden—and expense—on companies working to tow the line. Cox has already said he’s going to give small companies some relief from Sarbanes-Oxley by extending for one year the deadline for coming into compliance. It could be that the recent string of decades-long prison sentences for white-collar criminals proves to be an extreme; the point at which the pendulum begins moving the other way again.