Season of Scandal

With the recent conviction of former Qwest Communications International, Inc. CEO Joseph Nacchio on 19 counts of insider trading, a season of major corporate scandals has come full circle. What began five years ago as an unprecedented effort by the Department of Justice to follow the trail of fraud right up to the very top of the corporate ladder, has finally wound down. According to the DOJ, since 2002 they have obtained more than 200 convictions of corporate chief executives and chief financial officers for corporate fraud.

Will we ever see this degree of high-level corruption in the boardroom again? Probably not anytime soon, but don't expect CEO fraud to disappear altogether. These cases tend to run in cycles and are tied to the prosperity of Wall Street.

In other words, when corporations are reporting record earnings and the shareholders are making money, people tend to ask far fewer questions of management. Often, it's only after the markets slide and shareholders have lost their investments that books and records are more carefully scrutinized.

Names like former Enron Corp. CEO Jeffrey Skilling, former Tyco International, Ltd. CEO L. Dennis Kozlowski, former Adelphia Communications Corp. founder John Rigas and former WorldCom Inc. CEO Bernard Ebbers, all of whom once evoked reverence as quintessential American success stories, now sit behind bars. In the years since the government embarked on an aggressive campaign to prosecute corporate wrongdoing, an almost unimaginable series of once high-flying corporate chieftons were one after another convicted for deceiving the public and lining their own pockets at the expense of their shareholders.

After years of record earnings in the 1990s, the markets collapsed and shareholders saw their paper fortunes wiped out. From large state-run pension plans to employee retirement accounts, millions of average Americans lost substantial portions of their life savings.

This prompted Congress to enact the Sarbanes-Oxley Act reforms which injected a greater degree of accountability into the reporting requirements of public companies. While this will certainly help to avoid this type of conduct in the future, by itself it cannot provide shareholders with complete protection.

In the past, prosecutions of upper level management in major corporations had been all but unheard of. These cases were typically handled on the civil side, with corporations paying fines for any wrongdoing. Now, the bar has been raised and the public will expect corrupt CEOs to go to jail.

But the system is still far from infallible. The regulators cannot police every public company. Accountability still depends on the vigilance of boards of directors and outside professionals, many of whom are often tied in some way to the CEO and are still less likely to challenge someone who is making money for the company's shareholders.

If there's one common theme that runs through these prosecutions it may be this: it's not so much the bad times that investors should worry about, but when the markets are thriving that the opportunities for fraud and deception are greatest.

Robert A. Mintz is a former federal prosecutor. He currently heads the Securities Litigation, Government Investigations and White Collar Defense practice group at McCarter and English, LLP, and has been an ABC News legal analyst.