updated 5/25/2006 3:37:22 PM ET 2006-05-25T19:37:22

It was almost a formality, but a Houston jury has convicted Kenneth Lay and Jeffrey Skilling on almost all charges relating to their roles in the most important corporate scandal ever recorded in U.S. history.

On counts including conspiracy, securities fraud, making false statements and wire fraud, Lay and Skilling were found guilty. Skilling was even convicted on one of the insider trading counts. This means the pair will spend the better part of the rest of their lives in a federal prison.

The Enron trial was a marathon, lasting 16 weeks and providing a unique opportunity for the public to glimpse the inner workings of the swashbuckling and everything-in-excess 1990s corporate culture. For their diligence and fortitude, we are grateful to both the 15-member jury (let's not forget the three alternates) and Judge Sim Lake, who will unfortunately be remembered for presiding over this trial, instead of his service on the bench before and after Enron.

The message this jury has sent echoing through boardrooms is that the line has been drawn in the sand; no one is too smart to disregard the rules and escape justice. Judge Lake should reinforce this message by throwing the book at Lay and Skilling. The severity of their crimes, the impact of their actions on shareholders and employees and pervasiveness of the fraud certainly warrants a stiff sentence. The historically pro-prosecution Fifth Circuit, which will no doubt have to rule on Lay and Skilling's appeal, should likewise issue expeditious and severe judgments. Closing this chapter in such fashion allows the thousands of hard working Americans whose retirements were destroyed by Enron's collapse to finally achieve some peace of mind.

But this doesn't mean that market regulators should kick back and celebrate along with the Enron Task Force. On the contrary, securities industry regulators should be wakened from their slumber and humbled by U.S. Attorney Sean Berkowitz, Asst. U.S. Attorney John Hueston and their 35-attorney team. The case brought against Lay and Skilling was not a settlement shakedown for publicity's sake, rather a methodically researched presentation of evidence proving the defendants' guilt. Simply put, while U.S. Attorneys doggedly pursue major league cases, Elliot Spitzer's office relegates itself to the minors, rarely seeing the inside of a courtroom.

The first issue in need of immediate reform is fixing a broken securities arbitration system. If small investors must wave their rights to a trial when engaging a brokerage firm, they should at least receive an impartial arbitration hearing by the New York Stock Exchange (NYSE) or the National Association of Securities Dealers (NASD). The system currently mandates that one member of the arbitration panel deciding a victimized investor's fate be someone from the actual securities industry. This is like having a member of an opposing baseball team pitch to his own batters.

To even the playing field, the Securities Industry Association, the NASD and NYSE, which oversee these hearings, should eliminate the industry arbitrator to ensure the panel's impartiality, as recently recommended by the North American Securities Administrators Association.

Secondly, revisiting the Sarbanes-Oxley Act (SOX) so that smaller publicly traded companies aren't financially burdened by the filing requirements is misguided. This movement, being pushed through Washington largely by fat cat corporate executives and their lobbying minions, tramples upon small investors seeking transparency, internal controls and corporate governance among small-cap firms. Further, there is no objective research that states smaller public companies are less likely to practice Enron-esque accounting procedures. In fact, fraud is likely more prevalent among these firms, as 80% of all public companies are small-cap firms. Given their sheer number, they should not receive special consideration.

Another freshly minted strategy corporations are using to bilk shareholders is back dating stock options. Simply the latest incarnation of corporate thievery, it appears that this practice is once again particularly widespread in the high-tech sector. It's hard to believe that this issue even warrants debate. If a small investor cannot choose the price of a stock before he or she buys, why should a corporate executive be allowed to? The bottom line is that backdating stock options is stealing and those who have done so should be prosecuted, whether or not they conveniently forgot about exercising their option when it was offered.

Finally, regulators should revisit the recovery limits of the Securities Investor Protection Corporation (SIPC). This not-for-profit agency was congressionally mandated in the 1970s to provide investors with "insurance" from securities fraud, estimated to plague the little guy to the tune of $10 billion to $40 billion each year. Originally, the amount investors could recover was limited to $100,000 of their original investment and $500,000 of stock losses, a fair amount in those days. The problem is that these limits have not changed since they were instituted over 30 years ago. Inflation alone warrants an increase of the limits, which says nothing of the incomparable amount of retirement and savings invested in today's markets as compared to 30 years ago. Raising the SIPC limits would provide smaller investors with added confidence in the markets; something even Wall Street lobbyists could get behind.

The sad reality, however, is that regulators probably won't heed the Enron wake-up call. Instead, they'll focus attention on political aspirations a la Eliot Spitzer or European merger prospects a la John Thain. This means that the Securities Exchange Commission, NASD and Congress must take a leadership role to protect the small investors from the greed that took down Enron. If regulators choose to ignore their duties, then they too should be held accountable as Lay and Skilling were for their "conscious avoidance."

Jacob H. Zamansky is a principal in the firm Zamansky & Associates, one of the leading plaintiff's securities arbitration firms in the U.S.


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