U.S. District Judge Sim Lake re-sentenced former Enron CEO Jeff Skilling to 14 years in prison yesterday. That was the most lenient sentence that Judge Lake could impose under the deal that Skilling cut with the Department of Justice without risking a government appeal of the sentence. Skilling has already served almost seven years in prison and that he has to spend another day in prison — much less the four more years that Judge Lake’s re-sentence imposes — is highly unjust. In the letter below that I sent a couple of weeks before Skilling’s resentencing hearing, I explain to Judge Lake why I believe that Skilling’s plight is a grave injustice and why releasing him would actually have a beneficial impact on educating business markets.
One of the most important political issues to most Americans that you will never hear mentioned by either of the major party Presidential candidates.
My friend and Clear Thinkers favorite Larry Ribstein died unexpectedly yesterday at the age of 65. I convey condolences and deepest sympathies to Larry’s wife Ann and their daughters, Sarah and Susannah.
Larry was a teacher who understood precisely what his life’s purpose was and pursued it with an endearing combination of intellectual curiosity, vitality, humanity and good humor. Although I will miss Larry deeply, I feel blessed to have known him.
Larry and I came across each other in 2003, early in our respective blogging careers. The particular case that brought us together was that of Jamie Olis, which involved many of the issues about which Larry wrote passionately over his eight-plus years of blogging – criminalization of agency costs, over-criminalization generally, prosecutorial misconduct, anti-business mainstream media business reporting, etc.
But Larry and my friendship really ripened during the Enron case. Inasmuch as Larry and I both blogged frequently on business generally and business law issues specifically, we both watched in horror as the Enron case exposed many of the worst flaws of the American criminal justice system.
Larry and I were initially two of the only writers in the blogosphere who contended that most of the Enron-related criminal prosecutions were based on appeals to juror prejudice against business executives rather than true crimes, so we fast became blogging colleagues and commiserated often, eventually not only on Enron, but on a wide array of business law cases that arose after that seminal case.
Stephen Bainbridge, Ted Frank, Ilya Somin, Geoff Manne and others have already posted fine remembrances of Larry, whose academic contributions were prodigious. However, I believe that Larry’s most important contributions were his blog writings, which – along with those of Professor Bainbridge – have done more to improve the legal profession and general public’s understanding of complex business issues than any other information source over the past eight years.
To get a taste of Larry’s insights, just take a moment to review the dozens of Clear Thinkers posts over the years in which Larry’s research and observations are highlighted. The breadth and depth of his body of work is truly remarkable.
Beyond his special intelligence and intellectual honesty, though, the trait that drew me most to Larry was his humanity. Although he decried how our government’s senseless criminalization of business was destroying jobs and hindering the creation of wealth, Larry cared even more deeply about the incalculable damage to executives and their families that resulted from the absurdly-long prison terms that were often the product of such dubious prosecutions. When family members of wrongfully prosecuted executives came upon Larry’s writings, many of them would reach out to Larry for support, which he generously provided to them.
And I will never forget Larry’s touching note to me after he read a blog post that I wrote on the death of Bill Olis, Jamie Olis’ father. Larry understood in his big heart what it takes to be a loving father.
Larry Ribstein – husband, father, lawyer, teacher, scholar, colleague, writer, counselor, friend.
A fine legacy, indeed.
So, former Enron Task Force director Andrew Weissmann has found his way back into government service, this time as general counsel to the Federal Bureau of Investigation.
This is the fellow who – among other outrageous tactics — is primarily responsible for prosecuting Arthur Andersen out of business and for destroying the careers of several innocent Merrill Lynch executives in the notoriously misguided Nigerian Barge case.
And now he is the primary counselor to the federal government’s primary investigative force.
Weissmann’s track record of abuse of power should be grounds to preclude him from such a position. But in this day and age, it is viewed as sound preparation.
Not a particularly pleasant thought to have if the Devil ever turns on you.
We Americans do love our myths, as the Wall Street Journal reminds us this week with its glowing 10-year anniversary (!) tribute to Enron “whistleblower,” Sherron Watkins.
Of course, even a cursory review of the facts demonstrates that Ms. Watkins is not – and never was — a whistleblower.
Nevertheless, the nation’s leading business newspaper persists in a myth that is demonstrably wrong. In fact, the Journal’s coverage of Enron was questionable from the start.
Why is that?
Well, such levels of disingenuity are rarely attributable to one or even just a few factors, but Dio Favatas notes an interesting aspect of the Journal’s coverage of another business executive – Frank Quattrone – whose stellar career was sidetracked by a dubious prosection.
You may remember the Quattrone prosecution – a paper-thin case in the Enron mode that should never have been pursued. After Quattrone was convicted in a farce of a trial, the Second Circuit resoundingly reversed the conviction. Quattrone eventually settled with the prosecution in a favorable deferred prosecution agreement under which he admitted no wrongdoing whatsoever.
You would think that the injustice that was heaped upon Quattrone before the Second Circuit intervened would give the Journal pause regarding its demonization of Quattrone before, during and after the trial. But as Favatas chronicles, the Journal instead continues to attempt in a sophomoric manner to make Quattrone out to be something other than the hard-working, talented and successful investment banker that he is.
To make matters worse, in doing so, the Journal assigns a reporter to write the story who has a financial interest in making Quattrone appear to be a shady character.
Clarence Barron founded the Journal in the early 20th century on the personal credo that the Journal “must stand for what is best in Wall Street.”
It is sad to see how far the Journal has drifted from that salutary foundation.
The Fifth Circuit Court of Appeals has not exactly distinguished itself in regard to its handling of the various appeals that emanated from the various Enron-related criminal prosecutions.
In particular, the Fifth Circuit recently denied former Enron CEO Jeff Skilling’s motion for a new trial even though Skilling’s theory of the case for a new trial was upheld by Fifth Circuit panels in two other Enron-related appeals.
So, per the motion below, Skilling is once again preparing to petition the U.S. Supreme Court to reverse the Fifth Circuit yet again and order the Fifth Circuit to issue a mandate to the U.S. District Court to give Skilling a new trial.
Frankly, as implicitly reflected by the prosecution’s agreement to a stay of the Fifth Circuit’s current mandate pending Skilling’s appeal to the U.S. Supreme Court, Skilling has a good case for a new trial. Stay tuned.
Yes, our Congress is back at it:
Since the Supreme Court limited the definition of ‚Äúhonest services‚Äù fraud in last year’s landmark Skilling v. U.S., the Obama Administration has been looking for a way to restore essentially unlimited prosecutorial discretion to bring white-collar cases.
Last fall Assistant Attorney General Lanny Breuer told a Senate committee that Congress should act to ‚Äúremedy‚Äù the Court’s decision. Three bills moving through the House and Senate would try to do so, expanding the reach of prosecutors to go after unpopular politicians or businesses whom they can’t pin with a real crime.
In Skilling, the Supreme Court ruled that the honest services statute was ‚Äúunconstitutionally vague‚Äù and restricted its application to clear cases of bribery or kickbacks. The new legal template of Senate bills sponsored by Judiciary Chairman Patrick Leahy, the liberal Democrat, and Illinois Republican Mark Kirk would end run that change, transforming many state or local ethics violations into federal felonies any time there is an allegation of undisclosed ‚Äúself-dealing.‚Äù . . .
Where to begin?
Moreover, as Larry Ribstein has been saying for years, granting the government this type of unfettered power to criminalize merely questionable business transactions has proven to lead to even worse prosecutorial abuse that is rarely sanctioned.
The truth is that this type of amorphous criminalization of business judgment is fundamentally bad regulatory policy. Such prosecutions obscure the true nature of business risk and fuel the myth that investment loss results primarily from criminal misconduct. Besides, allowing wide discretion to prosecute business judgment deters businesspeople from taking the business risks that lead to valuable innovation, wealth creation and – most importantly these days – desperately needed jobs for communities.
So, in the face of such compelling reasons to forego such criminalization, why do our political leaders and prosecutors insist on more?
Ayn Rand‚Äôs observation about socialists who use state power to further their supposedly altruistic goals seems particularly apt:
‚Äú[T]he truth about their souls is worse than the obscene excuse you have allowed them, the excuse that the end justifies the means and that the horrors they practice are means to nobler ends.‚Äù
‚ÄúThe truth is that those horrors are their ends.‚Äù
Over the years, I’ve written quite a bit (for example, here, here, here and here) on the questionable nature of the prosecutions and convictions of the Gen Re and AIG executives who were involved in the finite risk transaction that prompted Eliot Spitzer to demonize Hank Greenberg. As if Spitzer needed any prompting to grab some cheap headlines.
By now, the story regarding this transaction is well-known among those in the legal and business communities who have followed it. AIG booked the finite risk transaction as insurance, which increased its premium revenue by $500 million and added another $500 million to its property-casualty claims reserves. Generally accepted accounting principles at the time required insurance and reinsurance transactions to transfer significant risk from one party to another if either party accounted for the transaction as insurance. Absent risk transfer, such transactions had to be booked as financing, which defeats the purpose of the transaction. In the General Re-AIG deal, $600 million of potential losses were transferred from General Re to AIG in return for the $500 million premium paid by General Re.
The deal did not affect AIG’s net income and was the type of transaction that AIG — and many other companies in the insurance industry – had done for years without any adverse market reaction, much less a criminal investigation. Moreover, the transaction in question was disclosed to and approved by AIG and General Re’s independent auditors.
That made no difference to avaricious prosecutors, who proceeded to pursue a dubious prosecution because any executive even vaguely associated with AIG after the Wall Street meltdown of 2008 were easy marks. They were right – the four Gen Re executives and the AIG executive were all convicted of conspiracy, mail fraud, securities fraud, and making false statements to the Securities and Exchange Commission
Thankfully, some appellate court panels (unlike some others) are still willing to correct such injustices. In the decision below, the Second Circuit Court of Appeals reversed the convictions of the Gen Re and AIG executives and remanded the case for a new trial. The essence of the decision is that the prosecution used spurious stock price data to inflame the jury against the defendants and persuaded the trial court to use an incorrect jury instruction on a key intent issue in the case.
However, as this appropriately scalding Wall Street Journal editorial points out, this case is really about abuse of prosecutorial discretion: “The collapse of this case renders even more appalling the way that prosecutors used it to force both companies to fire their CEOs–Joseph Brandon at Gen Re and Hank Greenberg at AIG. In the latter case, the resulting loss of shareholder wealth–and creation of taxpayer risk–has been staggering” and in this “latest embarrassing episode, the abuses include prejudicial evidence, botched jury instructions and ‘compelling inconsistencies’ suggesting that the government’s star witness ‘may well have testified falsely.’”
And although the Second Circuit came to the right result relying on a version of the facts most favorable to the prosecution, it’s important to note that most of the decision overrules the defendants’ other grounds for reversal where the prosecutors at trial may well have suborned perjury from the key prosecution witness.
It’s never easy being an appellant, even after a trial that is chock full of prosecutorial misconduct.
That’s why there shouldn’t be criminal trials in this type of case in the first place. Let the civil justice system sort out responsibility for any provable damages caused by wrongdoing among all of the parties involved.
That’s a far more just — not to mention humane — approach than throwing a few sacrificial lambs in prison over conduct of dubious criminality.
Update: Larry Ribstein, who has also been following this case from the beginning, notes an ironic — and extraordinarily damaging — aspect of this sordid prosecution.