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Little Fish Can Swim in a Big Pond

Little Fish Can Swim in a Big Pond

It’s quite an interesting strategy crafted by the Justice Department to combat corporate fraud.

Interesting, and rather effective. Instead of immediately going after the top execs, Justice Department investigators are finding those middle managers who pushed all the paper and lean on them heavily until they talk.

Then remind these white collar laborers who arrive early every day and work well into the night while their bosses vacation in the Mediterranean that going to jail means losing everything , the house, their career, quite possibly their family, and most of all, their freedom.

If the debacle unfolding at San Diego’s Peregrine Systems teaches top execs anything, they should realize that those toiling below them have very little loyalty when faced with the loss of everything they hold dear. “Do it for the company” doesn’t carry much weight when your alternative is visiting your kids through an inch-thick piece of glass.

A former Peregrine accounting executive, Ilse Cappel, pleaded guilty to bank fraud Nov. 22, the first in what appears to be a long line of the bankrupt software company’s current and former managers who will likely be faced with similar choices when confronted with jail time or fingering those who gave the orders.

Cappel admitted she took part in a conspiracy to falsify invoices and manipulate key financial data, according to the plea agreement. To compound the beleaguered accountant’s woes, the SEC also filed a lawsuit against her. Cappel is the first to face the feds’ wrath at Peregine, but certainly will not be the last. Justice Department strategy to target the little fish in hopes of landing the prize catches on down the road has worked in some of the past year’s most notorious cases.

Michael Kopper, Enron’s former financial manager, pleaded guilty to various charges in exchange for testimony about his bosses. While ex-CFO Andrew Fastow is on the hook for 78 counts of securities violations, ex-CEO Jeff Skilling and former chairman Kenneth Lay have yet to face charges.

Similarly, an ex-Arthur Andersen manager became a key witness against the accounting firm, as did a WorldCom executive who, along with others from the company, contended he was just following orders.

Of course, it’s difficult to gauge just how far up the chain of command such cases go. But someone gave the orders, and someone executed them. Top executives can’t implement much on their own; others are needed to carry out the plan.

Cappel’s role also is a bit hard to define. After all, she could have just said no. Should her testimony against Peregrine executives prove valuable on down the road, a judge could very well reduce her sentence , a maximum of five years in prison and a $250,000 fine.

Yet it’s much easier to be sympathetic with Cappel’s plight , a manager with a family and a mortgage and a tremendous amount of pressure to appease the bosses when it came to the bottom line. And if her testimony proves valuable, it will once again prove that the little fish can ultimately bite just as hard as the big ones do.

, Rick Bell

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