FNC
Mike Norman
Dennis Kozlowski, Bernie Ebbers, John Rigas, Mark Swartz and soon, perhaps, Ken Lay and Jeff Skilling. Ever since the stories of the corporate scandals started to break back in 2002, some of the mightiest CEOs have come tumbling down to earth and are now being shipped off to the not-so-comfy confines of prison.

The pendulum has swung: From anything goes, let’s make money, to strict, zero tolerance.

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Does this finally mean that investors can look ahead and move beyond the corporate scandals that rocked the market back in 2002? Clearly in the short term the harsh sentences meted out (and they were harsh: Rigas and Ebbers both got life sentences when you think about it) will give pause to other corporate execs that are even thinking about cooking the books or otherwise defrauding investors.

But while investors may have been intensely focused on these issues in the fall of 2002, the recovery in stocks and the economy has put their minds elsewhere. The comeuppance of those onetime titans has become just another form of reality entertainment.

Personally, I have to wonder whether the next round of scandals may already be brewing but we just don’t know about it. Are all the investors who are running into energy and commodity stocks now setting themselves up for a big fall, just like what we saw with the dot-coms? And if so, will we hear the screams and see the finger-pointing and scapegoating that happened just a few years ago? Well, maybe not on the same scale, but it could happen.

Society must punish crime, and wrongdoing and there were laws on the books that already dealt with such things as fraud and theft before anyone ever heard of Enron or WorldCom. Yet out of the corporate scandals of 2002 came a monstrosity of over-regulation called Sarbanes-Oxley. Unfortunately, many decent and honest corporate executives now say that that heavy regulation is hurting risk-taking and corporate profits.

As “Koz” and Swartz get remanded to prison, what is missing in all this is a discussion of how much blame investors themselves should shoulder. Clearly, if there was outright stealing that’s one thing, but many of these cases were not simply black and white, they were gray. Juries, however, saw them as black and white.

In the heady boom days of the late 1990s the only thing most people cared about was making money. As long as stocks went up, no questions asked. When it all came crashing down, the attitude was, “we were duped.” Recent convictions notwithstanding, public behavior and investor behavior shows that nothing has changed.

If you remember anything, remember this: Caveat emptor!

Tune in to a special LIVE business block, Saturday at 10am ET, for the latest on Hurricane Rita's path and its possible economic impact with the entire FNC business team.

Mike Norman is the founder and publisher of the Economic Contrarian Update and a frequent guest on the Business Block.