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January 6, 2007

Westar Energy convictions are overturned

westar6.jpgIn this scathing 43-page decision, the 10th U.S. Circuit Court of Appeals set aside the convictions of former Westar Energy executives David Wittig and Douglas Lake on every count and ruled that most of the counts could not be retried. The convictions, which were based primarily on the executives' alleged failure to report their use of corporate jets for personal travel, “hung by a thin legal thread.”

Although largely overshadowed in the national media by the Lay-Skilling trial, Wittig and his corporate right hand man Lake were sentenced to 18 and 15 years in prison in April 2006 after being convicted of looting the utility of millions of dollars in unapproved compensation. An earlier contentious trial of the two former executives had ended in a mistrial in late 2004 after another federal jury in 2003 convicted Mr. Wittig of bank fraud charges in a case that was not directly related to Westar. Federal prosecutors had sought effective life sentences against the 50 year-old Wittig and the 55 year-old Lake.

Wittig and Lake left Westar late in 2002 amidst allegations of misuse of corporate funds. Subsequently, Westar under Mr. Wittig was implicated in the scandal surrounding efforts to fund Houston Congressman Tom DeLay's political action committee. Westar's contributions of funds during 2002 to DeLay's PAC were among the allegations of wrongdoing that led to DeLay's indictment in Travis County (Austin), Texas last year.

Wittig, who was a former star deal maker at Salomon Brothers, became Westar's CEO in 1998 and immediately turned the sleepy Midwestern utility into a deal machine. Wittig was paid compensation of more than $25 million in his seven years with Westar, and had no reservations about showing it in the staid Westar home of Topeka. He bought the largest home in town, which is a 17,000-square-foot mansion that former Kansas governor and one-time presidential candidate Alf Landon built. Wittig then spent over $2 million in art and interior decoration on the pad while driving around Kansas in a $230,000 Ferrari 550 Maranello. After some early success, Mr. Wittig's fast deal plan at Westar faltered and the company's stock price fell from $44 to $9 as Westar came under increasing pressure from shareholders and investigators, including the Travis County grand jury.

The first trial of Wittig and Lake was particularly wild. U.S. District Judge Julie Robinson, who is a former prosecutor, battled constantly with Wittig's defense attorneys -- Adam Hoffinger and Edward Little -- as the defense accused the judge of favoring the prosecution in her rulings. At several points during that trial, Judge Robinson angrily lectured the attorneys for their courtroom demeanor, which included rolling their eyes during witness testimony. Finally, a day before closing statements, the friction between the judge and the defense attorneys boiled over as Judge Robinson took the extraordinary measure of barring one of Mr. Lake's lawyers from the courtroom for the remainder of the trial.

Judge Robinson's judgment has also been questioned in regard to her sentencing of Wittig on the bank fraud charges. The judge originally sentenced Wittig to 51 months in prison in that case, but the 10th Circuit threw out that sentence. After she resentenced him to 60 months, the appellate court in November also threw out that sentence as far exceeding federal sentencing guidelines. Wittig is awaiting another sentencing in that case.

After this four-year ordeal of waste, is there really any question that responsibility for the alleged wrongdoing at Westar would have been more efficiently and justly allocated through civil rather than criminal proceedings?

The go-to duo for analysis of white collar criminal cases in the blawgosphere -- Ellen Podgor and Peter Henning -- analyze the 10th Circuit's decision overturning the Wittig and Lake convictions here, here and here.

Posted by Tom at January 6, 2007 7:55 AM |

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