NewsNotables – Issue 49

After Lay’s Death, Enron’s Victims Contemplate Justice

The Associated Press, July 6, 2006

Kenneth Lay, founder of Enron, was a grandfather to 12, a husband to the woman who sobbed at his side on the day of conviction. And yet his sudden death at age 64, came before he had served a single day of what was likely to be a decades-long prison term for his role in the Enron fraud.

The timing of the death raised intriguing questions of justice and retribution denied for the thousands of victims of Enron, many of whom had said they were eager to see him live out his remaining years behind bars.

Some observers who admittedly reviled Lay said his death simply shifted the administration of justice from human hands to those of a higher power. “I hate that this happened. I personally wanted to see him go to jail. But maybe this is God’s way of having justice done,” said Charles Prestwood, a former pipeline operator who retired from Enron in 2000 and later lost $1.3 million in retirement savings. Prestwood said he would not wish death on anyone, but others were less sympathetic. In fact, some former Enron employees were throwing parties after hearing the news. See the following article about some who were skeptical about Lay’s passing.

Kenneth Lay’s Death Was Faked, Some Say

The Associated Press, July 15, 2006

Kenneth Lay has taken his place alongside Elvis Presley in the pantheon of people whose deaths have not been fully believed. Conspiracy theorists and jokesters have floated the idea that Lay’s powerful friends helped him fake his death to escape sentencing in one of the biggest corporate frauds in U.S. history.

At least two Web sites eschew all evidence that Lay indeed died of heart disease — including a statement from the Colorado coroner who performed an autopsy. Helping fuel the conspiracy theories was the Lay family’s decision to cremate the body.

One conspiracy theory finds it a little too convenient that former Secretary of State Colin Powell was treated for altitude sickness at the same Aspen hospital where Lay was pronounced dead the day before. Powell was in the resort town to participate in panel discussion, but the theory purports that he was actually there to bring Lay passports, other ID, and an escape plan.

Lay joins a line of figures, from Adolf Hitler to Jim Morrison to Tupac Shakur, whose deaths some people had trouble accepting. .

Comment: Many people wanted blood from Lay for his fraudulent actions that cost many their life savings and/or retirement money, and death wasn’t enough. Discussions of life, death, vengeance, and debts to society are age-old. Scholars from both legal and spiritual backgrounds stressed there were no easy answers to questions raised by Lay’s death. Everyone has a personal view, but I recommend compassion for Lay and for all the people who were affected in many different ways.

Boeing Draws Senator’s Praise Over Move to Forgo Tax Breaks

The Wall Street Journal, August 2, 2006

Lawmakers applauded Boeing’s decision to forgo tax deductions on a $615 million settlement of federal ethics violations, but said the case highlights the need for legislation barring companies from trying to pass such penalties to taxpayers.

Senator John McCain, a fierce Boeing critic during the weapons-acquisition scandals that led to the record settlement, praised the company’s ethical turnaround. After three years of criminal investigations and sharp criticism of Boeing from lawmakers, the new Boeing CEO, Jim McNerney, drew plaudits for his efforts to inculcate an ethical corporate culture. The committee’s chairman, Senator John Warner, credited McNerney for reviving a “company which had literally sunk to its knees from a lofty height.”

Mr. McNerney said that even though outside consultants deemed that $565 million of Boeing’s payment to the government would likely be deductible under the tax code, “We didn’t think the taxpayers should bear the brunt of our wrongdoing.”

Comment: Even though we’ll never know if Boeing’s decision to forgo the tax deductions were based on doing the right thing or were politically motivated, I applaud their decision. McNerney appears to be doing the right things at Boeing, which should lead them into a bright future and an ethical one at the same time. We have published several articles in past editions of Ethix criticizing Boeing actions. It’s a pleasure to compliment them on their recent decision.

Offshore Abuses on Taxes Probed by Senate Panel

The Wall Street Journal, August 2, 2006

Two billionaires accused of dodging taxes and their cadre of attorneys and financial advisers all professed ignorance as they endured hours of intense questioning from a Senate subcommittee investigating proliferating of offshore tax abuses.

Halm Saban, co-founder of Fox family network, and Robert Wood Johnson IV, heir to the Johnson & Johnson pharmaceutical fortune, told the subcommittee that they simply followed the advice of trusted advisers when they tried to use a complicated scheme to avoid taxes on hundreds of millions of dollars in capital gains.

The CEO of Quellos Group LLC, the Seattle investment management firm that developed the tax shelter called Point, marketed to Saban and Johnson, blamed the two men for playing down risks associated with the Point tax shelter, a web of transactions that created losses to offset gains and consequently wiped out most of their tax liability.

Mr. Saban told the subcommittee he paid $50 million in fees to eliminate his tax liability, and is in negotiations with the IRS to pay back taxes and penalties. Mr. Johnson said his payments to Quellos to use Point shelter totaled about $5 million and he settled earlier this year with the IRS, paying back taxes and penalties. The CEO of Quellos testified that Point was registered with the IRS, although he conceded that the IRS rejected it as a legitimate tax shelter.

Comment: Tax avoidance schemes have been around for many years. As the tax code changes, there is always someone scheming to outdo the government. Of course, it can be quite lucrative, as seen in the $55 million paid to the investment management firm in the above article. When the scheme is discovered, then the finger pointing begins. No one takes responsibility, and it’s always the others’ fault. The investment management firm said, “We understood that there was no guarantee that it would pass the smell test” and that “Each client or clients clearly understand the tax risks associated.”

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics