Krispy Kreme, the corporate crime lottery, and Sarbanes-Oxley

Today’s W$J covers the problems at Krispy Kreme.  There is what looks like possible accounting fraud – shading earnings to show continued growth.  Small adjustments can be very significant, given irrational market reaction to earnings “thresholds.” Indeed, this is the sort of thing that just got Scott Sullivan five years at MCI.

So let’s do a little sentencing accounting here.  Sullivan gets five years for engineering a fraud that got Ebbers essentially a life sentence.  But then Ebbers protested his innocence, so count that against him. Should the officers at Krispy Kreme also do time if they are shown to have done something similar to what Sullivan/Ebbers did?  Their sentences would be less because of the funny accounting that’s done under the sentencing guidelines, assuming those still apply.  But is it not a crime because it’s not MCI, or Enron?

Is the financial engineering in the Nigerian Barge case more culpable because it’s more complicated, or something?

And I recently pointed to the practice at Microsoft, among other companies, of shading projections.  That may have had a similar effect on stock price, and certainly had a bigger market effect than anything that went on at Krispy Kreme. Is this not a crime because it relates to projections rather than earnings?

To me, and I’m sure others, it’s all fishy.  So will somebody explain where this magic bright line is between criminal and non-criminal fraud?

Finally, the W$J story notes that most of the stuff at Krispy Kreme happened after Sarbanes-Oxley.  And it’s getting fixed by a special committee and a derivative suit that the company has allowed to proceed.  So what is it, exactly, that we are getting from Sarbanes-Oxley?

Originally posted by Prof. Larry Ribstein on Ideoblog