Houston Chronicle business columnist Loren Steffy is a particularly vitriolic critic of former Enron executives Jeff Skilling and the late Ken Lay.

Steffy convinced himself early on that Skilling and Lay had lied to investors about Enron, so he made a good part of his living for the past several years appealing to resentment and scapegoating rather than fair-minded analysis in covering Enron’s demise.

Even the fact that the criminal cases against both Skilling and Lay turned out to be rather weak made no difference to Steffy. He rarely, if ever, gave Skilling or Lay any credit for the enormous wealth that was created from their legacy of beneficial risk-taking.

Stoking anger toward wealthy business executives is much easier than nuanced analysis of often complex markets and business transactions. Probably sells more newspapers, too.

So, against that backdrop, imagine my surprise when I came across this recent Steffy column in which he defends embattled securities fraud plaintiff’s lawyer, Bill Lerach.

Lerach is in the cross-hairs of a federal criminal indictment for lying to federal judges and his firm’s class clients about payments that his firm allegedly made to class representatives in certain of the cases that Lerach’s firm and his former firm (Milberg Weiss) handled. Despite these allegations, Steffy sees the good in Lerach’s work:

Lerach and his lawyers have held countless executives accountable over the years. They’ve recovered billions for fraud victims, both individuals and, more recently, pension funds and institutions.

All of this, of course, has made Lerach wealthy, which fuels the criticism against him. [. . .]

Past mistakes may have caught up with him, and if they have, he must pay the price.
But for . . . thousands of other shareholders, those mistakes may tarnish Lerach’s reputation, but his legacy remains unblemished.

As noted several times over the past year (most recently here), I also have doubts about the anticipated criminal case against Lerach, although not for the same reasons as Steffy.

My radar system for abuse of prosecutorial power is always activated whenever the government’s case is based on witnesses whose testimony has been bought and paid for.

But here’s what gets me. Steffy balances Lerach’s alleged lying to judges and his investor class-clients against the economic benefit of the recoveries his firm made on behalf of those investor-clients (many of those recoveries actually reduced the value of the companies that Lerach’s clients owned, but that’s another issue).

However, Steffy excoriates Skilling and Lay for their alleged lying to investors despite the fact that the two former Enron executives created enormous wealth that dwarfs any economic benefit that Lerach’s firm ever generated.

Thus, to Steffy, Lerach is Robin Hood who deserves some slack, while Skilling and Lay are greedy shysters who got what was coming to them. But in reality, what happened to Skilling, Lay and Lerach is far more complicated than that.

Too bad that Steffy prefers his simple morality plays to analytical clarity that might actually lead his readers to understand that encouraging the type of risk-taking that Lay and Skilling promoted at Enron facilitates productive markets, employment growth and wealth creation.

Economist James Buchanan won a Nobel Prize for his work on applying economics to explain how incentives impact the behavior of government officials. In short, Buchanan concluded that government officials are people who behave in the same selfish manner as most folks. For example, when dealing with the government’s awesome prosecutorial power, prosecutors often could care less about discretion and justice. Rather, they often use that power to advance their personal interests, to extort tribute from the private sector, to blackmail politicians into increasing prosecutorial resources and privileges, and to manipulate the media in their favor.
The foregoing seems to be an apt explanation of what continues to go on in the Enron-relates debacle known as the Nigerian Barge case:

A federal prosecutor wants a former Merrill Lynch & Co. executive to serve the entire prison term imposed for five Enron-related crimes even though three of those convictions were overturned by an appeals panel last year.
But lawyers for James Brown say the prosecutor is pushing to incarcerate their client for the remainder of his three-year, 10-month term because he has refused to plead guilty to another felony and possibly testify against two co-defendants.

Read about the entire tawdry affair. Brown’s perjury and obstruction of justice convictions were upheld in this Fifth Circuit decision that reversed the convictions against him and his co-defendants on the other three charges. However, Judge Harold DeMoss’ dissent lucidly explains just how flimsy the convictions on the perjury and obstruction charges are:

[The majority decision relies on] two types of evidence [to support the convictions of Brown on the perjury and obstruction charges]: (1) business negotiations preceding a deal ultimately reduced to a written agreement and (2) an after-the-fact oversimplification and shorthand description of the barge partnership investment by Merrill employees during the discussion and evaluation of a subsequent and entirely unrelated deal. Neither of these types of evidence should be used to support an inference of the falsity of Brownís testimony.

After what the prosecution has put Brown and his Merrill Lynch co-defendants through, the prosecution’s continued pursuit of this case borders on the barbaric. Here’s hoping that Judge Ewing Werlein rejects the prosecution’s continued pursuit of this Enron-related witch hunt in the same manner as he rejected the prosecution’s original over-the-top sentencing recommendations. Perhaps a few decision of that nature would induce some adult supervision to return to the Department of Justice.

These earlier posts reported on U.S. District Judge Lynn Hughes’ decision to sanction the Department of Justice under the Hyde Act for its sloppy indictment and handling of a criminal fraud prosecution of Oklahoma lawyer John Claro. The always alert Ellen Podgor passes along that Judge Hughes has issued his formal ruling on the Hyde Act sanctions, in which he observes:

The United States Attorney indicted an Oklahoma businessman in conscious indifference to the legal and factual basis of the charges that they brought against him. The fifty-four-count indictment was a jumble of claims and stray facts ñ a garbled press release about working men who cannot get insurance. The court dismissed all counts of the indictment. The businessman seeks defense costs. He will be repaid because the prosecution was not substantially justified. [. . .]
Criminal prosecution casts a shadow on defendants that can linger even after an acquittal. The discretion the government has to prosecute those it thinks guilty of crimes must be grounded in a sound facts and articulated law. The Hyde Amendment was passed to give some recompense to those prosecuted without this most basic discretionary safeguard from prosecutorial oppression. The case against [this individual] lacked even a semblance of responsible work by the government. His attorneys had to work with a jumbled array of facts and theories, a mountain of documentary evidence, and unresponsive government lawyers.

Sort of makes you wonder what Judge Hughes would have done with a number of the Enron-related prosecutions, doesn’t it? Here’s a hint.

The Enron Broadband trials were not the Enron Task Force’s finest hour (see also here and here).

Now that the Task Force has been disbanded, Justice Department attorneys are left to pick up the pieces of the Task Force’s shattered cases and, as the Chronicle’s Kristen Hays reports from the Fifth Circuit, it’s not an easy task.

Sort of what you would expect from cases in which the government asserted an unwarranted expansion of a criminal law intended to punish kickbacks and bribes against businessmen who did no such thing.

Criminal convictions based primarily on juror resentment of wealthy businessmen tend not to hold up well under the bright light of appellate scrutiny.

Mark Steyn continues his excellent analysis of the criminal case against Conrad Black (prior posts here) with this lengthy piece on the trial, in which he agrees with me regarding the defense team’s decision not to have Lord Black testify:

When Black declined to testify in his own defence, the result was that he was defined only by the glimpses of him permitted by the government: he was the guy who, in Alana’s phrase, got the money, and sent boorish emails, and installed heated towel rails in his Park Avenue apartment. Had he been put on the stand, he would certainly have been tripped up by government lawyers in some areas, but he would have opened up others that allowed the jury to see Conrad Black as a man in full, warts and all, rather than only the warts, the unsightly carbuncles of non-compete fees and company-jet perks and a security video of a British peer taking boxes down the back stairs of a Toronto office building.

Steyn also has some choice words for the Black defense team, which he viewed as largely dysfunctional. Reading Steyn’s piece along with this lengthy Adrian and Olga Stein essay (pdf) on the background of the case against Lord Black leaves one with a depressing image of how the U.S. criminal justice system is being manipulated to regulate the unpopular businessperson of the moment.

Canadian Mark Steyn’s experience in blogging the Conrad Black trial gives him an interesting perspective in proposing several common sense reforms for the federal criminal justice system, most of which have been addressed in this blog over the years:

1) An end to the near universal reliance on plea bargains, a feature unknown to most other countries in the Common Law tradition. [. . .]
2) An end to the reliance on technical charges such as “mail fraud” and “wire fraud”, whereby you’re convicted not for the crime itself but for sending a letter or authorizing a bank transfer in the course of said crime. [. . .]
3) An end to the process advantages American prosecutors have accumulated over the years – such as the ability to seize a defendant’s funds and assets and deprive him of the means to hire good lawyers and rebut the charges. Or to take another example: Unlike the Crown in Commonwealth countries, in closing arguments to the jury the US government gets to go first and – after a response from the defence – last. This is an offence against the presumptions of English law: The prosecutor makes his accusation, the accused answers them. Every civilized legal system allows the defendant the last word.
4) An end to countless counts. In this case, Conrad Black was charged originally with 14 crimes. That tends, through sheer weight of numbers, to favour a conviction on some counts and acquittal on others as being a kind of “moderate” “considered” “judicious” “compromise” that reasonable persons can all agree on. [. . .]
5) An end to statute creep. One of the ugliest features of American justice is the way that laws designed to address very particular situations are allowed to metastasize and be applied to anything a prosecutor fancies. The RICO statute was supposed to be for mobsters and racketeers. Conrad Black is not a racketeer but he was nevertheless charged with racketeering. [. . .]
6) An end to de facto double jeopardy. Conrad Black is likely to wind up back in court to go through all the stuff he’s been acquitted of one mo’ time, this time in a Securities and Exchange Commission case. That would be a civil case, not a criminal one, and the US Attorney insists that the SEC is an entirely separate body. Oh, come on. The US Attorney and the SEC are both agencies of the US Government. They work in synchronicity. It’s not the same as Nicole Brown’s family suing OJ after the state’s murder case flopped. In this instance, two arms of the same organization are bringing separate cases on exactly the same matters. That’s double jeopardy – or, in fact, given the zealousness of the SEC, triple and quadruple jeopardy.

Steyn expands on these points, so read the entire post. And here is another proposed reform that should be added to the list.

Get a load of this press release (hat tip Ellen Podgor) from the Department of Justice heralding the five year anniversary of the DOJ’s Corporate Fraud Task Force.

Here is the press release’s description of the Task Force’s accomplishments in connection with its investigation into the demise of Enron:

Criminal charges were brought against 36 defendants, including 27 former Enron Corporation executives. Eighteen of those charged pleaded guilty or were found guilty after trial, including Enron’s former chief executive officer, who was sentenced to 292 months in prison. The guilty verdicts against the former chairman/CEO in two cases were dismissed by abatement following his death. The Task Force seized over $100 million in ill-gotten gains and the Department of Justice worked jointly with the Securities and Exchange Commission to obtain orders directing the recovery of more than $450 million for the victims of the Enron frauds.

What parallel universe are these people living in? Here is the harsh reality of the Task Force’s legacy in regard to the Enron criminal cases:

The Enron Task Force procured a deeply flawed conviction that put the nail in the coffin of one of the oldest and most respected U.S. accounting firms, costing tens of thousands of jobs in communities and wealth loss to individuals throughout the nation. Later, the head of the Task Force expressed an appallingly arrogant “end justifies the means” regarding the wrongful prosecution of Andersen and other Enron-related cases;

Then, the Task Force ruthlessly ruined the careers of four respected former Merrill Lynch executives and sent them to prison for a year before the Fifth Circuit overturned that atrocity. That prosecution included a disingenuous market loss argument in connection with the sentencings of the four executives, an argument that contradicted the Justice Department’s position at the time in a case involving the same issue that was pending before the U.S. Supreme Court.

After two trials, the Task Force finally obtained a conviction against former Enron Broadband executive Kevin Howard, only to have that conviction tossed out (the Task Force is appealing that decision). After the latter trial, the Task Force characterized as “harmless error” strong evidence of misconduct during jury deliberations.

For the past two years, Task Force lawyers have been attempting to patch something together to make a case against Howard’s former co-defendants in the Enron Broadband case that the Task Force has already lost once. In connection with that first Enron Broadband trial, the Task Force’s threatened two defense witnesses (here and here) in an attempt to induce them not to testify, elicited false testimony from former Enron executive Ken Rice, the Task Force’s key witness in that trial, and a Task Force prosecutor violated the judge’s instruction during trial not to question witnesses on certain subjects.

The Fifth Circuit — even before the appeal briefs have been filed — has opined that “serious frailties” exist in the conviction of former Enron CEO Jeff Skilling, and the stress associated with mounting a defense to the Task Force’s questionable case against former Enron chairman Ken Lay almost certainly contributed to his death.

Serious questions remain as the validity of the Task Force’s controversial prosecution of the NatWest Three, an ordeal for those men that is now entering its fifth year for those defendants.

The Task Force obtained a highly dubious indictment against former Enron mid-level executive Christopher Calger (the prosecutor handling the plea bargain hearing could not even articulate Calger’s crime to the judge who took the plea), and Calger’s later renunciation of the plea deal exposed several dirty secrets of the Task Force, particularly the bludgeoning of former Enron executives into plea bargains.

The Task Force engaged in a highly prejudicial and inflammatory public relations campaign demonizing anyone and anything having to do with Enron.

The Task Force engaged in a dubious tactic of fingering potential defense witnesses as either unindicted co-conspirators or targets of the Enron criminal investigation to deter those witnesses from testifying for defendants in the Enron criminal trials.

Strong evidence exists that the Task Force threatened witnesses with indictment (see also here and here) if they testified for the defense in the Lay-Skilling trial.

The Task Force’s tactics have had a negative impact on such fundamental rights as the attorney-client privilege, the presumption of innocence and the right to a fair trial, not to speak of the negative effect on creation of wealth and jobs.

Meanwhile, many of the Task Force lawyers who contributed to making this mess have moved on to lucrative careers outside of government.

In light of the foregoing, rather than extolling the Corporate Fraud Task Force’s accomplishments, wouldn’t it be a more productive exercise to examine the cost of the Task Force and its actions relative to the value of its benefits?