July 8, 2008
The latest Enron book
Harvard Business School issued this press release and interview yesterday of Malcolm S. Salter, the Harvard professor who has written the latest book -- Innovation Corrupted: The Origins and Legacy of Enron's Collapse (Harvard University Press) -- in what seems to be a continuing stream on the demise of Enron. From the looks of it, Professor Salter has figured out that the recent collapse of Bear Stearns is a good hook for his book:
Q: Can an Enron-type calamity happen again? Why or why not?
A: Perverse incentives are legion throughout our system today. For example, perverse incentives for both mortgage brokers and investment bankers helped create the subprime crisis that we are now living through. Many boards are also still struggling to improve their oversight. Preventing future Enron-type disasters will require the kind of attention to board oversight, financial incentives, and ethical discipline that I address in Innovation Corrupted.
Interestingly, Professor Salter notes that Enron's collapse was triggered by its third-quarter 2001 charge against earnings and equity write-down, which were relatively small in comparison to the losses, charges and write-downs that Wall Street firms have endured over the past year during the sub-prime meltdown:
In the third week of October 2001, Arthur Andersen, Enron's highly compromised outside auditor, "discovered" several large accounting irregularities related to the off-balance-sheet partnerships. This forced Lay—who returned as CEO after Skilling resigned that August—to announce a $544 million charge against earnings, and a $1.2 billion write-down in shareholders' equity, largely related to the impending closure of Enron's Raptor partnerships. Within weeks, Enron collapsed into bankruptcy as its trading partners quickly lost faith—proving, once again, that even a hint of negligence or misconduct can be devastating to a company.
Ah, yes. That pesky trust-based business model.
Posted by Tom at 12:01 AM | Comments (0) | TrackBack (0)
June 3, 2008
So, what's the difference?
Mel Weiss was sentenced to 2.5 years in prison yesterday for making undisclosed payments to class representatives in class action lawsuits that his firm handled. As noted here about a year ago, Weiss didn't have much of a choice given the trial penalty that he was facing.
Meanwhile, in return for being the key witness against former Enron CEO Jeff Skilling, Enron Task Force prosecutors "paid" Andy Fastow with a lighter prison sentence than the one the prosecutors disclosed to the jury and the judge during Skilling's trial. Those same prosecutors also withheld from Skilling's defense team exculpatory statements about Skilling that Fastow made before he elected to accept the prosecutors "payment" of a lighter sentence and testify against him. The lead prosecutors involved in arranging Fastow's testimony have gone on to presumably lucrative careers in private practice. Skilling is serving an effective life prison sentence.
As Larry Ribstein has long contended, paying kickbacks should not be condoned. However, the hyprocrisy reflected by the above-described state of affairs is not going to be solved by demonizing Mel Weiss.
Posted by Tom at 12:01 AM | Comments (0) | TrackBack (0)
May 29, 2008
The instinct against the money-makers
I swear, you can't make this stuff up.
As Larry Ribstein cogently explains, Southwest Airlines has taken advantage of futures markets over the past several years to hedge its fuel costs (previous posts on Southwest's hedging program are here). That hedging program has been one of the major factors in allowing Southwest to remain one of the only profitable U.S. airlines. Along the same lines, Bloomberg's Matthew Lynn explains how such markets provide an essential function in re-directing resources in the overall economy.
Meanwhile, Congress is trying to hamstring the very markets (see also here) that provided Southwest and many other businesses with the platform on which they hedged fuel-cost and other business risk. The wealth and lower prices generated from those hedges is not inconsequential.
Finally, the Justice Department continues its advocacy of an effective life sentence for one of the men primarily responsible for developing the robust markets that facilitate Southwest and others' wealth creation for shareholders and lower costs for customers.
And these folks in Congress and the Justice Department are supposed to be representing our interests?
Posted by Tom at 12:01 AM | Comments (0) | TrackBack (0)
May 17, 2008
Look at what Mary Flood has been reading
Chronicle legal reporter Mary Flood covered many of the Enron-related criminal trials, so it was only natural for her to pick up a copy of former Enron Task Force prosecutor, law professor and current Oregon attorney general candidate John Kroger's new book, which includes several chapters on his work in several Enron-related criminal cases.
You may remember Kroger. He is the fellow who tried early on to broker his experience on the Task Force to make a name for himself in academic circles. He was involved in preparing some of the worst carnage that the Task Force generated -- the Arthur Andersen debacle, the Enron Broadband disaster, and the Nigerian Barge abomination.
Ms. Flood reports on her blog that the Enron-related chapters of Kroger's book are downright bizarre:
[Kroger's book] is a self-congratulatory look at Kroger's years as a federal prosecutor. The four somewhat conflicted chapters on Enron talk alternately about his prowess, his lack of knowledge, how careful prosecutors were, how ruthless prosecutors were, how terrific his case against the Enron broadband executives was and how it hasn't been successful in court. [. . .]
What may be most surprising about the book is Kroger's admission of a lack of knowledge about how to go about these cases, an admission that the DOJ was out for quick scalps, and an admission that they threatened many witnesses. These are especially odd to see in print given that one of the allegations the defense made was prosecutorial misconduct in this case -- too much threatening and coercing of witnesses. One witness in the 2005 case even testified a member of the task force tried coerce him out of testifying for the defense.
Kroger frequently brags about his own prowess as an interrogator and lawyer, even guessing the broadband cases might be over now if he'd tried them. And he casts doubt on just about everyone else in the process.
Despite talking about the pressure the task force was under to get scalps and how aggressive they were, he creates a hypothetical conversation to illustrate how a defense attorney might try to trick a witness into saying no crimes were committed.
Amid the sometimes stunning hubris seems to be much angst about the decision of others to charge Lea Fastow in order to get to her husband and thus get to Jeff Skilling and Ken Lay.
He questions his colleagues, not just over the Lea Fastow charging decision (even including a mean-spirited comment a fellow prosecutor made about the Fastow children possibly winding up in foster care) but in general saying, in his career as a prosecutor he learned:
". . . that even well-intentioned prosecutors can present false testimony at trial, that a just process and a just result cannot always be obtained at the same time, that informants are both necessary and deceitful, that a certain small percentage of agents are corrupt, that our law enforcement policies often encourage crime rather than prevent it, and that successful interrogation requires the ethically questionable manipulation of other human beings.''
Just another chapter in the increasingly dubious legacy of the Enron Task Force.
Posted by Tom at 12:01 AM | Comments (1) | TrackBack (0)
April 1, 2008
The Wall Street Journal's Enron embarrassment
In anticipation of the oral argument on Wednesday in New Orleans on former Enron CEO Jeff Skilling's appeal of his criminal conviction, don't miss this Larry Ribstein post on Wall Street Journal Enron reporter John Emshwiller's tardy realization that Skilling may just have legitimate grounds for reversal of his conviction and that the Enron Task Force's record is not what its sycophants crack it up to be. This comes from Emshwiller after his newspaper last year characterized the Enron Task Force as having "a good record overall."
I can't improve upon Professor Ribstein's post regarding the irony of the nation's leading business newspaper just now realizing that the corporate criminal case of the decade was badly mishandled. However, even before the Lay-Skilling trial, it was clear that the WSJ's coverage of Enron was open to serious questions (see also here). That the newspaper continues to soft pedal coverage of wide-ranging evidence of serious prosecutorial misconduct in the Enron-related criminal cases reflects a troubling blind spot. Even in the current article, Emshwiller is less than forthright in assessing what is truly going on in the Skilling appeal regarding the Fastow interview notes:
Normally, defense attorneys aren't allowed to see the raw notes of Federal Bureau of Investigation interviews with government witnesses. But Mr. Skilling's defense team, led by Daniel Petrocelli, sought them anyway, and the Fifth Circuit agreed to order the federal government to turn over the notes.
Emshwiller fails to explain that the Fifth Circuit granted the Skilling team's motion to obtain the raw notes because the Enron Task Force took the highly unusual step of providing the Lay-Skilling defense team a "composite summary" of the Form 302 ("302s") interview reports that federal agents prepared in connection with their interviews of former Enron CFO and chief Skilling accuser, Andrew Fastow. Those composites claimed that the Fastow interviews provided no exculpatory information for the Lay-Skilling defense, even though Fastow's later testimony at trial indicated all sorts of inconsistencies.
In point of fact, the process of taking all the Fastow interview notes or draft 302s and creating a composite is offensive in that it allowed the prosecution to mask inconsistencies and changing stories that Fastow told investigators as he negotiated a better plea deal from the prosecutors over time. Likewise, the Task Force's apparent destruction of all drafts of the individual 302s of the Fastow interviews in connection with preparing the final composite is equally troubling. Traditionally, federal agents maintain their rough notes and destroy draft 302s. However, in regard to the Fastow interviews, what turned out to be the draft 302s were probably not "drafts" in the traditional sense. They were probably finished 302s that were deemed “drafts” when the Task Force prosecutors decided to prepare their highly unusual composite summary of the 302s.
Meanwhile, while manipulating Fastow's story, Task Force prosecutors were also preventing other exculpatory evidence from being introduced at trial on behalf of Skilling and Lay by taking the unprecedented step of fingering over 100 unindicted co-conspirators in the Lay-Skilling case (see also here) and implicitly threatening those co-conspirators with indictment if they testified on behalf of Skilling and Lay at trial.
None of the foregoing is explained in Emshwiller's article. Regardless of what happens in the Skilling appeal, the WSJ has some deep soul-searching to do regarding its coverage of the aftermath of Enron's demise. Engaging in media myths and morality plays regarding business interests is bad enough. Ignoring the abuse of the government's overwhelming prosecutorial power to levy a life sentence on an executive who created enormous wealth elevates poor judgment in business reporting to a much more troubling level.
Update: Larry Ribstein comments further here, while Ellen Podgor has a pre-appellete argument post for the Skilling appeal here. The Chronicle's Kristen Hays, who has done the best job in the mainstream media of covering the latest developments in the Skilling appeal, previews the oral argument here.
Posted by Tom at 12:01 AM | Comments (0) | TrackBack (0)
March 18, 2008
The Economist gets it
Following on recent posts here and here, The Economist produces the best mainstream media article that I've seen to date placing the prosecutorial misconduct of the Enron Task Force toward former Enron executives Jeff Skilling and Ken Lay in the context of the most recent demise of a trust-based business, Bear Stearns:
For many people, the mere fact of Enron’s collapse is evidence that Mr Skilling and his old mentor and boss, Ken Lay, who died between his conviction and sentencing, presided over a fraudulent house of cards. Yet Mr Skilling has always argued that Enron’s collapse largely resulted from a loss of trust in the firm by its financial-market counterparties, who engaged in the equivalent of a bank run. Certainly, the amounts of money involved in the specific frauds identified at Enron were small compared to the amount of shareholder value that was ultimately destroyed when it plunged into bankruptcy.
Yet recent events in the financial markets add some weight to Mr Skilling’s story—though nobody is (yet) alleging the sort of fraudulent behaviour on Wall Street that apparently took place at Enron. The hastily arranged purchase of Bear Stearns by JP Morgan Chase is the result of exactly such a bank run on the bank, as Bear’s counterparties lost faith in it. This has seen the destruction of most of its roughly $20-billion market capitalisation since January 2007. By comparison, $65 billion was wiped out at Enron, and $190 billion at Citigroup since May 2007, as the credit crunch turned into a crisis in capitalism.
The Economist article goes on to compare the similarity of certain of Ken Lay's public comments regarding Enron's liquidity in the turbulent post 9/11 markets (for which he was eventually prosecuted) with those of Bear Stearns and Lehman Brothers executives during the current turmoil in the financial markets. As this post from almost two years ago notes, the source of the information upon which Lay based his positive statements is the same fellow (former Enron CFO Andrew Fastow) whose exculpatory statements regarding Skilling and Lay the Enron Task Force improperly withheld in connection with their criminal trial. And the revelations of this latest round of prosecutorial misconduct with regard to Fastow comes on top of the Task Force's blatant misrepresentation (see also here) of Fastow's plea deal to the Lay-Skilling jury during the trial.
As usual, Larry Ribstein places all of this in context:
I'm constructing a "narrative" for the prosecutorial misconduct case: Prosecutors desperate for a conviction, their careers turning on the outcome, have a key witness, Andy Fastow. The problem is, the guy has, in [Enron Task Force prosecutor John] Hueston's words, a "heartstopping history of self-dealing." Obviously the government couldn't afford any additional shadow on Fastow's credibility. Yet in the government interviews it seems his story got more negative on the defendants over time. Could be a big problem for Fastow on the witness stand, as the defense sought on cross to show he was changing his story to suit his jailers. Could the prosecutors afford to give these notes to the defense? Why not just turn over a summary? By the time the truth came out (if it ever did) they could do a dance about how the differences were inconsequential.
The government is saying the differences are inconsequential. So why, then, didn't they produce the notes as repeatedly requested, rather than summarizing them? I think those prosecutors have some explaining to do.
Update: Warren Meyer also notes the similarities between Bear Stearns' demise and that of Enron.
Posted by Tom at 6:55 PM | Comments (4) | TrackBack (0)
March 14, 2008
The stench of prosecutorial abuse
The stench of prosecutorial abuse has long hung over the Enron-related criminal cases. But the extent of that abuse became crystal clear this afternoon when the Fifth Circuit Court of Appeals granted former Enron CEO Jeff Skilling's motion to unseal his supplemental brief relating to the government's interview notes of former Enron CFO and chief Skilling accuser, Andrew Fastow. I bookmarked the supplemental brief in Adobe Acrobat to facilitate ease of review.
The brief reveals suppression of exculpatory evidence by the Enron Task Force on a massive scale. The entire brief is devastating to the Task Force's prosecution of Skilling and the late Enron chairman, Ken Lay. But if you do not have time to read the entire brief, read the excellent 11-page introduction, which includes the following passage:
The raw notes are shocking. The 420 pages of contemporaneous notes, which we have spent the last many weeks comparing to the thousands of pages of trial record and the Task Force’s pretrial disclosures, confirm our worst fears. On the most crucial issues in Skilling’s case—especially where it was only Fastow’s word against Skilling’s—the Task Force suppressed vital exculpatory evidence from its “composite” FBI Form 302s for Fastow and all other disclosures given to Skilling. The Task Force then proceeded to present critical testimony and argument at trial it knew was contradicted by the evidence withheld from Skilling.
Much of the suppressed evidence directly relates to—and refutes—the Task Force’s pivotal contention that Skilling orally agreed to “secret side deals” to manipulate Enron’s financial statements. This “side deal” theory underlies every count of conviction against Skilling. By depriving Skilling of key exculpatory evidence that Fastow conveyed in his interviews, the Task Force was able to skew the proof and convince the jury to accept Fastow’s word over Skilling’s. As the Task Force later told Fastow’s sentencing judge and recounted in a law review article, Fastow’s testimony and credibility were the cornerstones to convicting Skilling. . . . Enron Task Force Prosecutor John C. Hueston, Behind the Scenes of the Enron Trial: Creating the Decisive Moments (“Hueston”), 44 AM. CRIM. L. REV. 197, 197-99 (2007). The substantial evidence the Task Force kept from Skilling all shares one chatacteristic—it was harmful to the Task Force’s case against Skilling. . . .
The implications of this brief reach far beyond the Skilling appeal. For example, the already-reeling re-prosecution of the three former Merrill Lynch bankers in the Enron-related Nigerian Barge case would appear to be over -- the Enron Task Force in the first trial of that case not only withheld exculpatory evidence, but put on incriminating testimony from former Enron treasurer and Fastow confidant Ben Glisan that directly contradicted the exculpatory evidence that Fastow provided to Task Force prosecutors during his interviews. Other Enron-related criminal cases -- as well as plea bargains -- could well be affected.
I've often noted on this blog that fair-minded people can disagree over whether the government's prosecutorial power is an appropriate tool to regulate business. However, my fervent hope is that even those who favor using the state's awesome power to criminalize merely questionable business transactions will be appalled by what the prosecution did in the criminal case against Skilling and Lay, as well as the other Enron-related criminal cases. In truth, none of us would be able to survive, as Thomas More reminds us, "in the winds that blow" from the unjust exercise of the government's overwhelming prosecutorial power. I continue to hope that Jeff Skilling's unjust conviction and sentence are reversed on appeal, not only for his and his family's benefit, but also for ours.
Update: The Chronicle's Kristen Hays, who is the only mainstream media reporter who I know of following this story, has an article on the Skilling brief here (the Chronicle story links to the copy of the Skilling supplemental brief that I bookmarked in Adobe Acrobat to facilitate ease of review; the Skilling supplemental brief on file with the Fifth Circuit is not bookmarked).
Probably in response to an off-the-record response from the DOJ, Hays writes that the Skilling supplemental brief contends that "some of [Fastow's] initial statements to authorities were not as damning as those in his testimony." That's a stark understatement of what the Skilling supplemental brief describes.
The initial Fastow statements set out in the Skillling brief were not only not as damning as Fastow's trial testimony, they were irreconcilable with that trial testimony and described completely legal activity, even by Fastow. Consequently, had the Enron Task Force not been able to to pry Fastow off his original story, the core of the Task Force's case against Skilling and Lay would have have contradicted by Fastow, who was Skilling's main accuser at trial. And the fact that the DOJ did not disclose to the Skilling defense team how Fastow's incriminating testimony evolved over time from his exculpatory initial statements while Fastow and the Task Force were negotiating a dubious plea deal is beyond reprehensible. What is the DOJ going to say now, that they didn't disclose the exculpatory earlier statements to Skilling's defense team because Fastow was protecting Skilling in these initial meetings? Yeah, right.
Update 2: The blogosphere is picking up the story quickly, as Larry Ribstein, Ellen Podgor (see also here) and Warren Meyer have already commented. Curious, isn't it, that the mainstream media is lagging well behind. Could it be that the story simply does not comport with the media's pre-conceived notions of the Enron saga?
Update 3: The WSJ's John Emshwiller, who covered the Lay-Skilling trial for the WSJ despite legitimate questions about his objectivity, reports on the latest developments here.
Update 4: John Hueston, the former Enron Task Force prosecutor who is quite proud of his work in nailing Skilling and Lay on an admittedly weak case (see here, here, here and here), is mentioned often in the Skilling supplemental brief because of the law review article he authored that is cited in the passage above. Hueston's law firm bio used to link to a copy of the article, but the firm took the link down some time ago. However, Cara Ellison, who has followed the Enron-related criminal cases closely, provides this handy link to Hueston's article.
Update 5: A bookmarked copy of the DOJ's reply to the Skilling Supplemental Brief can be downloaded here. The DOJ argues essentially that, put in what the DOJ considers to be the proper context, each portion of the Fastow interview notes on which Skilling relies to establish Brady violations contains information that Skilling already had prior to trial or is evidence that would have had "minimal" value in impeaching Fastow. Frankly, the DOJ's analysis stands Brady on its head. The essence of Brady is that the prosecution does not retain the power to make such determinations regarding exculpatory evidence unilaterally -- that information is a part of the mix that the jury and the Court sort out in determining facts and in applying the law. If what the Enron Task Force withheld here is truly harmless error, then the DOJ's need of 70+ pages to explain why that is the case belies that contention. Ellen Podgor passes along similar thoughts regarding the DOJ's brief here.
Posted by Tom at 6:47 PM | Comments (5) | TrackBack (0)
March 12, 2008
More rumblings in the Skilling appeal
This post from last week noted some interesting docket entries in former Enron CEO Jeff Skilling's Fifth Circuit appeal of his conviction on criminal charges in connection with the demise of Enron.
Now, it looks as if the mainstream media is picking up on the issue. The Houston Chronicle's Kristen Hays, who is one of the only mainstream media reporters continuing to follow-up on the Enron-related criminal cases, reports here on a couple of the pleadings referenced in the docket entries from last week that apparently were not placed under seal when filed. Although a copy of the pleadings that Hays was able to review are not included in the article, it appears clear that the government is scrambling in an attempt to contain public disclosure of exculpatory evidence that is contained in the interview notes of former Enron CFO and chief Skilling accuser, Andrew Fastow:
[Skilling attorney Daniel] Petrocelli and his team have since examined the notes. They want to file an additional brief arguing that the notes contain much information that is favorable to Skilling, and prosecutors and Lake wrongly denied him access to the notes before the trial.
He said the notes reveal evidence that is "a sledgehammer that destroys Fastow's testimony" against Skilling, "infecting virtually every facet" of the government's case.
Petrocelli also asked the 5th Circuit to accept his new brief as a public document, which he said quotes liberally from the Fastow notes.
The controversy regarding what Fastow told prosecutors and FBI agents who were investigating Enron became a big issue in the Lay-Skilling prosecution when the prosecution took the unusual step of providing the Lay-Skilling defense team a "composite summary" of the Form 302 ("302's") interview reports that federal agents prepared in connection with their interviews of Fastow. Those composites claimed that the Fastow interviews provided no exculpatory information for the Lay-Skilling defense, even though Fastow's later testimony at trial indicated all sorts of inconsistencies.
However, I have spoken with several former federal prosecutors about this issue and all believe that the government has a big problem in the Skilling case on the way in which the information from the Fastow interviews was provided to the Lay-Skilling defense team. None of these former prosecutors ever prepared a composite 302 in one of their cases or ever used such a composite in one of their cases. The process of taking all the Fastow interview notes or draft 302's and creating a composite is offensive in that it allowed the prosecution to mask inconsistencies and changing stories that Fastow told investigators as he negotiated a better plea deal from the prosecutors.
Similarly, the Enron Task Force's apparent destruction of all drafts of the individual 302s of the Fastow interviews in connection with preparing the final composite is equally troubling. Traditionally, federal agents maintain their rough notes and destroy draft 302s. However, in regard to the Fastow interviews, my sense is that the draft 302s were not drafts in the traditional sense. They were probably finished 302's that were deemed “drafts” when the Enron Task Force decided to prepare a composite summary of the 302's.
I will try and obtain copies of the pleadings referenced in Hays' article and add them later to this post. Stay tuned.
Update: A copy of the respective prosecution and Skilling pleadings that are the basis of the Hays/Chronicle story are here and here.
Update2: Larry Ribstein comments on the implications that criminalizing the actions of Skilling and Lay has on their prosecutors in light of their actions.
Posted by Tom at 7:55 AM | Comments (3) | TrackBack (0)
March 7, 2008
What's going on in the Skilling appeal?
First, thank you to all of the many readers who have communicated their concerns and prayers for the family crisis that is precluding me from daily blogging for now. Your kind thoughts and words are comforting and much appreciated.
But now for a quick blog post. While working this week, I was checking the docket of an appeal in which I am involved at the Fifth Circuit Court of Appeals. While there, I ambled over to the docket of the appeal of former Enron CEO Jeff Skilling just to see if there was anything interesting happening. Check out the following recent entries:
3/4/08 Motion filed by Appellant Jeffrey K Skilling to file supplemental briefs. [5976818-1] Supplemental brief included? (Y/N): Y, to unseal A's suppl. brief brief [5976818-2] Date of COS: 3/3/08 Sufficient [Y/N]: Y [06-20885] (jmw) 3/5/08 Motion filed by Appellant Jeffrey K Skilling [5976825-1] to place supplemental brief under seal. Date of COS: 3/4/08 Sufficient [Y/N]: Y [06-20885] (jmw) 3/5/08 Response/opposition filed by Appellee USA to motion to file supplemental briefs [5976818-1] by Appellant Jeffrey K Skilling. Reply to Resp/Opp due on 3/14/08. Date of COS: 3/4/08 Sufficient [Y/N]: y [5976831-1] [06-20885] (jmw) 3/7/08 Reply filed by Appellant Jeffrey K Skilling to response/opposition [5976831-1], motion to file supplemental briefs [5976818-1] Reply to Resp/Opp due ddl satisfied., motion to unseal brief [5976818-2] Sufficient [Y/N]: Y [5978302-1] [06-20885] (jmw)
Translated, the foregoing means that Skilling's appellate team filed a motion on Tuesday requesting that the Fifth Circuit grant permission to the parties to file supplemental briefs and, because of confidentiality concerns, requested that the supplemental brief be filed under seal (in other words, not for public consumption). The government must have been expecting the Skilling motion because they filed a response in opposition to it the following day (Wednesday). Not to be outdone in terms of alacrity, the Skilling team filed their response today to the government's opposition and, for good measure, requested that the Fifth Circuit unseal the Skilling supplemental brief and make if available for public review.
Anyone want to bet that these developments might have something to do with this (see also earlier posts here and here)?
Looks to me like a good opportunity for a mainstream media outlet to intervene and demand that the Fifth Circuit order the supplemental briefs be made available for public review, don't you think?
Posted by Tom at 4:47 PM | Comments (2) | TrackBack (0)
January 25, 2008
The Fastow notes
The big Enron-related news this week was the U.S. Supreme Court's refusal to hear the appeal of the Fifth Circuit's decision to dismiss securities fraud claims against several of Enron's banks (Ted Frank explains the decision). In light of the Supreme Court's recent Stoneridge decision, the denial of the Enron-related appeal was not surprising, although I agree with Larry Ribstein that the Supreme Court should have been clearer in defining the rule against holding third parties liable for another company's alleged securities fraud. Oh well.
Meanwhile, continuing to fly under the mainstream media's radar screen is the growing scandal relating to the Department of Justice's failure to turnover potentially exculpatory evidence to the defense teams in two major Enron-related criminal prosecutions (see previous posts here and here). The DOJ has a long legacy of misconduct in the Enron-related criminal cases that is mirrored by the mainstream media's myopia in ignoring it (see here, here, here and here).
This motion filed recently in the Enron-related Nigerian Barge criminal case describes the DOJ's non-disclosure of hundreds of pages of notes of FBI and DOJ interviews of Andrew Fastow, the former Enron CFO who was a key prosecution witness in the Lay-Skilling trial and a key figure in the Nigerian Barge trial.
Enron Task Force prosecutors withheld the notes of the Fastow interviews from the defense teams prior to the trials in the Lay-Skilling and Nigerian Barge cases. If the Fastow notes turn out to reflect that prosecutors withheld exculpatory evidence or induced Fastow to change his story over time, then that would be strong grounds for reversal of Skilling's conviction and dismissal of the remaining charges against the Merrill Lynch bankers in the Nigerian Barge case. The recent motion underscores the impact of the DOJ's non-disclosure of the Fastow notes in both trials:
The circumstances surrounding the debriefing of Andrew Fastow by the FBI are extraordinary and suspicious. Normally, when the FBI interviews a witness, it creates a 302 contemporaneously with each interview. Here, the government held scores of interviews with Mr. Fastow over 18 months, yet compiled only one composite 302—after apparently destroying any individual 302s or prior drafts of the composite 302 that were created. This does not comport with FBI policy and is highly unusual. . . . Skilling’s Opposition [to the United States’ Motion for Reconsideration by a Three-Judge Panel of Order Requiring it to Produce FBI Raw Notes] sheds light on this troubling and highly unusual practice:One of Skilling’s claims on appeal is that the government impermissibly thwarted his ability to cross-examine Fastow. It did so by violating FBI policy and Brady, Giglio, and their progeny, inter alia, in (1) failing to prepare an FBI form 302 memoranda for each interview it conducted with Fastow; (b) scripting a 200-plus page “composite” Form 302 that masked inconsistencies, contradictions, and the evolution of Fastow’s story; (c) destroying all drafts of the composite 302s; and (d) refusing to provide Skilling with copies of the underlying raw notes from its more than 1,000 hours of interviews with Fastow.Moreover, defense counsel in Barge I were never informed by the government that the FBI, contrary to its customary policy, had prepared only one composite 302, rather than a separate 302 for each Fastow interview. This troubling practice of compiling a single 302 to encompass thousands of hours of interviews with Fastow has effectively denied the defendants the benefit of gauging the evolution of Fastow’s story over time, and the shaping by the government of his story. It is not surprising that given these unusual circumstances, and the critical nature of Fastow’s involvement in Enron prosecutions, the Fifth Circuit took the unusual step of ordering the release of the Binders even before final briefing or oral argument in the Skilling appeal.
The motion goes on to describe the DOJ's continued resistance to turning over the Fastow notes, even in the face of the Fifth Circuit order to do so in the Skilling appeal and the DOJ's agreement to do so in open court in the Nigerian Barge case.
So, why is the mainstream media ignoring this scandal? Enron fatigue? Or does it not fit neatly into the media and prosecution-fueled myth that Enron was merely a financial house of cards that its managers knew would ultimately fail? Truth and justice doesn't depend on adherence with such a myth, now does it?
Posted by Tom at 12:10 AM | Comments (5) | TrackBack (0)
January 14, 2008
The rotting Enron criminal prosecutions
You won't read about it much in the mainstream media, but the Enron-related criminal prosecutions increasingly smell like a rotting carcass.
After Jeff Skilling was lynched by an angry mob, most of the mainstream business media moved on to other stories, such as various Wall Street firms taking write downs that are far in excess of the $1.1 billion in non-recurring 3rd quarter 2001 charges that began the media-fueled run on Enron that ended with the firm in bankruptcy and many of its executives in the cross-hairs of federal prosecutors. Contrary to public perception, this earlier post chronicled how the Enron Task Force's actual effort in proving Enron-related crimes was nowhere near as effective as its public relations campaign in demonizing the defendants in the Enron-related criminal cases.
To her credit, the Chronicle's Kristen Hays remains one of the few mainstream media reporters who is following up on the Enron-related prosecutions. In this recent article, Hayes reports on the oral argument at the Fifth Circuit Court of Appeals of the Department of Justice's attempt to salvage at least a smidgen of the dubious conviction that the Task Force obtained in 2006 against former Enron Broadband executive Kevin Howard. U.S. District Judge Vanessa Gilmore threw out the conviction based largely on the Fifth Circuit's prior decision in the Nigerian Barge case (see also here).
During oral argument on its appeal, the DOJ's "best" argument before the Fifth Circuit panel was that the prosecution should not have given Judge Gilmore a flawed jury instruction linking the one count that it contends should survive with the four counts that the DOJ concedes should be tossed out. As Hayes reports, "A skeptical [Fifth Circuit Judge Patrick E.] Higginbotham noted that the prosecution supported the instruction and nearly two years later on appeal is saying it shouldn't have been given."
As they say in appellate circles, that's not a good signal from the bench for the DOJ.
If the Fifth Circuit does as expected and denies the DOJ's appeal, then the DOJ will confront whether to try Howard for a third time on Enron-related charges. And given the DOJ's track record, I wouldn't put it past them.
Meanwhile, in a development that I didn't see picked up by any of the mainstream media, U.S. District Judge Ewing Werlein effectively put off the trial of former Merrill Lynch bankers Daniel Bayly and Robert Furst for a year or so by granting Bayly and Furst an interlocutory appeal of a part of his recent decision denying their motion to dismiss the DOJ's ongoing attempt to re-try them in the Nigerian Barge case. Judge Werlein's decision to grant the interlocutory appeal puts that re-trial off for the better part of a year, at least.
Finally, as this recent post noted, Skilling's defense team and the defense teams for the former Merrill bankers are currently sifting through the notes of FBI and Task Force interviews with former Enron CFO Andrew Fastow, who was a key witness in the Skilling trial and a key player in the Nigerian Barge trial. Inasmuch as Task Force attorneys withheld information from those interviews from both defense teams prior to the trials in both cases, if the notes of the Fastow interviews reflect that prosecutors withheld exculpatory evidence or induced Fastow to change his story over time, then that would be strong grounds for reversal of Skilling's conviction and dismissal of the remaining charges against the Merrill bankers. Stay tuned.
Quite a record of that Enron Task Force, eh?
Update: Larry Ribstein points out that these should have never been criminal cases in the first place.
Posted by Tom at 12:10 AM | Comments (2) | TrackBack (0)
December 24, 2007
Behind the scenes in the Skilling appeal and the Nigerian Barge case
I normally throttle down blogging during the holiday season to just one post a day, but I wanted to pass along something that you don't see every day in connection with former Enron CEO Jeff Skilling's appeal of his convictions and in the Nigerian Barge case involving the re-trial of three former Merrill Lynch bankers.
As this CNBC news release reports, the Fifth Circuit last week ordered -- over the Department of Justice's strenuous opposition -- that the DOJ prosecutors must deliver to Skilling's defense team the FBI's notes of their interviews with former Enron CFO, Andrew Fastow. Then, this past Friday, U.S. District Judge Ewing Werlein cited the Fifth Circuit's order in Skilling's case in granting the Merrill bankers' motion in the Nigerian Barge case requiring the DOJ to turnover the same notes of the Fastow interviews to the bankers' defense teams.
The DOJ's refusal to provide the criminal defense teams the notes of the Fastow interviews has long been a point of contention in several Enron-related criminal cases. The defense teams suspect that the notes will show that Fastow changed his story during his extensive interviews with FBI agents. Prosecutors in the Skilling and Nigerian Barge cases have have previously refused to turnover the notes to defense attorneys and provided only a prosecution-prepared "summary" of Fastow's statements to FBI agents.
Fastow was a key witness against Skilling and was a central figure in the first Nigerian Barge trial. Thus, if the notes of the Fastow interviews reflect that prosecutors withheld exculpatory evidence or induced Fastow to change his story over time, then that would be strong grounds for reversal of Skillings' conviction and dismissal of the remaining charges against the Merrill bankers.
By the way, the re-trial of Merrill bankers Dan Bayly and Robert Furst in the Nigerian Barge case is currently scheduled for January 28th, although the docket reflects a number of dispositive motions that must be ruled on before the case can proceed to trial. The re-trial against the third Merrill banker -- James Brown -- has been severed for a separate trial, which has not yet been scheduled.
Finally, Skilling's appellate team filed his reply brief this past Friday, although my sense is that the document that was filed will likely not be the final version. As with Skilling's first brief, the Skilling team has requested that the Fifth Circuit waive its page limitations for reply briefs. Consequently, once the Fifth Circuit rules on that request, the Skilling team will probably then file the final version of the reply brief, which will include tables of contents and authorities that the current version lacks. I am looking forward to reading the brief over the holidays and will pass along my thoughts after I have done so. In the meantime, both Ellen Podgor and Doug Berman have already posted their typically insightful thoughts on the brief.
Posted by Tom at 12:15 AM | Comments (0) | TrackBack (0)
October 4, 2007
The NACDL's amicus brief in the Skilling appeal
The National Association of Criminal Defense Lawyers has requested permission from the Fifth Circuit Court of Appeals to be allowed to file a friend of the court brief (you can download a copy here) in the appeal of former Enron executive Jeff Skilling.
The NACDL brief is excellent and focuses on the controversial decision of U.S. District Judge Sim Lake to grant the Enron Task Force's request for a "deliberate ignorance" jury instruction against Skilling. Judge Lake's allowed that instruction despite the fact that the prosecution didn't allege that Skilling was deliberately ignorant of anything until just before the end of the evidentiary phase of the trial. Moreover, Skilling defended the case on the basis that he was a highly-involved executive of a company where there was no evidence of widespread criminal wrongdoing. Skilling never claimed that he even attempted to turn a blind eye toward alleged wrongdoing.
The NACDL's brief comes out of the box smoking:
This case highlights a recurring problem in federal criminal cases: the indiscriminate use of the deliberate ignorance instruction. As we describe below, the deliberate ignorance doctrine has grave flaws that raise serious constitutional concerns. Left uncorrected, these defects will undermine the mens rea requirements that distinguish criminal and civil liability and perpetuate the status of deliberate ignorance as the new "darling" ofthe prosecutor's nursery.To mitigate the constitutional concerns with the deliberate ignorance instruction, the Court should restrict the instruction to narrow, clearly defined circumstances consistent with its purposes--circumstances that plainly do not exist here. At the first opportunity to consider the instruction en banc, the Court should eliminate it entirely, leaving to Congress the decision whether, and in what circumstances, deliberate ignorance is sufficiently culpable to warrant criminal sanction.
The NACDL notes that the indiscriminate use of the instruction is particularly troubling in corporate fraud cases, where jurors are already predisposed to believe that the defendant has done something wrong:
That danger is particularly great in the context of a fraud charged against an executive of a large corporation. Potential jurors, like the public generally, may hold the view that such executives should be aware of fraud in the organizations they lead, even if they are not. In such cases, therefore, the deliberate ignorance instruction may encourage jurors to indulge their own notions of culpability, in disregard of statutes and instructions requiring that the defendant act "knowingly." The post-verdict remarks of the jurors in this case suggest that some of them may have blurred the critical line between knowledge and intent on one hand and recklessness or negligence on the other. . . . The deliberate ignorance instruction may well have encouraged that conflation of knowledge with less culpable mental states.In the context of alleged corporate fraud, the deliberate ignorance instruction also raises the specter of the improper imposition of criminal liability based on the civil doctrine of respondeat superior. Jurors may well view the deliberate ignorance instruction as an appropriate imposition of supervisory responsibility (moral or otherwise), particularly when, as here, they may view the consequences of the alleged fraud to the corporation and its investors as severe and irremediable. [. . .]
If the Court affirms Skilling's conviction on this record, district courts and prosecutors will rightly view the ruling as the final abandonment of any limit on the use of the deliberate ignorance instruction. Deliberate ignorance will have become the default basis for "knowledge" in corporate criminal prosecutions. In our view, this is the wrong message for the Court to send, at a time when the deliberate ignorance doctrine faces withering criticism and is ripe for reconsideration. The Court should find that the evidence did not warrant a deliberate ignorance instruction, reject any contention that the error was harmless beyond a reasonable doubt,8 and--in accordance with Ojebode and cases from other Circuits--reverse Skilling's conviction.
And for good measure, the NACDL brief concludes by taking dead aim at Judge Lake's equally questionable decisions not to transfer venue of the trial and the way in which he empaneled the jury:
In such extraordinary cases, the district court must take strong measures to guarantee the defendant's Fifth and Sixth Amendment right to a fair and impartial jury. Here, as in the Oklahoma City case, the Constitution required the district court to transfer venue and then conduct a rigorous voir dire of prospective jurors from the new venue. Given the sheer loathing for Skilling and Lay that the collapse of Enron engendered in Houston, only with both of those protections--change of venue and thorough voir dire--could there be any confidence that the defendants would receive the trial to which the Constitution entitled them.Remarkably, the district court provided neither protection. Faced with overwhelming evidence that Houston was suffused with hostility toward the defendants, the court cursorily rejected Skilling's motions to transfer venue. The court then declared that voir dire would last no more than a day. It insisted on conducting voir dire itself, with only the most perfunctory follow-up questioning by counsel. It ignored unmistakable indications of bias in the potential jurors' questionnaires. It persistently asked leading questions of potential jurors-questions designed to mask, rather than expose, bias. Even when grounds to strike potential jurors for cause became apparent, the court often denied them. . . . And the court granted Skilling and Lay a meager two additional peremptory challenges (for a total of twelve combined challenges), and then denied repeated requests for additional peremptories as jury selection unfolded. [record citations deleted].
The district court's conduct of jury selection--from the denial of the motions to transfer venue without a hearing to the stunningly brief and superficial voir dire to the rulings on challenges for cause to the denial of additional peremptory challenges--represents a shocking triumph of efficiency over fairness. Under these circumstances, the court's decisions should not be viewed in isolation and examined ruling-by-ruling under the deferential abuse of discretion standard. Such an atomized analysis would ignore the crushing unfairness of the court's overall approach. Instead, this Court should review the record independently to determine whether the jury selection process violated Skilling's fundamental right to a fair trial. See, e.g., United States v. Williams, 523 F.2d 1203,1208-09 (5th Cir. 1975) (constitutional claim of community prejudice requires independent review).
Such an independent review mandates reversal of Skilling's conviction. If the bedrock constitutional right to "indifferent" jurors means anything, it means that Skilling should not have been tried in Houston before jurors selected in less than a day with only cursory examination, a number of whom had unequivocally expressed harshly negative opinions of the defendants on their questionnaires.
Based on the quality of the NACDL brief and the Skilling Appellant's brief, the Department of Justice has its hands full in preparing its appellee's brief, which is currently scheduled to be filed with the Fifth Circuit around sometime around mid-November.
Posted by Tom at 12:10 AM | Comments (2) | TrackBack (0)
September 10, 2007
The Skilling Appeal Brief
As Ashby Jones and Peter Henning noted on Friday, lawyers for Jeff Skilling filed his appellant's brief this past Friday along with a motion requesting that the Fifth Circuit Court of Appeals waive length-of-brief rules under the special circumstances of Skilling's appeal. Inasmuch as the brief is a 240-page tome, my sense is that it will probably be modified slightly to include tables of contents and authorities when the final version is filed after the Fifth Circuit rules on the the length-of-brief motion (Update: I've since updated the link above to include the final version filed with the Fifth Circuit).
I read the entire brief while watching football over the weekend and it is brilliant. The brief is extremely well-written and organized, and eschews much of the technical legal jargon that often makes appellate briefs a chore to read. It would be extremely difficult to read this brief objectively and come to the conclusion that Jeff Skilling has not been the victim of a gross miscarriage of justice (see earlier posts on that subject here, here and here).
The first statement of the brief -- the usually mundane statement advising the appellate court whether the appellant believes that oral argument would be helpful to the court -- Skilling's appellate team crafted the best such statement that I've ever read:
Defendant-appellant Jeffrey Skilling requests oral argument. This case is perhaps the most prominent and publicized white-collar case ever prosecuted. But with certainty, it is the most misunderstood case, enveloped from the outset by perceptions and myths that bear little resemblance to the actual facts. Almost everyone believes, for instance, that Skilling was indicted, tried, and convicted for causing the 2001 bankruptcy of Enron Corporation and its devastating effects on thousands of Enron employees and shareholders. As the government itself conceded, however, the case against Skilling had nothing to do with Enron’s collapse.Profound, inherent weaknesses in the government’s case—not just gaps in its evidentiary proof, but doubts about its basic theories of criminality—motivated the government to resort to novel and incorrect legal theories, demand truncated and unfair trial procedures, and use coercive and abusive tactics. Skilling submits that oral argument is essential to assist the Court’s understanding of the remarkable record in this case, including the multiplicity of substantial legal and procedural errors that have put Skilling in prison for 24 years not only for crimes that he did not commit, but for acts of business judgment that are not crimes at all.
Following that statement is an 11-page introduction, which -- if you don't have time to read the entire brief -- is an excellent overview of the arguments presented. My favorite parts of the brief are as follows:
The Statement of the Case (pp. 15-59). This is a marvelously clear description of Enron's business and the superficiality of the evidence that the Enron Task Force presented at trial against Skilling. In discussing Enron with hundreds of folks over the past several years, I understand how few people really understood that Enron was an innovative and successful business before its demise. Fewer still understood the shallowness of the Task Force's case against Skilling. This section of the brief takes on those widely-held misconceptions and dispenses with them cogently.
The Change of Venue Section (pp. 122-175). Given the venomous environment in Houston regarding all things related to Enron, U.S. District Judge Sim Lake's refusal to grant Skilling's motion to change the venue of the trial has always struck me as odd. Skilling's brief provides truly shocking information (heretofore not public) about the enormous bias against Skilling expressed in the answers to the juror questionairres of the jurors who ended up on Skilling's jury! Also provided in this section is heretofore non-public information on Judge Lake's questionable refusal to grant Skilling's proposed multiple strikes for cause on a large number of the jurors who who had expressed clear bias against Skilling and Lay. As the brief notes, if there was ever a trial that called for a change of venue, Lay-Skilling was the one.
The Prosecutorial Misconduct Section (pp. 175-206). The subject of this section has been a common topic on this blog, but this section provides additional unknown evidence of the Task Force's abusive tactics in prosecuting Skilling and other Enron executives. Moreover, the brief sums up brilliantly the prejudicial impact of the Task Force's threats against witnesses who would have provided exculpatory testimony for Skilling (all record citations contained in the brief are excluded here):
At trial, the severe imbalance in witness access was obvious. The Task Force’s case consisted mostly of cooperators from Enron’s senior management—people who worked with Skilling at Enron and who were his friends, including some of his closest friends. With plea or non-prosecution agreements with the Task Force, these witnesses were under the Task Force’s complete domination and control. They were obligated to testify, contractually bound to admit guilt and support the allegations against Skilling, and their ultimate fate rested in the “sole and exclusive discretion” of the Task Force. None of them would meet with Skilling or his counsel. At least two (Rice and Belden)—and probably all of them—were clearly ordered not to.In contrast, most of Skilling’s key defense witnesses never took the stand. Specifically, Skilling sought to call David Duncan of Arthur Andersen and seven Enron executives: Greg Whalley, Rick Buy, Lou Pai, Jeff McMahon, Georgeanne Hodges, Janet Dietrich, and Joe Hirko. Each possessed critical exculpatory evidence, and would have directly refuted testimony given by Task Force cooperators. Yet all eight invoked the Fifth Amendment, fearing Task Force reprisals. Hoping to overcome this, Skilling asked the Task Force to immunize them, as it did for Ben Glisan (its own witness). The Task Force declined, thereby ensuring that vital exculpatory testimony never saw the light of day.
Without these (and many other) key witnesses, the defendants were forced to rely primarily on their own testimony. Roughly two-thirds of the defense case consisted of Skilling and Lay’s testimony; the remainder was a patchwork of character witnesses, experts, and others—anyone courageous enough to testify. Most could offer relatively narrow testimony on limited issues. Besides Skilling and Lay, only two senior executives testified for the defense, and neither was deeply involved in many transactions at issue.
Compounding the prejudice, the Task Force argued in closing that Skilling’s defense was not credible because it did not square with the testimony of many witnesses. By intimidating witnesses into silence and then refusing to immunize them—knowing they would give testimony favorable to the defense—it was the Task Force that prevented witnesses from corroborating Skilling. U.S. v. Golding, 168 F.3d 700, 702-05 (4th Cir. 1999) (“The government did not stop with the threat. Instead, the prosecutor further abused her power by using the very situation she had created against the defendant in closing argument.”). Skilling, meanwhile, could not explain to the jury why his best witnesses were missing, because the district court explicitly prohibited him from introducing any evidence of the Task Force’s threats and other misconduct.
The prejudice was irreparable. It obstructed Skilling’s preparations before trial, distorted the presentation of evidence at trial, and affected the outcome. Gregory, 369 F.2d at 188-89 (“A criminal trial … is a quest for truth. That quest will more often be successful if both sides have an equal opportunity to interview the persons who have the information from which the truth may be determined.”).
As if on cue, even before the ink on the Skilling brief was dry, some of the more vitriolic members of the mob that lynched Skilling were already dismissing it without so much as a smidgen of analysis. But my bet is that a fair review of this brief will leave most readers shocked over the weakness of the case against Skilling and the government's ruthless tactics in pursuing a conviction despite that weakness.
The popular myth of the mob is that Enron was a house of cards that was propped up by a conspiracy of greedy executives who told lies to trusting but unknowing investors. The truth is that Enron was simply a highly-leveraged, trust-based business with a relatively low credit rating and a booming trading operation that got caught in a liquidity crunch. That liquidity crisis occurred when the credit and equity markets became spooked by a variety of factors in late October, 2001, including revelations about Fastow's embezzlement of millions and the volatility in markets after the September 11, 2001 attacks on New York and Washington, D.C.
As I've noted many times over the years, Fastow's embezzlement from Enron is a crime, but Enron's unfortunate demise is not, nor should it be. Beyond the shattered lives and families, the real tragedy here is that an angry mob convicted Jeff Skilling, trampling the rule of law and the administration of justice along the way. In truth, none of us would be able to survive, as Thomas More reminds us, "in the winds that blow" from the exercise of the government's overwhelming prosecutorial power in response to the demands of the mob. I continue to hope that Jeff Skilling's unjust conviction and sentence are reversed on appeal. Not only for his and his family's benefit, but also for ours.
Posted by Tom at 12:15 AM | Comments (4) | TrackBack (0)
April 23, 2007
The Glisan Interview
Tongues were wagging all over Houston this weekend as a result of Wall Street Journal reporter John Emshwiller's exclusive interview ($) with former Enron treasurer and Andy Fastow confidant, Ben Glisan (excerpts of the interview are here). The theme of the interview is that Glisan initially deluded himself into thinking that he hadn't done anything wrong while at Enron, but that he discovered his true self during his 4+ year prison term and came to terms with his criminality. Emshwiller -- whose coverage of the Enron case has been subject to serious issues before -- laps up the morality play. Next thing you know, Glisan will be joining Sherron Watkins as a speaker on the "corporate governance reform" rubber chicken circuit.
However, as with almost everything pertaining to Enron, the true story about Glisan is more nuanced than meets the eye. Glisan was a golden boy at Enron, a rising star in the management circles who Fastow plucked as his hand-picked replacement after running off Enron treasurer Jeff McMahon in early 2000. Contrary to the unsupported statements contained in the interview with Emshwiller, there are real questions as to whether Glisan did much of anything wrong in his duties as Enron's treasurer. But he did use bad judgment in getting drawn into one of Fastow's partnership deals in which he made a quick $1 million in mid-2001 on a nominal investment, although even then it remains unclear as to whether Glisan actually knew that he was engaged in any criminal wrongdoing in taking that return on his investment. Nonetheless, later in 2001, a month or so before Enron filed its chapter 11 case, Glisan was ultimately canned as Enron's treasurer because of his failure to disclose that investment in connection Enron's failed merger negotiations with Dynegy, and so he quickly came under the scrutiny of federal investigators who were suspicious about Glisan's $1 million prize.
For over a year and a half after being fired by Enron, Glisan continued to maintain to investigators that he had not engaged in any criminal conduct while at Enron. But soon after being indicted in 2003, Glisan -- who had not made big money at Enron and was not financially capable of mounting a formidable defense to the criminal charges -- copped his deal with the Enron Task Force and began serving his prison sentence.
The rest of the story is not particularly surprising. Glisan was treated roughly during his early days in prison and he quickly began negotiating with the Task Force prosecutors for better accomodations in return for testimony in other Enron-related criminal cases. He ended up being one of the key witnesses in the Nigerian Barge trial, even though he was not directly involved in the transaction. Most of his testimony in that trial was hearsay of alleged statements made by other "co-conspirators" that was admitted as evidence under an exception to the hearsay rule that would have otherwise excluded such testimony. That testimony helped lead to the improper convictions of four former Merrill Lynch executives that were later overturned on appeal (see also here).
Glisan then parleyed his Nigerian Barge work into a transfer to a better prison, where he offered his testimony (which is reviewed here and here) against former Enron executives Jeff Skilling and Ken Lay in return for liberal furloughs from prison to Houston, where he lived at home while working with prosecutors. Although the Lay-Skilling jurors viewed him as an effective prosecution witness, there remain substantial questions whether Glisan was truthful during much of his testimony.
So, what to make of all this? Simple morality plays are easier to write and understand, and certainly easier (and legally safer) to spin on the rubber chicken circuit. The truth in such matters is often far less certain and more difficult to understand, but it's far more likely to prevent the injustices that have been heaped upon the four former Merrill Lynch executives, Jeff Skilling, Ken Lay, Kevin Howard and Chris Calger, just to name a few. As Ellen Podgor comments:
Although not the focus of [the Glisan interview], it is interesting to note that the risk and cost of trial weigh heavily in the decision to plea. Glisan, like Martha Stewart realized the value of "getting it over with," and "moving on." But is that the way the justice system is supposed to work?
Posted by Tom at 4:30 AM | Comments (0) | TrackBack (0)
April 17, 2007
"Somebody was guilty because they were guilty"
Mary Flood, the Houston Chronicle's lead reporter on the criminal trial of former Enron executives Jeff Skilling and Ken Lay, reports that some of the former Lay-Skilling jurors are now hitting the rubber-chicken circuit:
Deliberating the fate of Jeff Skilling and Ken Lay last year was "horribly confusing" and very intense, juror Jill Ford told a group of appellate lawyers at a dinner Thursday night.Ford, juror Dana Fernandez and alternate jurors Gary Creakbaum, Amanda Perry and Kristine Statham answered after-dinner questions from the inquisitive lawyers at the Four Seasons Hotel. U.S. District Judge Sim Lake, who oversaw the trial, was also in attendance.
Some of the juror observations that Flood reports are quite telling. One of the jurors confirmed that the real presumption in the case was not that of innocence and that Skilling and Lay never really had a chance:
Ford, who was 24 when the jury deliberated last May, said she learned that Diet Coke could keep her awake in the morning and that she took things very seriously. "I felt it was important that somebody was guilty because they were guilty . . . not because we needed somebody to blame," she said.
Flood goes on to report that the jurors thought that former Enron treasurer Ben Glisan (here, here and here) and former investor relations chief Mark Koenig (here and here) were the most damaging witnesses to Skilling and Lay, and that none of them believed Skilling or Lay's testimony, although they all agreed that both of the former executives had to testify under the circumstances. Given the 25 year sentence that Skilling received, one shudders to think what basis the jury would have given Judge Sim Lake to sentence him had he not testified.
Of course, in a trial of such complexity, Skilling's testimony regarding his underdisclosed investment in his former girlfriend's fledgling company named Photofete was a key issue for at least two jurors. And apparently no one cared to ask the jurors what they thought about the fact that the Enron Task Force prevented them from hearing from dozens of witnesses who would have provided exculpatory testimony for Skilling and Lay.
This post outlines the case and evidence that was presented at trial against Skilling, and this one does the same for the case against Lay. But it all still boiled down to Photofete. So it goes in the wacky world of regulating business through the blunt object of the criminal justice system.
Posted by Tom at 4:30 AM | Comments (4) | TrackBack (0)
February 16, 2007
DOJ throws in the towel on appealing the Fifth Circuit's Nigerian Barge decision
The Chronicle's Kristen Hays reports on the news that was bubbling through the Houston legal community on Thursday afternoon -- the Department of Justice has decided not to mount an appeal to the U.S. Supreme Court of the Fifth Circuit Court of Appeals' decision vacating the convictions (see also here) of the four Merrill Lynch executives in the travesty known as the Nigerian Barge case.
Although expected, the DOJ's decision in the Nigerian Barge case reverberates through several other pending Enron-related cases. The DOJ can retry three of the four former Merrill Lynch executives, but that would be petty by even the DOJ's standards given the eviscerated nature of the original charges and the fact that each of the defendants has already spent a year of their lives in prison based on a prosecution that was based more on resentment than on true criminal conduct. The Fifth Circuit's now final decision in the barge case casts doubt (see also here) on a substantial number of the charges upon which former Enron CEO Jeff Skilling was convicted, and dispositively blows away over 80% of the case against former Enron Broadband executive Kevin Howard. In addition, the re-trials of Howard's former co-defendants from the disaster that was the first Enron Broadband case are now in various states of disarray, as is the pressured plea deal of former mid-level Enron executive, Chris Calger. And don't forget the mess that is the DOJ's case against the NatWest Three (see also here).
And this is the product of what the Wall Street Journal called "a good record overall?"
Look, this mess is what happens when government is allowed to bastardize charges (in this case, the honest services charge that is supposed to pertain to bribery or kickback cases) against merely questionable business transactions and then appeal to juror resentment against wealthy businesspeople to procure politically popular convictions. The damage to the defendants, their careers and their families that this abuse of power has caused is bad enough. But the carnage to justice and respect for the rule of law is even more ominous. Does anyone really think that they could stand upright in the winds of such abusive governmental power if those winds turned toward them?
Posted by Tom at 4:54 AM | Comments (1) | TrackBack (0)
January 19, 2007
The price of favorable testimony
In response to my recent lengthy posts (here and here) on the injustice of the conviction and brutal sentencing of former Enron executive Jeff Skilling, many folks who have not followed the Enron criminal cases closely have observed to me that they did not realize that the Enron Task Force relied almost entirely on testimony from cooperating witnesses who had copped pleas with the Task Force in convicting Skilling. That approach, coupled with the Task Force's equally dubious tactic of freezing exculpatory testimony for Skilling and the late Ken Lay out of the trial (see here, here and here), raises serious appellate issues regarding the legitimacy of the entire prosecution against Skilling and Lay.
Interestingly, the same dynamic is at play in the current prosecution of the Milberg Weiss law firm (see prior posts here). Larry Ribstein has been at the forefront of pointing out the injustice of the prosecutorial tactic of "paying" witnesses and proposing a framework for addressing it. Recently, Professor Ribstein posted the paper that he and Bruce Kobayashi are developing on this issue, The Hypocrisy of the Milberg Indictment: The Need for a Coherent Framework on Paying for Cooperation in Litigation, which includes in its abstract a wonderfully cogent sentence regarding the essence of the problem:
[T]he . . .important hypocrisy is that Milberg's prosecutors are essentially paying the same witness . . . that Milberg is being prosecuted for paying.
Posted by Tom at 5:43 AM | Comments (0) | TrackBack (0)
January 10, 2007
Reacting to Gladwell's Enron article
It's been a week now since Malcolm Gladwell's New Yorker article on the injustice of the case against Jeff Skilling. One of the more revealing reactions to the article resulted from a question that Gladwell posed in this blog post relating to his article:
Can anyone explain—in plain language—what it is Jeff Skilling and Co. did wrong? . . . The question is strictly a legal one: according to the way the accounting rules were written at the time, what specific transgressions were Skilling guilty of that merited twenty-four years in prison?
Peter Lattman forwarded Gladwell's question to former Enron Task Force prosecutor John Hueston, who is now in private practice. You may recall Hueston from the Lay-Skilling trial -- he was the prosecutor who conducted a largely disingenuous cross-examination of the late Ken Lay (see also here) and then bragged after the trial to the New York Times that he and the other Task Force prosecutors had brilliantly convicted Lay even though the case against him was weak (he is proud of that "accomplishment"?).
At any rate, Hueston's response to Lattman's request largely avoids addressing Gladwell's straightforward question, preferring instead to speak in the platitudes that have become all too familiar to anyone who attempts to have an objective discussion of anything having to do with Enron. However, toward the end of his email to Lattman, Hueston makes three conclusory statements that are at least somewhat responsive to Gladwell's question:
Skilling was found guilty because he was caught flat-footed in lies about the performance of highly-touted business units such as Enron Broadband Services, telling employees the sour truth about the dismal state of the EBS business and then reversing course in a public call with analysts just eight days later.
Skilling didn’t suspect earnings manipulation, he condoned and promoted it with CFO Fastow and CAO Causey, who kept a tally sheet that included accounting side deals that unequivocally violated accounting rules.
Likewise, Ken Lay repeatedly and falsely misrepresented the performance of Enron’s business units, told employees and others to ignore the Wall Street Journal exposes and reports from short sellers, and lulled them with reports of his purchases of Enron stock as he quietly dumped $70 million of his Enron holdings.
Taking Hueston's point about EBS first, and as noted in this earlier comprehensive post on the Enron Task Force's case against Skilling, the Task Force attempted to prove that Enron lied about the health of EBS exclusively through the testimony of four cooperating witnesses who had copped pleas with the Task Force to hedge the risk of