Ex-corporate felons thrive

Many executives resumed lucrative careers after receiving huge salaries while in prison


Out of prison and free of her monitoring bracelet, Martha Stewart is setting a new standard for post-conviction corporate comebacks.

Shares of her Martha Stewart Living Omnimedia have soared in recent months as the jailbird-cum-trendsetter has vaulted back into the mainstream entertainment world.

With a daytime talk show that debuted in mid-September and a prime-time Apprentice series that launched Sept. 21, Stewart is riding high - and she's not alone.

Although criminal convictions typically spell financial ruin for white-collar defendants, the recent government crackdown on corporate crime has yielded some conspicuous exceptions.

Some notable felons are going directly from federal custody back into the corporate suite, collecting rich compensation along the way. Critics say restoring these criminals to positions of authority within their public companies undermines the deterrent of incarceration.

"It sends a message there are certain criminal acts you can get away with doing without having a denigrating effect on your career," said Paul Hodgson, senior research associate at the Corporate Library governance group.

But Hodgson and others say each case needs to be reviewed individually, and it could be appropriate to hire back a felon so long as day-to-day operation of the company is out of their purview.

Stewart, who lied to federal authorities investigating a stock-market scam, is now collecting a base salary of $900,000, plus a bonus of up to 150 percent and a $100,000 expense allowance. Talent fees for her TV appearances amount to additional hundreds of thousands.

Convicted stock swindler Steven Madden, whose shoe company welcomed him back from prison earlier this year, has bagged a salary of $600,000, with a $200,000 expense allowance, 2.5 percent of revenues from new ventures and a 10 percent cut of certain licensing deals. The company, which bears his name, had been paying him an annual salary of $700,000 while he was incarcerated.

In Oregon, Fog Cutter Capital Group took the aggressive step of giving its former chief executive a big boost in compensation on his way to the Big House - prompting the Nasdaq market to delist its shares.

The publicly held real estate firm funneled $4.6 million to Andrew Wiederhorn in 2004, the year he went to prison for filing a false tax return and paying an illegal gratuity.

The payout included a special $2 million "leave of absence agreement" that was used to cover the restitution he owed for his offenses. This year, the company is paying him $1.8 million, although he is scheduled to remain in prison until Nov. 22.

In all three cases, the criminals involved were founders deemed by their companies as indispensable to future success. Corporate spokesmen describe Stewart as "incredibly valuable," Madden as "an inspiration," and Wiederhorn as a "creative genius."

While pay deals such as theirs might be expected to invite outrage and legal action from at least some shareholders, others say a felon may be just the right fit for certain high-profile corporate jobs.

James A. Mitarotonda of Barington Capital Group, an influential owner of stock in Steven Madden, for instance, said the prodigal founder has added significant value since rejoining the company.

Once Madden was released to a federal halfway house in April, after more than two years in prison for manipulating initial public offerings, "I found him to be a real positive for the business," Mitarotonda said. "My sense is that Steve has learned from the mistake he made in the past."

In Madden's case, the Securities and Exchange Commission has barred him from serving as a director or officer at any public company. Instead of returning to his company in his previous role as chief executive, Madden observed the SEC restriction by becoming "creative and design chief."

Similarly, Stewart came back to her company as "founder," although the SEC's petition to bar her from director and officer posts remains unresolved.

Some see the potential for subterfuge in those shifting titles, including David S. Ruder, a Northwestern University law professor and former SEC chairman.

"The danger for the company is that these people become de facto executives, and can do bad things again," Ruder said.

Even so, Ruder sees an important distinction between a "blatant" thief like Scott Sullivan, the chief financial officer instrumental in looting WorldCom, and criminals like Stewart who did not steal from the companies where they worked.

Fogcutter, for instance, decided to pay Wiederhorn's restitution and other compensation because its directors "did not regard his crime to be serious, and it had nothing to do with Fogcutter," said Lanny Davis, a spokesman for the company's board.

Greg Burns writes for the Chicago Tribune

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