By Greg Burns,Chicago Tribune

CHICAGO – Even after last week’s conviction of former WorldCom Inc. chief Bernard Ebbers in an $11 billion accounting scandal, his ex-company is sitting pretty.

Once a symbol of big business run amok, the company, now known as MCI Inc., has put its legal problems largely behind it, clearing its name to such an extent that two rival phone giants have launched a bidding war for it. The stock has nearly doubled since May.

MCI owes its status as a hot property to a new legal tactic in the battle against corporate fraud: Go after the individuals but not the corporations.

From Computer Associates International Inc. to Merrill Lynch & Co., at least a dozen major corporate offenders have gotten what’s known as “deferred” or “non-prosecution” agreements. In these deals, law enforcement stops short of pursuing criminal charges in exchange for reforms, restitution and cooperation against culpable employees like Ebbers, who was found guilty Tuesday of nine criminal charges by a federal jury in Manhattan.

Monsanto Co., American International Group Inc. and America Online all reached such deals with federal prosecutors in recent months.

State attorneys general such as New York’s Eliot Spitzer have struck the same sort of agreements, including one between Oklahoma and MCI a year ago that paved the way for the company’s revival in the public marketplace.

By sparing companies the ordeal of a criminal conviction, prosecutors can reduce the toll in lost investments and disrupted careers.

Avoiding that so-called collateral damage became a priority after the collapse of Chicago’s Andersen accounting firm in 2002. Some 85,000 Andersen employees lost their jobs after the firm was indicted for obstructing the investigation of Houston-based energy trader Enron Corp., one of its top clients.

Pressured by business and political leaders, who accused the prosecution of imposing a commercial death penalty, the Justice Department loosened its guidelines for corporate offenders.

“Granting a corporation immunity or amnesty or pretrial diversion may be considered … in exchange for cooperation,” then-Deputy Attorney General Larry Thompson wrote in January 2003. His memo ushered in a new wave of deferred criminal cases involving big business.

“By and large, they’ve worked well,” said Timothy Coleman, senior counsel at the Justice Department. “We’ve been able to recover a lot of money for victims without going through the delay and expense of a trial, and we’ve seen some positive … internal reforms.”

But some question whether postponing prosecutions indefinitely lets companies off the hook too easily.

“This is not in the public interest. The government should be going after these people tooth and nail,” said Michael B. Hyman, a class-action attorney at Chicago law firm Much Shelist.

“What message are we sending?” asked Russell Mokhiber, editor of the Corporate Crime Reporter newsletter. “We’re pulling our punches on some of the most powerful institutions in the world.”

Not so, countered Coleman, citing the multimillion-dollar payments and extensive reforms typically required in the deals. “These agreements do not come cheap,” he said.

Other critics say that putting off a corporate prosecution can be appropriate, but they worry the guidelines are too loose, and judicial oversight too limited.

“This is a major and largely unrecognized gear shift in the law since Arthur Andersen,” said John C. Coffee Jr., a professor at Columbia Law School. “It’s probably a sensible thing to do, but it is too unstructured.”

In non-prosecution agreements, typically no charge is filed, and though terms are put in writing, no judge needs to review them. Deferred prosecution usually involves a formal charge and some sort of judicial approval.

Those steps are nothing new for clearing relatively minor cases off the court docket or giving first-time offenders a second chance.

Until recently, however, they were rare for major corporations, with a few exceptions.

In 1994, well before the latest corporate crime wave, Prudential Securities reached a deferred deal with federal prosecutors.

In agreeing to pay restitution of $330 million, enacting remedial measures and appointing a special monitor, Prudential foreshadowed the terms of more recent agreements.

The decision to charge Andersen in the Enron matter came after federal prosecutors rejected a deferred deal because the accounting firm had gotten a pass in previous cases, such as Colonial Realty Co. and Waste Management Inc. As a repeat offender, Andersen merited the harshest punishment, the Justice Department determined.

The backlash following Andersen’s collapse was only one reason for the embrace of deferred prosecution, according to agency sources.

Another big goal was encouraging more extensive cooperation. Too often, crooked companies were shielding key employees, failing to disclose records and otherwise dragging their feet, Thompson noted in his memo. In determining whether to charge a corporation, he wrote, prosecutors should evaluate its willingness to finger top brass, make witnesses available, provide the results of internal investigations and waive attorney-client privilege.

That last step – revealing the confidential advice that company attorneys were giving executives – can make a defense all but impossible for the individuals involved, some attorneys say. It gives prosecutors a big advantage as they pursue white-collar fraud cases against wealthy targets who can afford an extensive defense.

The rash of deferred prosecutions also reflects the government’s stepped-up efforts to go after corporate fraud.

The WorldCom verdict is the biggest victory yet in a federal crackdown touched off by Enron’s abrupt dissolution in late 2001. Within months after Enron, WorldCom had spiraled into the biggest-ever bankruptcy, costing investors more than $180 billion in market value.

Since then, hundreds of federal defendants have been convicted or pleaded guilty in corporate fraud cases, and hundreds more have been charged, including those in the HealthSouth Corp. and Tyco International Ltd. trials under way.

In principle, deferral deals should bring about significant corporate reform in addition to compelling full cooperation, said John P. “Sean” Coffey, a former federal prosecutor turned plaintiff’s attorney in WorldCom and other corporate civil cases. They also should provide severe consequences for offenses during the customary two- or three-year period of probation, he said.

“If they so much as spit on the sidewalk, the sword comes down,” Coffey said.