Category Archives: Legal – Criminalizing Business

Will the Oracle of Omaha serve up the sacrifical lambs?

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Buffett%20120507.jpgSo, Warren Buffett finally gets to experience the price of ratting out his business associates (background here, here, here and here).
As noted in the foregoing posts, I seriously doubt that the transactions involved in this prosecution are the product of any criminal conduct. However, does anyone really believe that Buffett did not fully understand the nature, scope and purpose of these transactions? Ah, the benefits of being the mainstream media’s folk hero of business.

Did the DOJ Hide the Ball in the Olis Case?

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This earlier post reported on how the full story about the Department of Justice’s sordid prosecution of former Dynegy executive Jamie Olis is finally starting to come out in connection with a civil trial earlier this year by Olis’ former attorney and Olis’ recent motion to set aside his conviction.

Now, Ellen Podgor reports that Olis’ new legal team has filed a motion that Olis be released from prison on bond pending the outcome of the motion to set aside his conviction, and the basis of the motion is that the DOJ failed to turnover to the Olis defense in violation of its obligation under U.S. v. Brady evidence regarding the DOJ’s frequent communications with Dynegy’s employees and attorneys during the prosecution of Olis. As Professor Podgor asks:

“What was the collective knowledge of the government here, and was the discovery properly provided to [Olis’] defense counsel prior to trial?”

This is getting very interesting.

The Real NatWest Three Deal

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Natwest Three.jpgI gave up hope long ago that the mainstream media would ever provide particularly accurate reports regarding the Enron-related criminal prosecutions.

However, the mainstream media news reports on the plea bargain hearing earlier this week in the Enron-related NatWest Three case (see NY Times, WSJ, Chronicle) are particularly devoid of any meaningful perspective of what really happened in the case (a copy of one of the plea agreements, which is the same as the other two, is here).

The real story of the plea bargain can easily be distilled from the pleadings that are on file in the case. It’s a substantially more nuanced story than what you are hearing from the mainstream media.

The prosecution in the NatWest Three case alleged that the three bankers defrauded NatWest, their former employer, by conspiring with former Enron CFO Andrew Fastow and his sidekick, Michael Kopper, to underpay NatWest for its interest in an entity named Swap Sub, which was an affiliate of one of Enron’s special purpose entities (LJM1) that Fastow and Kopper ran.

Swap Sub was involved in one of LJM1’s primary transactions, which was to hedge Enron’s valuable but highly volatile interest in a technology company called Rhythms NetConnections, Inc (“Rhythms”). The NatWest Three were responsible for overseeing the banking relationship between Enron and NatWest, including NatWest’s interest in Swap Sub. Another investor in Swap Sub was Credit Suisse First Boston (“CSFB”), which owned the same percentage interest in Swap Sub as NatWest.

In early 2000, Fastow and Kopper offered to buy NatWest’s interest in Swap Sub for $1 million. NatWest evaluated its interest in Swap Sub in response to the offer and concluded that its interest was worth zero. At the time, NatWest was in the process of being taken over by Royal Bank of Scotland and, thus, was amenable to disposing of the Swap Sub interest. So, NatWest agreed to accept Fastow’s $1 million offer, Fastow and Kopper created an entity called Southampton specifically to buy NatWest’s interest in Swap Sub, and the deal closed on March 17, 2000.

After NatWest had agreed to accept Fastow’s offer to buy the bank’s Swap Sub interest, Fastow offered to sell a portion of that interest to the three bankers personally for $250,000 upon Southampton’s completion of the purchase of the interest from NatWest. The NatWest Three still worked for NatWest at the time of Fastow’s offer, but they were all contemplating leaving the bank because of the impending takeover by the Royal Bank of Scotland. Inasmuch as acceptance of Fastow’s offer while they were still working for NatWest might run afoul of the bank’s conflict of interest rules, the NatWest Three took an option to acquire the Swap Sub interest rather than buy it outright.

Subsequently, one of the bankers (David Bermingham) resigned from NatWest, exercised the option in late April, 2000 and paid Southampton $250,000 for the interest. At the time that Southampton bought NatWest’s interest in Swap Sub, the NatWest Three did not disclose to NatWest that they had bought the option to acquire a portion of that interest through Southampton. That non-disclosure ultimately became an important fact in the plea bargain of the NatWest Three.

Shortly after Fastow offered to buy NatWest’s interest in Swap Sub for $1 million, Fastow and Kopper — unbeknownst to NatWest or the NatWest Three — offered CSFB $10 million for its interest in Swap Sub. CSFB, like Natwest, also evaluated its interest in Swap Sub at the time of the offer and concluded — as did NatWest — that the interest had zero value.

Inasmuch as Fastow and Kopper didn’t have $10 million to buy CSFB’s Swap Sub interest, they reached an agreement with Enron on March 22, 2000 to unwind the Enron-LJM1 hedge transaction on the Rhythms stock, the result of which was that Enron would buy a large chunk of Enron stock from Swap Sub for $30 million. Inasmuch as the unwind transaction would not close until the end of April, Fastow borrowed $10 million from Enron on March 22nd to pay CSFB for its Swap Sub interest. Neither NatWest nor the NatWest Three knew anything about these developments.

Subsequently, in late April, 2000, Fastow arranged with former Enron chief accountant Richard Causey to close the unwind transaction between LJM1 and Enron on the Rhythms stock. The transaction has since been subject of a substantial amount of scrutiny in the various investigations and litigation relating to Enron and it appears reasonably probable that Enron should not have paid a dime (much less $30 million) to LJM1 for agreeing to unwind the hedge. The best explanation that I have heard is that Fastow and Kopper pulled a fast one on Causey, who received nothing from the unwind transaction.

After receiving the $30 million in connection with the unwind transaction, Fastow used $10 million to repay the loan from Enron that he had used to pay CSFB for its interest in Swap Sub and paid the NatWest Three $7.3 million for their interest in Swap Sub. Fastow spread the balance of the money around to some of his underlings, including Enron treasurer Ben Glisan, who received about $1 million. Glisan’s failure to disclose his receipt of that $1 million eventually led to his termination in early November, 2001 as Enron’s treasurer. It also formed the basis of the criminal case against him.

Interestingly, the first time that the NatWest Three had any indication that the $7.3 million that they had received for their interest in Swap Sub may have resulted from a Fastow fraud on Enron was when they heard that Glisan had been fired in early November, 2001 over his failure to disclose his receipt of $1 million from Southampton.

As a result, the NatWest Three immediately and voluntarily reported everything to the UK Financial Services Authority (the UK equivalent of the Securities and Exchange Commission) — their involvement in the sale of NatWest’s interest in Swap Sub to Southampton, their purchase of the option from Fastow to acquire a portion of that Swap Sub interest, their non-disclosure to NatWest of the option at the time, their exercise of the option and purchase of the Swap Sub interest from Southampton, and their eventual receipt of $7.3 million for that interest.

The UK authorities passed along that information to the SEC and, the next thing you know, the NatWest Three had become the subjects of a criminal complaint filed on June 27, 2002 in Houston (that really encourages voluntary disclosure of information, now doesn’t it?). No US investigator ever contacted the NatWest Three to get their side of the story before filing the criminal complaint against them. UK criminal authorities never pursued any charges against the them.

The Enron Task Force originally alleged that the NatWest Three knew at the time they took the option to acquire a portion of NatWest’s interest in the Swap Sub that Fastow and Kopper were going to unwind the hedge on the Rhythms stock. Thus, the Task Force asserted that the NatWest Three knew that the unwind transaction would make NatWest’s interest in Swap Sub worth far more than either the zero value that NatWest placed on it at the time or the $1 million that Southampton eventually paid NatWest for it.

In that connection, the Task Force contended that the $10 million that Fastow arranged to pay CSFB for its interest in Swap Sub and the $7.3 million that the NatWest Three eventually received for their interest in Swap Sub was conclusive proof that the bankers had defrauded NatWest of the true value of its interest in Swap Sub.

Alas, the government’s theory of the case appears largely to have fallen apart over the past year and a half. NatWest and CSFB’s zero valuations of their respective interests in Swap Sub at the time Fastow offered to buy them proved to be valid and accurate. Given those valuations, the $250,000 that the NatWest Three agreed to pay at the same time to buy a portion of NatWest’s Swap Sub interest was clearly a speculative bet that placed the three bankers at considerable risk of loss of their entire investment.

Similarly, it also turns out that Fastow had a good reason to pay CSFB more for its interest in Sub Swab (i.e., $10 million rather than the $1 million paid to NatWest). At the time, CSFB was providing a myriad of other financial services on Enron-related deals for Fastow. Thus, buying the Swap Sub interest for $10 million was a convenient vehicle for Fastow to curry favor with CSFB. It did not mean that CSFB’s Swap Sub interest was worth anything close to $10 million.

Finally, considerable evidence emerged during the case that confirmed that the NatWest Three knew nothing about Fastow and Kopper’s plan to unwind the Rhythms hedge with Enron when they bought a portion of NatWest’s former interest in Swap Sub. Importantly, that lack of knowledge is consistent with the story that the NatWest Three told to UK Financial Services Authority in November, 2001 immediately after learning of Fastow’s possible fraud on Enron as a result of Glisan’s resignation.

So, after years of litigation, the NatWest Three pled guilty to a single count of wire fraud. The basis of the guilty plea is that the three bankers failed to disclose to NatWest the option that they had taken from Fastow to purchase a portion of NatWest’s interest in Swap Sub at the time that NatWest sold that interest to Southampton.

Importantly, the basis of the plea deal is not that the NatWest Three knew and didn’t tell NatWest that the value of the bank’s Swap Sub interest was going to skyrocket soon after Southampton bought it as a result of Fastow completing the unwind transaction with Enron.

Subject to court approval, the plea bargain provides that the defendants will serve 37 months in prison, that they will pay restitution of $7.3 million to the Royal Bank of Scotland (NatWest’s successor) and that the prosecution will support the defendants’ request that they be allowed to serve their prison sentence in the UK.

Under UK rules pertaining to prison sentences of white collar criminals, it is expected that the three former bankers would be released from their UK prisons after serving approximately half of their sentence.

As the Financial Times’ Martin Wolf observes here, this plea deal appears to be the product of the draconian trial penalty that the three bankers faced if they availed themselves of their right to a trial and lost. Under those circumstances, the defendants were facing possible sentences of 35 years each, although the sentences would likely have been considerably less than that. Nevertheless, the sentences after a trial probably would have been greater than 37 months and, had the NatWest Three defended themselves at trial and lost, the prosecution almost certainly would never have agreed to support a request to serve their prison sentences in the UK.

Thus, on one hand, the defendants could risk a trial in a virulent anti-Enron environment that could result in a long prison sentence that would have to be served in the US prison system thousands of miles away from their families. Or, on the other hand, they could enter into a plea deal that gives them the hope of being able to serve a considerable amount of a much shorter and definite sentence in the UK prison system near their families.

Given those choices, my sense is that the NatWest Three’s choice was a rational and reasonable decision.

It’s simply not a choice that they should have been forced to make.

Hedging the Trial Penalty

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Although some have questioned his business ethics, no one has ever questioned that legendary Houston oilman Oscar Wyatt is good at hedging risk.

After Wyatt was sentenced yesterday to a year in prison as a result of his plea deal (previous posts here), my sense is that Wyatt hedged the trial penalty risk (i.e., a life sentence) in an reasonably effective manner.

Meanwhile, in another plea deal, a tenured economics professor at the University of Pennsylvania faces a likely prison sentence of four to seven years for bludgeoning his wife to death. The professor says he “just lost it.”

What must Jamie Olis think about that as he finishes serving what will almost certainly be a longer sentence than the professor will serve?

And what about Chalana McFarland, a first-time offender who was sentenced to 30 years in prison in connection with a mortgage fraud scheme. Ellen Podgor is following that case.

Or former Enron executive Jeff Skilling, who continues to serve a 24-year sentence for simply availing himself of a forum in which to defend himself against charges that are far more nebulous than murder or mortgage fraud?

Finally, tomorrow afternoon in Houston federal court, the NatWest Three, three former bankers from the U.K. who have been forced to live in Houston apart from their families in the U.K. for the past year and a half, will likely enter into a plea deal in order to hedge the considerable risk of a lengthy prison sentence if they were to defend themselves in a U.S. court from Enron-related charges that U.K. authorities concluded were too weak to merit a prosecution there (see previous posts.

Is the draconian trial penalty in the American criminal justice system really generating the type of results that a truly civil society wants?

Update: The real NatWest Three deal.

Why Didn’t the MSM Expose Spitzer’s Abuses?

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Regular readers of this blog know that former New York attorney general and current NY governor Eliot Spitzer’s abuses of power have been a frequent topic for a long time, particularly Spitzer’s dubious prosecution of former New York Stock Exchange chairman, Richard Grasso.

Well, as the years pass from Spitzer’s odious term as AG, additional information is beginning to filter out that indicates that Spitzer’s abuses of power were every bit as bad as suspected.

Dealbreaker’s John Carney has posts here and here reviewing Charles Gasparino’s new book, King of the Club: Richard Grasso and the Survival of the New York Stock Exchange (Collins 2007) in which Carney summarizes Garparino’s research on Spitzer’s dubious tactics in investigating Grasso.

Suffice it to say that Spitzer’s tactics would have qualified him for a key position in any of the secret police units of the former Eastern European totalitarian regimes.

In Carney’s latter post, he makes an excellent point about the mainstream media’s myopia regarding Spitzer’s abuses of power, which were regularly noted in the blogosphere, but rarely mentioned in the mainstream media outside of the Wall Street Journal. Carney observes:

Why didn’t [the mainstream media covering Spitzer’s investigation of Grasso] reveal the slimy tactics of the Spitzer squad?

We suspect part of the problem was the fear of being “cut off” of access. Reporters compete for scoops, and often those scoops depend on sources who will leak information to them. In the NYSE case, reporters assigned to the story were largely at the mercy of the investigators, who could cut-off uncooperative reporters, leaving them without copy to bring to their editors while their competitors filed stories with the newest dirt.

They probably felt — not unrealistically — that their very jobs were on the line.

This reveals an unfortunate state of affairs. Playing bugle boy while government officials call the tunes from behind a veil of anonymity is not investigative journalism — it’s hardly journalism at all. It’s closer to propaganda.

It would have been far better had the journalists turned their backs on the Spitzer squad, or even revealed these tactics to the public. Sure they may have lost some “good” stories but they could have painted a truer picture of what was going on. But that’s probably too much to hope for.

Exactly.

Free the Koz

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Kozlowski%20and%20Swartz102607.jpgDan Ackman provides this cogent WSJ ($) op-ed that calls for the reversal of the convictions of former Tyco International executives Dennis Kozlowski and Mark Swartz:

Kozlowski wasn’t convicted for overspending, nor for defrauding investors — the most common charges leveled against corrupt CEOs. He was convicted instead of grand larceny, that is, of stealing his bonuses, which were certainly oversized. But even if you believe the worst about Kozlowski and his co-defendant former Tyco CFO Mark Swartz, they were paid according to a contract, and that is not stealing. [. . .]
. . . There is no question that Kozlowski was paid according to the incentive compensation plans that were duly approved by the Tyco board in 1994 and again in 1997. The plans rewarded the CEO and CFO with bonuses based on improvements in company earnings, cash flow and earnings per share. Excessive? That’s an understatement. But though the record-keeping was careless, nothing was secret: The contract and the payments were all on the books.

In short, Kozlowski and Swartz were convicted of being greedy, which, the last time I looked, is still not a crime. As Larry Ribstein notes:

Kozlowski and Swartz are headed to Rikerís Island, where theyíll mingle with people who did stuff that seems more obviously bad. And they may get 30-year sentences. I wonder what they would have gotten for a first offense selling heroin to schoolkids. . .
[T]he shareholder suits are still pending. These suits arenít ideal (lots of money to lawyers) but they can sweep in all the people involved, including the directors who approved the wrongful payments. Unless, of course, the shareholders contracted to indemnify them against liability, in which case weíre back to wondering whether this is wrong.

What was done to Kozlowski and Swartz is quite similar to the equally vacuous prosecution of Conrad Black. But this was even worse.

The faux Enron whistleblowers

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First, it was Sherron Watkins portraying herself for profit on the rubber-chicken circuit as a whistleblower of wrongdoing at Enron when, in fact, she was no such thing.

Now, this USA Today article raises substantial questions regarding the credibility and veracity of self-proclaimed Enron whistleblower and “corporate integrity” author Lynn Brewer:

Within the world of business ethics, Brewer is considered a star. She is a founding member of the Open Compliance and Ethics Group. She delivered the keynote address at a Sarbanes-Oxley conference hosted by the New York Stock Exchange in 2003 (there are video clips of it on her website, www.lynnbrewer.info).

She has spoken in Great Britain, India, Venezuela, Italy, Canada, Malaysia and New Zealand, and given keynote addresses at dozens of other gatherings in the USA. She’s also a regular speaker at universities, where she lectures students on the importance of ethics in business.

Brewer has even co-authored an article in Business Strategy Review with noted management guru Oren Harari showing how the leadership skills of Colin Powell could have been applied at Enron.

But to those who worked with her at Enron, when she was known as EddieLynn Morgan (she changed her name after getting married in 2000), her transformation from back-office researcher to international corporate governance heroine is astonishing.

“I don’t think people will even believe this,” says Ceci Twachtman, a former colleague, speaking of Brewer’s transformation. “It reminds me of that movie with Leo DiCaprio with Pan Am,” she adds, referring to Catch Me If You Can, a story about a high school dropout who passes himself off as an airline pilot.

“Eddie Lynn is a good nurse who is trying to claim she was a brain surgeon,” says Tony Mends, a former vice president at Enron who was her boss for much of her tenure at the company. [. . .]

When it comes to giving specifics about her whistle-blowing, Brewer contradicts herself.

In her book, subtitled A Whistleblower’s Story, she recounts her failed efforts to alert her immediate superiors to questionable actions. She also says that just before she left the company in November 2000, she called the employee-assistance help-line to complain about criminal activity at Enron.

She says she was rebuffed there, but instead of taking her complaints to the chief compliance officer at Enron, or regulators at the Securities and Exchange Commission or the Justice Department, she accepted a severance package and left.

In her speeches, Brewer dons a different mantle, presenting herself as one of the collaborators in fraudulent activity at Enron and asking her audience for forgiveness.

Read the entire article.

I swear, you can’t make this stuff up.

Jamie Olis Seeks Another Chance

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A little over a month after I started this blog back in early 2004, former Dynegy executive Jamie Olis was sentenced to over 24 years in prison for allegedly cooking Dynegy’s books.

That shocking sentence aroused my interest in the Olis case, so I have followed Olis’ ordeal closely for going on four years.

The tremors from the Olis sentence have been enormous, not the least of which was its impact on various defendants who entered into plea bargains in the Enron-related criminal cases rather than risk a similar quasi-life sentence.

Despite my interest in the Olis case, I have been somewhat frustrated over the years by the lack of available public information regarding the evidence of Olis’ alleged criminal acts. Olis had already been convicted before I even found out about his case, so I didn’t follow his trial and don’t know much about what was presented during it.

However, I do know that the structured finance transaction that was the basis of the charges against Olis — nicknamed “Project Alpha” — was not a particularly unusual transaction for a large company such as Dynegy at the time. I also knew that the transaction had been approved by dozens of accountants and lawyers both inside and outside of Dynegy.

From my experience in defending several former Enron executives, I also knew that government prosecutors neither understood nor cared much to understand the complex structured finance transactions in which companies such as Enron and Dynegy commonly engaged.

Rather, prosecutors knew that obtaining a conviction against business executives in the aftermath of Enron was like shooting fish in a barrel, so it became common for them to criminalize legitimate business transactions where it was far from clear that anything was wrong with the transaction in the first place.

To the extent such transactions should have been subject to litigation at all, they should have been subject solely to civil litigation where the liability for the alleged wrongdoing could be allocated fairly among the dozens of individuals or companies commonly involved in approving such transactions.

So it was with great interest that I read a legal memorandum in support of a motion to set aside Olis’ conviction that a new group of lawyers (including, interestingly, Houston plaintiffs’ lawyer, John O’Quinn) representing Olis filed late last week with U.S. District Judge Sim Lake (Chronicle business columnist Loren Steffy published a copy of the memorandum in a blog post over the weekend and Chronicle legal columnist Mary Flood followed up with a Monday blog post here).

The memorandum is the first document that has been filed in the Olis case that lucidly explains how — as I’ve long suspected — it was far from clear that there was anything wrong with Project Alpha and even farther from clear that Olis had anything to do with any alleged criminal conduct.

Knowing this, the prosecution veered away from its original charges against Olis and ultimately prosecuted him at trial over a “hide the real deal” theory that was entirely different from the one contained in the Olis indictment.

As it turns out, Olis didn’t really hide anything and there is substantial evidence to support his disclosures. However, the Olis’ defense at trial was limited when Dynegy quit funding it as a result of the government’s threat “to go Arthur Andersen” on the company.

Thus, Olis’ defense counsel was overwhelmed and did not find the exculpatory evidence, which the Olis team did not discover until Olis’ lawyer sued Dynegy and recovered a substantial money judgment for failing to fulfill its obligation to fund the Olis criminal defense. The ordeal that Olis and his family have suffered over the past four years is the result of this travesty.

Credit Steffy for getting it right in his blog post calling for Olis’ release from prison (related column here).

However, Steffy’s call for justice in the Olis case is ironic in that he bears a substantial portion of the responsibility for flaming the poisonous anti-business climate in Houston that led to brutal injustices such as the Olis case in the first place.

Let’s remember that the next time someone starts inciting an angry mob.

The Lerach deal

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Lerach%20091807.jpgFormer class action securities plaintiffs’ lawyer William Lerach finally cut a non-cooperation plea deal (Nathan Koppel’s WSJ Law Blog post is here) to resolve the longstanding criminal investigation into alleged undisclosed payments that Lerach and his firm made to class representatives and co-counsel in cases that they handled.
In certain defense and business circles, there is a fair amount of schadenfreude over Lerach’s demise — he had no reservation about alleging criminal conduct against business executives, such as he did when he claimed that Enron was shredding documents during the early stages of that company’s bankruptcy case (that claim turned out to be wrong).
However, before we get too sanguine about Lerach’s plea deal, let’s not forget the circumstances under which it has been obtained. The 61-year old Lerach was facing a horrifying trial penalty if he chose to fight the charges, and he almost certainly will lose his law license as a result of pleading guilty to a felony. And as Larry Ribstein has repeatedly pointed out, it doesn’t say much for our criminal justice system that the government is paying witnesses to testify against Lerach for the crime of paying his class representative clients. As Larry points out in his most recent post on the matter, the non-cooperation nature of the plea deal does not necessarily mean that the government isn’t providing Lerach some form of hidden incentive for his plea.
Update: Ted Frank argues that Lerach’s plea deal is, all things considered, not so bad for him, after all. On the other hand, Peter Henning is not so sure.

The Skilling Appeal Brief

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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

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.

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 Courtís 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.