3 SMALL STRIKES GO TO PRISON,
3 BIG STRIKES GO TO THE BANK

Peter A. Schey — March 2002
Santos Reyes is a 30-year old Hispanic American. He has a high school diploma but was never able to attend the kind of schools Kenneth Lay did. While Ken Lay was dreaming about creating "the Microsoft of the energy world," Santos was dreaming about how he could find a job with only a high school diploma. During the 1980s, while Ken Lay was taking over Houston Natural Gas and figuring out how to create a nationwide natural gas pipeline system to make millions of dollars, Santos tried burglary to survive. By 1997, Ken Lay was buying up utilities worth hundreds of millions of dollars, and entering the lucrative market of providing "energy management services." Santos Reyes was convicted of lying on a driver's license application in San Bernadino County, and under California's Three Strikes law, was sentenced to 26 years in prison. By 2000 Ken Lay's salary was $1.3 million and he convinced his board he was entitled to a $7 million bonus. Enron shares hit a record high of $84.87. Creative accounting kept investors and employees unaware of weaknesses in the company. Ken Lay exercised Enron options valued at $123.4 million. For his part, Santos Reyes was spending his third year in prison, allowed to make about 35 cents per hour to keep his productivity up. He was one of about 23,000 California inmates serving life sentences. His detention was costing California taxpayers about $25,000 per year.
By 2001, Enron filed for bankruptcy listing more than $31 billion in debts. Ken Lay was ousted as chairman and chief executive amid allegations of financial trickery. He was named in over 50 lawsuits by investors, pension funds, and Enron employees alleging wide-ranging fraud. But Ken Lay lived on the 33rd floor of the Huntingdon, an exclusive Houston high-rise with an assessed market value of $7.1 million. He counted his blessing and properties, which included four in Houston, four more in Aspen marketed at over $10 million, and several houses and lots in Pirate's Cove on Galveston's west end. Santos was spending his fourth year in prison for lying on a driver's license application. He had no property to worry about. At least from the standpoint of the IRS, Enron and Santos Reyes appear to have been in about the same boat. Santos was in prison so he paid no income taxes. At the 35 percent tax rate, Enron's tax on profits in the past five years would have been about $625 million, but the company used tax breaks from stock options and other loopholes to reduce its tax to less than zero.
In 2002, Ken Lay took the Fifth Amendment when ordered to testify before Congress about the Enron debacle, his attorney complaining of a "prosecutorial atmosphere" on Capitol Hill. Santos sat in his jail cell, reflecting on the "prosecutorial atmosphere" he faced in California under the Three Strikes law. Let's look at a few other prisoners facing this "prosecutorial atmosphere" in California. According to Families to Amend California's Three-Strikes: In 1995 Rene Landa, 50 years old, was convicted and sentenced to 27 years to life for stealing a tire from a from a sheriff deputy in Huntington Park. In 1995 Ruben Arriaga, 45 years old, was sentenced to 25 years to life for shoplifting a $70 drill from Sears. The sentencing judge said he would not lower the sentence because 81 percent of voters in his county supported the Three Strikes law. In 1999 Steven Bell, 37 years old, faced a theft charge. He had two priors in Nevada for stealing clothing and jewelry. He refused a plea-bargain and went to trial, mistakenly believing his two non-violent Nevada convictions wouldn't count against him. He was convicted and sentenced to 35 years to life for stealing a bicycle. If Rene Landa serves out his sentence for stealing a tire, his punishment will cost California taxpayers about half a million dollars, enough to buy 50,000 tires for California's law enforcement vehicles. If Steven Bell serves out his sentence for stealing a bicyle, his punishment will cost California taxpayers three-quarters of a million dollars, enough to buy about 3,000 bicycles for police officers to patrol throughout the state. Some may recall the widely publicized case of Jerry Dewayne Williams. Shortly after Three Strikes was passed, he stole a slice of pepperoni pizza. At the age of 27, he was sentenced to 25 years for this third strike. Following a series of appeals, he was eventually released, but only after serving six years in prison at a cost to the taxpayers of about $150,000, enough to buy 30,000 pizzas for off-duty policemen. Despite the draconian punishment meted out under the 1994 law, studies reveal that the Three Strikes law has done little to reduce crime. A 1997 Justice Policy Institute study found that California¹s declining crime rates were no different than states without a three-strikes law. In fact, during the period reviewed the defendant age group most likely to be sentenced under the Three Strikes law witnessed increases in felony arrests and violent crime. Data also disclosed that counties vigorously implementing the Three Strikes law reported no greater decreases in any crime category compared with lenient counties. The study found that "the sevenfold proportionally greater use of three strikes in Sacramento and Los Angeles was not associated with a bigger crime decline than in Alameda and San Francisco counties that rarely use the law." The RAND Corporation, which addresses public policy through research and analysis, studied the long-term costs of the Three Strike law and concluded the mandatory detention of three strikers will cost Californians an extra $4.5 billion to $6.5 billion per year in current dollars. They also point out that only about one-third of all three strickers will be sentenced to 25 years to life for serious violent crimes. Most will be sentenced for crimes like auto theft and burglary. We can't expect much leadership from Governor Gray Davis on this issue. He embraces hard-line law and order issues regardless of their disproportionate impacts on minority communities and lack of empirical linkage to crime prevention. He benefits from enormous campaign contributions from the likes of the prison officers' union, which strives principally to jail more and more people. The union reportedly spent about $2 million on its independent campaign to have Davis elected. At the rate things are going, the California Legislative Analyst's Office has estimated that California needs six new prisons, with a price tag of about $1.5 billion. At the other end of the scale from those serving long prison sentences for crimes involving stolen tires, slices of pizza, and false driver's license information, are those who skim millions of dollars, meet secretly with policymakers, and spread campaign contributions to build support for deregulation of their activities. When they step too far out of line, the criminal justice system seems to shrug. They principally face civil suits. Attorney General Bill Lockyer recently reported that during California's energy crisis, four major energy providers illegally inflated prices by selling emergency electricity already paid for by California. In Lockyer 's words, "They sold the same automobile twice to different people." The did so to the tune of $49 million. Neither these companies nor their managers face anything close to a Three Strikes law.
Lockyer also says he is continuing to pursue an investigation into Enron's activities in California. By all accounts Enron ripped off thousands of Californians' pension funds. It created off-the-books partnerships to inflate profits and hide debt. It misleadingly posted its bank loans as "assets from price risk management." Its officials did such a good job of scrambling their financial records, Robert McCullough, a financial analyst and partner of a major energy consulting firm, says "Quite bluntly, those numbers are impenetrable ..." While deceiving investors, a report authored by University of Texas law school dean William Powers, concludes "Enron employees involved in the partnerships were enriched, in the aggregate by tens of millions of dollars they should never have received." For his part, Kenneth Lay earned more than $300 million in compensation and salary during the last four years from Enron. And while Enron's fraud was inexorably sliding the company towards bankruptcy, Ken Lay still had access to Treasury Secretary Paul O¹Neill, Commerce Secretary Don Evans, and the White House. He felt he deserved the access. After all, Enron and its managers contributed over $600,000 to support George Bush between 1993 and 2001. Lay's spokeswoman Kelly Kimberly recently reached out for a touch of sympathy, announcing that while the Lays "are experiencing liquidity problems, they believe they will be able to work through them." Santos Reyes and Steven Bell have no "liquidity problems." They have a cruel and unusual punishment problem. When we consider how their crimes were dealt with compared to the crimes of the captains of Enron and California's energy providers, one wonders how Thomas Jefferson would score the government on what he called one of its "most sacred of duties,... to do equal and impartial justice to all its citizens." He would likely be quite disappointed in how the criminal justice system has turned out. One system for the poor leading to prison, another for the rich leading to the bank.
Peter Schey is an attorney and the President of the Los Angeles-based Center for Human Rights and Constitutional Law


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