Black verdict closes chapter in fraud crackdown

By James B. Kelleher and David Bailey

CHICAGO (Reuters) - Fallen newspaper tycoon Conrad Black's conviction on Friday on fraud and obstruction of justice charges was the latest chapter in a five-year-old U.S. crackdown on corporate wrongdoing that started off strong but has suffered some embarrassing setbacks.

Speaking to reporters after the verdict was announced, Patrick J. Fitzgerald, the United States attorney here whose office brought the case against Black and three co-defendants, said the result sent a clear message to boardroom criminals that "if you take liberties and break the law with other people's money, there are going to be serious consequences."

The effort to stamp out corporate wrongdoing was born five years ago this week, when President George W. Bush signed an executive order establishing a multi-agency Corporate Fraud Task Force in the wake of multibillion-dollar scandals at Enron and WorldCom.

The crackdown has resulted in convictions of some high profile U.S. executives, including Dennis Kozlowski, former chief executive of Tyco International, Jeffrey Skilling and Ken Lay of Enron, Bernie Ebbers of WorldCom, and John Rigas of Adelphia Communications.

But the government has encountered bumps along the way in other cases, most recently with a tax shelter case involving KPMG, when a federal judge accused government attorneys of misconduct and threatened to dismiss charges against a dozen defendants.

And in 2005 Richard Scrushy, former chief executive of HealthSouth CP, was acquitted on 36 criminal counts including fraud and conspiracy. But Scrushy later paid $81 million to the U.S. Securities and Exchange Commission to settle civil charges.

Black appeared to think his case was headed to a similar conclusion. Before the trial, he called the case "absolute nonsense" and "a massive smear job from A to Z" that would "have a surprise ending -- a complete vindication of the defendants and an exposure of their persecutors."

As he left court on Friday, convicted on three charges of mail fraud and one count of obstruction of justice, Black was uncharacteristically silent.

"The conviction on the four charges is a real victory for the government," said Orin Snyder, a former Federal prosecutor who worked with Fitzgerald and is now vice-chairman of Gibson, Dunn and Crutcher's crisis management practice group.

Robert Mintz, a former federal prosecutor who now heads McCarter & English's Securities Litigation and White Collar Criminal Defense practice, called the verdict an unmitigated government win.

"Although the unprecedented wave of major corporate prosecutions has abated, this verdict is further evidence that jurors are still willing to dissect complex allegations and buy into the government's theories that tie the person at the very top of the corporate hierarchy to serious misconduct."