There's nothing like a good perp walk, and that's exactly what we got today with photos of Ken Lay handcuffed by the FBI in Houston after he turned himself in. It's maybe small consolation for those who lost their life's savings in Enron, but Lay was indicted on 11 counts and also named in an SEC civil complaint seeking more than $90 million.

In today's Motley Fool Take:

Ken Lay Surrenders


Bill Mann (TMF Otter)

Finally, the federal prosecutors responsible for building a case against the executives who lorded over Enron's collapse believe that they have enough to indict former Chairman Ken Lay, making him the 31st person to be indicted over the massive financial fraud at the company. Lay turned himself in to the FBI in Houston this morning and entered a not-guilty plea in court today on 11 charges, including insider trading, securities fraud, and other fraud charges. Further, the Securities and Exchange Commission, which has cooperated closely with prosecutors, filed a separate lawsuit against Lay seeking to recover some $90 million in "unlawful proceeds" from stock sales.

For two years, ever since I testified before Congress about the financial scandal and collapse at Enron, I've made this same point: Making cases against individuals in instances of corporate fraud is very, very hard. People wanted the folks at the top at Enron to go down hard. Very understandable, of course -- so did I. Many went so far as to say that Lay's close relationship with President Bush meant that he would gain protection from ever seeing the inside of a courtroom.

Upon hearing word of his arrest, one Democratic National Committee spokesperson rhetorically asked whether Lay's special relationship with President Bush caused "the lengthy delay" in his indictment. That might make for good cheap political points, but it's absolutely moronic, showing disrespect for the difficulty and resources needed to make these kinds of charges stick. Ask any district attorney, any attorney general, what their least favorite kind of cases are, and corporate fraud will be near the top. The cases require massive resources, tons of man-hours, simply aren't very interesting (better to convict 10 drug dealers with the same resources), and are still extraordinarily difficult to prove. People who are lower on the totem pole blame management directives; their managers blame rogue employees.

So as to what caused "the delay" in indicting Ken Lay, I pose the following: Under law, we get one chance to get a conviction. Would you want to be the prosecutor who indicts too early and allows Ken Lay, the face of corporate greed, to be acquitted?

It's just an insulting question. I'm glad they took their time, because this one shot had better count. Cases that happened several years prior to Enron, for example, the massive fraud at CUC -- which became part of Cendant(NYSE: CD) -- have still not resulted in some of the main ne'er-do-wells having to show themselves before a judge. Who's protecting them? Who protects the fund managers who still haven't seen a day in court? Why weren't there more individual prosecutions on Wall Street from the securities frauds that went on during the IPO bubble? Is Eliot Spitzer protecting the folks who put "strong buy" on garbage stocks they hoped little old ladies would buy? Once former Enron Chief Financial Officer Andrew Fastow decided to plea-bargain, I figured it was a matter of time before the case against Lay was finally airtight enough for prosecutors to move to indict.

The fact of the matter is that Ken Lay became a liability for the Bush administration -- it had no benefit in protecting "Kenny Boy." And there is no indication that it did. Exhibit 1: "Not guilty, your Honor."

The SEC and prosecutors claim that Lay took an active role in various accounting shenanigans that presented Enron as a dazzlingly profitable, healthy company -- even as it rotted from the inside. They note that Lay sold millions of dollars worth of shares of company stock at prices inflated due to the fraudulent reports and accounting schemes. At the same time, thousands of Enron employees were limited from selling their own company stock in 2001, even as those who hatched the scheme bailed out as the company collapsed.

The most bizarre thing about Lay is that he voluntarily left the company in 2000, turning the reins over to also-indicted former CEO Jeff Skilling. Only when Skilling suddenly resigned in 2001 did Lay come back to try to rescue the company that he had helped create in 1985. Some have postulated, not implausibly, that such an action suggests that Lay was not nearly as engaged in the running of the company, or the ongoing fraud, as it appears on the outside. Now would be a great time to go back and read the original Powers Report.

Of course, that's for the courts and jury to decide, based on the evidence. I for one am ecstatic that Lay is going to have the opportunity to explain for himself in a court of law. Justice, be ye not blind.

Bill Mann has no stake in any company or court case mentioned in this story. To learn about companies the Motley Fool believes have managements that act in the best interest of shareholders, consider a free trial to The Motley Fool Stock Advisor.

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Market Frowns on Yahoo!


Rick Aristotle Munarriz (TMF Edible)

Investors are seeing double this morning. No, it's not just because Yahoo!(Nasdaq: YHOO) saw its June quarter earnings double. It's not because sales also nearly doubled to $609 million from a $321 million showing a year earlier. The real reason that shareholders are seeing double is that despite those healthy financial gains the stock got rattled last night, taken down a few bucks in after-hours trading.

That's often one of the more nagging aspects of investing. You can buy the right company. You can buy in before the right news. The stock can still kick in with all the wrong moves.

Look at Motley Fool Stock Advisor newsletter recommendation Marvel Enterprises(NYSE: MVL). It seems unlikely that Spider-Man 2 could have fared any better at the box office, yet the stock has surrendered 16% of its value since the movie opened last week.

More often than not, assuming that the company's financial results are at least in line with the market's published expectations (as was the case with Yahoo!), it's what goes unpublished that matters.

No, I'm not talking about the dreadfully silly whisper numbers. However, if you notice that a stock you own starts to appreciate days, weeks or even months before a tell-tale event, don't be surprised if anything south of Utopia has already been priced into the expectations.

I mean, Yahoo! isn't damaged. Not by a long shot. The same paid search wave that has helped out smaller players such as Ask Jeeves(Nasdaq: ASKJ) and FWHT) has been a major contributor to Yahoo! given its Overture acquisition.

However, after the company kicked off the year with a spectacular first quarter, this June quarter proved to be simply mortal. While the company is now looking to produce between $2.46 to $2.54 billion in sales this year -- a tad better than the $2.4 and $2.5 billion range it had suggested back in April -- the market has every right to expect bigger strides. After all, the stock did start out the year at a split-adjusted price of $22.52 -- after nearly tripling in 2003.

So it's okay to see double. Patient investors already saw that -- and then some.

Longtime Fool contributor Rick Munarriz doesn't like to whisper numbers -- or sweet nothings, for that matter. He does not own shares in any company mentioned in this story.

Discussion Board of the Day: Yahoo!

Despite Yahoo!'s(Nasdaq: YHOO) healthy financial gains this quarter, the stock was down in after-hours trading. Did Yahoo! earn enough in the quarter? Were you hoping for more? Is the lower stock price an opportunity for investors? How will the company figure into your plans once Google goes public? Share your views with other Fools on the Yahoo! discussion board.

Seibel's Sorry State


Tim Beyers

Siebel Systems (Nasdaq: SEBL) has seen better days. The dominant provider of software for managing customer relationships reported yesterday afternoon that it would fall far short of second-quarter revenue estimates. Shares dropped nearly 13% in pre-market trading.

In a statement, Siebel said it expects revenue to come in at $301 million, roughly 15% lower than the Street's estimate of $353 million. The company blamed the shortfall on "unexpected delays in purchasing decisions by certain prospects and customers." Translation: We couldn't close the deals we needed to close, sorry.

Without a crystal ball it's impossible to know why these critical deals -- worth at least $50 million combined -- couldn't get done. One answer could be competition. Siebel has some of the toughest competitors in the business in CRM), Oracle(Nasdaq: ORCL), and PeopleSoft(Nasdaq: PSFT). The changing economics of software could also be playing a role, as fellow Fool Tom Taulli recently pointed out.

Regardless of the reasons, investors don't appear to like where Siebel is headed. They've made their opinion known by repeatedly clicking the sell button, sending Siebel's shares lower by more than 30% this year. Can you blame them? It's not like yesterday's news is the lone ding on a pristine record for Siebel. It was only last week that the SEC filed a civil action against the company for violating Regulation Fair Disclosure for the second time in two years.

The good news, if there really is any, is that Siebel isn't alone. PeopleSoft warned that it would miss earnings estimates, too. (Although the firm predictably blamed the bad news on Oracle's hostile bid.) Other apparent victims of a declining appetite for software include Veritas(Nasdaq: VRTS) and JDA(Nasdaq: JDAS), both of which issued earnings warnings. (Veritas got the worst of it, getting hammered by more than 35% yesterday.)

Perhaps the investing lesson here is that it's not enough to dominate a good market with a good product. Good management is equally important. Sadly, that's the one thing that seems to be in short supply at Siebel.

Need more Siebel coverage? Try these on for size:

  • Siebel spilled the beans, again.
  • Fool Rick Munarriz raised a toast to founder Tom Siebel upon his resigning the CEO post.
  • Although the results were overhyped, Siebel made progress in the first quarter.

Fool contributor Tim Beyers thinks that the SEC should slap the handcuffs on executives that ignore Regulation FD. Yep, that means you, bucko. Tim owns no shares in any of the companies mentioned, and you can view his Fool profile here.

Quote of Note

"It's so much easier to suggest solutions when you don't know too much about the problem." -- Malcolm Forbes

Will Congress Kill the iPod?


Seth Jayson

We are a nation of whining, sensationalist thieves. Want proof? A new bill introduced in Washington is already being painted as a threat to Apple's(Nasdaq: AAPL) iPod. You can almost forgive Gannett's(NYSE: GCI)USA Today for running the bogus headline "Copyright bill poses threat to iPod's future." After all, the screaming from Web junkies was audible from my house.


The bill is aimed at peer-to-peer networks (P2P) such as Grokster and Kazaa, but the Chicken Little crowd is crowing that the iPod could become a victim as well, along with download services from RealNetworks(Nasdaq: RNWK), Roxio(Nasdaq: ROXI), Loudeye(Nasdaq: LOUD), CNET(Nasdaq: CNET), and Wal-Mart(NYSE: WMT).


Don't you believe it. While I'm normally not a fan of legislative remedies to technical problems -- and I've got the public ranting to prove it -- this bill doesn't seem all that unreasonable to me. Of course, I don't steal -- I mean, file-share.


What the bill would do is amend existing copyright law to allow lawsuits against those who "intentionally induce" copyright infringement. It would be nearly impossible for a reasonable person -- and that is the standard used in the bill -- to decide that an iPod is a tool for intentional violation of copyright. Ditto a pay-per-download service with copy-protection schemes.


On the other hand, it would be tough for said reasonable person to argue that P2P networks serve as anything other than a means of circumventing copyright laws. And by that, I mean stealing. It's no secret that these systems traffic primarily in copyrighted material and that their users are 99.9% interested in getting music and videos for free.


Please. Spare me the B.S. about using P2P networks to research notes, home videos, and tuna casserole. There are plenty of other ways to share this material on the Internet. The only ones to lament the death of these crooked schemes will be the file-swipers and the spyware industry. Investors could look forward to a more orderly and more profitable online-music market.


For more Fool coverage of the download industry:

Fool contributor Seth Jayson knows he's going to hear some ranting about this one. He has no position in any company mentioned. View his Fool profile here.