FEDS PUSHING TO PROSECUTE TELECOM SECTOR'S TOP DOGS

As telecom CEOs face criminal investigations along with the companies they lead, regulators, Congress and the newly business-unfriendly Bush administration are looking to make examples of a few select executives.

Last week President Bush announced proposals to get tough on accounting irregularities, including stiffer prison sentences for fraud, more investigative and punitive power for regulators and a bigger budget for the SEC. Meanwhile, former WorldCom CEO Bernard Ebbers invoked his Fifth Amendment rights in a Congressional hearing, and Qwest Communications acknowledged that it is under criminal investigation by the Justice Department.

“There's no question we're going to be seeing a lot more oversight, and there's going to be some executive jail time,” said Nancy Kaplan, vice president of Adventis. “If the government can't make an example of some of these executives, I would be very surprised.”

But prosecuting chief executives is a difficult proposition, said Roger Golden, an attorney with Fenwick & West, a law firm that specializes in corporate and regulatory cases. In order to prosecute a CEO for fraud, the Justice Department must show that the CEO not only authorized or supervised fraudulent accounting practices, but also did so knowingly.

“In the U.S. legal system, it's practically impossible to prosecute anyone in a white collar crime,” Golden said. “If the past is any guide, I don't think you'll see many convictions.”

The government can prosecute individual companies, but going after officers is another story. Prosecutors must disentangle the CEO's actions from the rest of the company, and it's fairly easy for executives in mammoth telecom carriers to dilute responsibility throughout the board, Kaplan said.

President Bush's proposals would clarify existing laws and requirements for reporting to the SEC, preventing telecom companies from hiding losses and creating revenues from bandwidth swapping.