Disgraced former Enron boss Jeff Skilling could have his jail sentence reduced by up to 10 years, under a deal announced on Wednesday by the US Department of Justice. Skilling was originally convicted in 2006 on 19 counts of fraud, and ordered to serve 24 years in jail. However, since then his lawyers have fought to overturn both the conviction and sentence through the US appeal courts.

The new deal aims to end that legal wrangling with an agreement that Skilling will no longer contest his convictions, in return for which his spell behind bars will be cut. As a result, $40 million of recovered funds can now be distributed to victims of Enron fraud – money that was kept under lock and key for all the time Skilling protested his innocence.

Enron’s 2001 bankruptcy stemmed from the use of complex and confusing accounting practices that enabled the executive committee to hide the true state of its business. That, in turn, led to a hyping of the company’s share price.

Before long, though, the web of dummy holding companies that formed Enron’s infrastructure unravelled, and its stock plummeted from $90 per share in mid-2000 to less than $1 by November 2001. The fraud was allowed to go on unchecked by the lax procedures of government-appointed auditor Arthur Andersen, which itself collapsed after Enron’s demise. Under Andersen’s representation, Enron had been able to book its accounts on a “mark-to-market” basis – meaning that projected or perceived future revenue could be entered as current profits.

That perfect storm of light regulation, use of complex financial instruments that only a few people really understood, and an improperly cosy relationship between a large corporation and an official auditor was a direct forerunner to the circumstances that hatched the financial crisis of 2008. It is still remarkable that no one heeded the warning signs from Enron and pushed for reform in the immediate wake of the scandal.

Significantly, the deal also highlights how difficult it is to achieve true justice in these cases. Just as there is palpable US resentment over Skilling escaping almost half his sentence, there is still anger in the UK about the lack of urgency to make top bankers pay for their mistakes – despite the best efforts of politicians such as Vince Cable. Unfortunately, though, many of those responsible for the banking crisis have dissipated into resignation or retirement, with those who remain in the firing line protected by the wealth they made before the crash.

Logically, the US authorities have made a sensible move: one that will save taxpayers’ money, set Skilling’s conviction in stone and release the frozen funds – albeit just a fraction of Enron’s total losses. But it does not provide the sense that any sort of justice has been done. The UK public may soon have to face up to the reality that similar outcomes are likely for those responsible for the banking crisis… and the tough times that have followed.

Jeff Skilling police mug shot courtesy of the United States Marshals Service, via Wikipedia (public domain status)