Following up on a post on this blog from a couple of weeks ago, the WSJ’s ($) Paul Davies and David Reilly report on how the shadow of former Dynegy executive Jamie Olis is hovering over the pending criminal proceedings against 16 former KPMG LLP executives in New York. Larry Ribstein and Peter Lattman comment on the issues confronting the former executives in attempting to obtain a fair trial after the prosecution browbeat KPMG to stop paying for their defense.

As I’ve noted before, we are still too close in time to the barbaric treatment of Olis to be able to comprehend the full implications of that case. How many innocent business executives pled guilty to crimes that they did not commit out of fear of an Olis-like sentence? I suspect more than a few.

In this recent blog post on the closing days of the Conrad Black criminal trial in Chicago (prior posts here), Mark Steyn explains why criminalization of merely questionable business transactions is a manifestly unfair and arbitrary way to regulate business:

How many times does Jim (The Skim) Thompson, four-time Illinois Governor and serial skimmer, get a pass?
Yesterday, hostile witness Pat Ryan of KPMG testified that at a Hollinger International Audit Committee meeting he asked and received confirmation from Governor Thompson that the non-compete payments had been approved.
Today, late in the morning, Chris Paci, a lawyer for Shearman & Stirling, had been doing some “due diligence” work for the Wachovia bank and requested a meeting with the Audit Committee to ask specific questions about the non-competes and other related-party transactions. He asked the Big Skim explicitly whether the disclosures on Hollinger 10K and proxy statements were correct. “He said that yes, the related-party transactions had been approved by the Audit Committee and that the disclosures were correct,” testified Mr Paci. “I recall that I came away satisfied that I had got the answers I needed.”
How many times does a four-term Governor get to skate on this? Risible as it is, he can just about get away with testifying that he “skimmed” the 11 official documents put his name to and missed the same passage on 11 separate occassions, and it just coincidentally happens to be the same passage that his two fellow members of the Audit Committee claim to have missed 11 times, too. As I said at the time, that’s Olympic-level synchronized skimming, but if he can say it with a straight face good for him.
But does he skim human conversations, too? Can he plausibly claim not to have confirmed his approval to Pat Ryan? And, even more of a stretch, can he claim not to have known what he was doing at a meeting where he was asked explicit questions about the approvals and in which Mr Paci had been invited to participate in order to receive confirmation of those very approvals?
Why are four men facing the rest of their lives in jail for these allegedly non-approved non-competes but the guy who approved them in writing and verbally multiple times gets to skate? How many different approvals and confirmations does the Serial Skimmer get to disavow?

In civil litigation, all of the Hollinger directors and executives involved in the allegedly questionable non-compete payments to Black and his associates would be included as defendants. Thus, in such a case, responsibility for the payments — if they were found to be wrongful — could be allocated among all of directors and executives involved. But the sledgehammer effect of criminal prosecution focuses all of the responsibility for the transactions in question by hanging the threat of long prison sentences over Black and his associates even though it is clear that the allegedly wrongful payments were disclosed to and approved by Hollinger’s directors. This is not the way a truly civil society would resolve such issues.

The title to this post poses an unsettling question on this day when we pay tribute to those who sacrificed their lives for our freedom.

But recent revelations from the trial of the civil case relating to the criminal trial of former Dynegy mid-level executive Jamie Olis reveals that some powerful forces did not consider Olis’ freedom worth very much at all.

Earlier posts on this blog reported that the Department of Justice threatened to put Dynegy out of business unless it threw Olis under the locomotive of the DOJ’s criminal investigation of a complicated structured finance transaction called Project Alpha.

The Chronicle’s Tom Fowler follows up with this revealing article regarding the nature of the enormous pressure that the DOJ brought to bear on Dynegy’s leaders to abandon Olis:

The letter from the U.S. Attorney’s Office that arrived at Dynegy’s headquarters on Jan. 9, 2003, was hardly welcomed by CEO Bruce Williamson.

“We have become increasingly concerned that Dynegy’s ‘cooperation’ is more apparent than real,” read the letter from former U.S. Attorney Michael Shelby, referring to an investigation of a deal called Project Alpha. “As a result, we are re-evaluating whether we can continue to rely on Dynegy’s claim of good faith cooperation with the investigation.”

Williamson was just a few months into his new job trying to turn around the troubled natural gas and power company. Dynegy teetered close to bankruptcy as it dealt with an industry-wide fallout of Enron’s collapse, a flagging stock price, and civil and criminal investigations.

When Williamson met Shelby face to face the next day, he was lectured on what Dynegy needed to do to avoid criminal charges.

“I walked out of there a few pounds lighter,” Williamson testified in court last month.

“An indictment clearly would have put the company out of business.” [. . .]

Shortly after the January 2003 meeting, Williamson testified, Shelby sent him the Thompson Memo. Williamson said he saw it as a message to stop paying fees for Olis and Foster.

Several months passed, during which Shelby’s office built its case against the trio.

On June 12, indictments against them were unsealed, and they were arrested.
Shelby made a point of thanking Williamson publicly that day for his cooperation, and even sent a wall plaque for his office saying as much.

A month later, on July 15, an assistant U.S. attorney called Larry Finder, a Haynes & Boone lawyer representing Dynegy, asking why the company was still paying for Olis and Foster’s legal fees.

On July 18, Williamson sent an e-mail to Shelby saying he was “totally supportive of trying to modify our legal support posture. I have wanted to do so for some time.”

Shelby wrote back the next day, thanking him for “looking into this” and adding, “I think it is in neither of our interests to have the company pay for the defense of individuals whose actions were so egregious.”

So much for the presumption of innocence, eh?

Fowler also provides this related article regarding the testimony from the civil trial by Olis, who did not testify during his criminal trial that initially resulted in a barbaric 24 year prison sentence. Based on Olis’ testimony, it appears that over a half-dozen unnamed Dynegy employees should be giving thanks to Olis for their freedom:

Jamie Olis repeatedly turned down offers to cooperate with prosecutors, even after the former Dynegy worker was sentenced to 24 years in prison.

“I just couldn’t do it,” he testified in a civil trial this month.

Olis spoke by phone from federal prison in Bastrop during the trial, where his former attorney won legal fees from Dynegy that he claimed the company held back under pressure from prosecutors. A recording of the testimony was obtained by the Houston Chronicle.

Olis testified that in May 2003, shortly before he and two co-workers were indicted for their roles in Project Alpha, the government pressured him to make a deal. Olis said an assistant U.S. attorney took him aside after a hearing and said: ” ‘Hey, we know you’re the small guy on this stuff, plead guilty and you don’t owe anybody anything.’ “

Olis declined, and he and his boss, Gene Foster, and co-worker Helen Sharkey were indicted on June 12.

In August 2003, after Foster and Sharkey entered plea agreements, Olis said he was offered a similar deal but he didn’t take it. Even after he was found guilty in November 2003 and later sentenced to 24 years in prison, he said prosecutors tried to get him to enter into a deal that would reduce his sentence.

Lloyd Kelley, an attorney representing Olis’ former attorney in the trial, asked if he was tempted to take it.

“I did think about it, but there was no way I could have done it,” Olis said.

“Why?” Kelley asked.

“Because it wasn’t a matter of just pleading guilty,” Olis said, his voice trembling with emotion. “What they wanted was for me to tell the story that I and everyone else engaged in a conspiracy.”

The “everyone else” was a list of more than a half-dozen Dynegy workers that Foster said in the criminal trial had conspired to withhold information about Alpha from outside accountants. No one beside Olis, Foster and Sharkey has been charged.

“And I couldn’t ruin those people’s lives,” Olis continued in a halting voice. “I’m Catholic. And I can’t do that.”

Olis claimed Foster’s testimony about a conspiracy wasn’t truthful.

“We were all consistent in our SEC depositions, and we never talked to each other,” he said, referring to statements the three gave to the Securities and Exchange Commission. “Then at the trial Mr. Foster comes on after pleading guilty and does a 180, and starts to say we had a conversation.”

So, Olis works on Project Alpha with over a dozen other Dynegy employees, lawyers and accountants in an effort to improve the company’s earnings.

In the inflamed anti-business environment of the immediate aftermath of Enron, the SEC launches an investigation of the transaction, to which Olis cooperates.

The U.S. Attorney decides to criminalize the transaction and makes Dynegy’s CEO an offer that he cannot refuse — throw Olis and a couple of his co-workers under the bus and the federal government will not put Dynegy out of business as it did with Arthur Andersen.

When Olis is the only one of the defendants who provides a consistent story in both the SEC investigation and the criminal case, the DOJ prosecutes him to the hilt, resulting in a 24 year sentence, later reduced to “only” six years.

For what it’s worth, the current U.S. Attorney sees nothing wrong with all of this.

As we contemplate on this Memorial Day the sacrifices that have assured our freedom, do any of us really think that we could preserve that freedom and stand upright in the winds of the overwhelming governmental power that was brought to bear on Jamie Olis if that power were turned on us?

Judge Kaplan, I hope you are listening.

This post from last week reported on how a recent civil lawsuit against Dynegy, Inc. involved issues relating to the Justice Department’s 2003 threat to indict the company that contributed dramatically to the barbaric prosecution and prison sentence of former mid-level Dynegy executive, Jamie Olis. The evidence from that trial is now slowly filtering out and reveals a systematic effort by federal prosecutors to interfere with Olis’ defense of the government’s charges. The following is from a Platt’s.com‘s ($) Gas Daily:

The CEO of Dynegy, who four years ago cooperated with a fraud investigation that resulted in a former colleague getting a six-year prison sentence, feared at the time that prosecutors might deal Dynegy a fatal blow by seeking a criminal indictment against the firm.
According to transcripts from a late-April trial, [Dynegy CEO] Bruce Williamson testified that after a January 2003 meeting with the US attorney, ìI walked out of there a few pounds lighter. An indictment clearly would have put the company out of business.î [. . .]
Williamson testified for three days in late April about his thought process in 2003 as the US Attorneyís office in Houston was preparing an investigation into Project Alpha ó a probe that led to the conviction of Olis and two other former employees.
At the time of the Project Alpha inquiry, Williamson had been on the job just a few months, having been named CEO in October 2002 when Dynegy was facing severe liquidity and credit problems and its future as a viable company was in doubt.
Lloyd Kelley, Yatesí attorney, told Platts last week that prosecutors, under the direction of then-US Attorney Michael Shelby, pressured Williamson and other Dynegy officials to cut off support to Olis and other ex-employees under investigation or face the prospect of a criminal indictment against the company itself.
ìShelby basically threatened Dynegy, and Williamson agreed to do whatever the government wanted, which meant they would order people to give testimony,î Kelley maintained. ìThey had to waive their Fifth Amendment privilege, waive attorney-client privilege.î
According to the transcripts of last monthís trial, Williamson testified that in early January 2003, he arranged a meeting at Shelbyís office after receiving a letter from Shelby indicating his displeasure with Dynegyís lack of cooperation into the Project Alpha investigation.
ìI wouldnít say it frightened me, but it was another issue along with all the debt that we needed to pay off, along with a FERC investigation, a Commodity Futures Trading Commission investigation, all the other things going on,î he testified.
Williamson said he feared that a criminal indictment against Dynegy on the heels of mass layoffs would have ìshut the company downî by forcing the departure of the firmís remaining 1,400 employees. An indictment never came. Williamson told the court that he took a hard line against any current or former Dynegy employee being investigated by the government.
ìIím not going to give people the presumption of innocence,î he said. ìAnybody on that list needs to be investigated fully and we needed to determine whether they were guilty or not. If they are, they need to leave the company. If they are going to be indicted, they need to leave the company. If there is a doubt, they need to leave the company,î Williamson testified. . .
Don DeGabrielle, the current US Attorney for the Southern District of Texas, told Platts that his predecessor, who died last July, did nothing wrong in his prosecution of the Project Alpha case. . . .

It’s a sad sign of our times that federal authorities deem “nothing wrong” with threatening to put a company out of business for merely defending its employees. Despite the recent jury verdict against Dynegy, Williamson and the Dynegy board did the correct thing for the company’s shareholders by tossing Olis to the wolves — having to pay several million in damages for failing to subsidize Olis’ defense costs is peanuts compared to the billions in damages that would have resulted from a Dynegy bankruptcy. But Dynegy’s board should never have been forced to make that Draconian choice in the first place. In the face of such interference with Olis’ defense, the prosecution of Olis should have never been allowed to proceed. Peter Henning reports that the latest development in the KPMG case is prompting Judge Kaplan to confront the same issue in that case (Larry Ribstein also comments here). Here’s hoping that the injustice heaped upon Jamie Olis helps lead Judge Kaplan to the correct decision.

In this post from last week, I noted the similarities between the federal government’s vacuous case against Conrad Black and the notorious prosecution of the four former Merrill Lynch executives in the Enron-related case known as the Nigerian Barge case.

Now, according to this Mark Steyn blog post on the trial, yet another similarity has arisen between the two cases.

Although the entire Nigerian Barge prosecution was an abomination, the case against former Merrill mid-level executive William Fuhs was particularly egregious.

Of the four Merrill Lynch defendants in that case, only Mr. Fuhs was not a managing director of the company. He did not participate in the one telephone conference with former Enron CFO Andrew Fastow in which Mr. Fastow allegedly induced Merrill Lynch executives to buy an interest in the barges by assuring them that Enron would broker a deal for Merrill’s interest for a tidy profit within six months. Indeed, Mr. Fuhs’ only connection with the deal was the ministerial processing of the transaction after Merrill had agreed to buy the interest in the barges from Enron.

During the Enron Task Force’s presentation of its case at trial, none of the government’s fact witnesses even knew Fuhs. Fuhs never conferred with anyone at Arthur Andersen (Enron’s auditors) regarding the transaction and the deal was the only Enron transaction that Mr. Fuhs ever worked on. The prosecution presented no witnesses or evidence that Mr. Fuhs — who is not an accountant — had any idea that Enron’s booking of a $12 million gain on the Nigerian Barge transaction was arguably improper, much less that he or Enron intended to do mislead anyone with regard to the accounting of the transaction. As one defense attorney involved in the case put it to me, “the Enron Task Force effectively prosecuted Fuhs for making copies.”

Unfortunately, a weak case in a media and government-stoked anti-business climate didn’t make any difference. Fuhs — a young man in his early 30’s with a wife and two young children — was convicted on multiple counts and sentenced to 37 months in prison (the prosecution an over-the-top request for a 10+ year sentence).

After Fuhs served about a year of that sentence, a clearly appalled Fifth Circuit Court of Appeals took the highly unusual step of ordering Fuhs released from prison shortly after oral argument on his appeal and then threw out the entire conviction against him a few weeks later. As Fuhs and his young family picked up the pieces of his career and their lives, the Task Force prosecutor who promoted this atrocity went on to a lucrative career in private practice.

According to Steyn, the government is deploying the same tactics that it used on Fuhs against a fringe player in the transactions that are being criminalized in the Black trial:

At least two of the four defendants in this courtroom — Peter Atkinson and Mark Kipnis — are only here because they refused to be steamrollered into a plea bargain by the US Attorney’s heavies. But the hollowness of the case against Kipnis, the Hollinger in-house counsel in Chicago and the most junior defendant, beggars belief.

The government’s proposition is that the bonuses Kipnis received during his time with Hollinger was a pay-off for facilitating the $60 million scam. “He got $150,000 in bonus money to help do their crime,” said Jeffrey Cramer during his opening address. That seems like a very piffling share of the swag, but, as Cramer put it, “His price was just a little bit lower. Thatís all. Thatís the only difference.”

Yesterday, David Radler testified that he’d told the government that Kipnis’ bonuses had nothing to do with the non-competes and were related to money he’d saved the company on outside legal fees by his work on CanWest and the other deals.

In other words, Cramer and his fellow prosecutors knew all along that they had no case against this guy, but they chose to pursue it anyway. He will most likely survive, but they’ve destroyed his reputation and his legal career, and he now runs a branch of a commercial-sign store. Kipnis’ signature is on a lot of documents for the same reason my assistant’s is: she’s around when I’m out of town. Radler was mostly in Vancouver, and Kipnis was the guy who signed for him in Chicago.

Patrick Fitzgerald’s team knew this. For them to punish Kipnis for declining to submit to their retrospective criminalization of events is the act of a third-rate bully.

Indeed. There has been a lot of third-rate bullying during this era of repugnant criminalization of business interests.

One of the most egregious aspects of the federal government’s criminalization of business during the post-Enron era has been the prosecution tactic of threatening to go Arthur Andersen on companies if they fulfilled a corporate policy or obligation to pay the defense costs of the company’s business executives against whom the prosecution was pursuing criminal charges. U.S. District Judge Lewis Kaplan called the government in on the carpet for this tactic in the KPMG case, but the government got away with the tactic in a number of other cases with disastrous consequence for the individual defendants.
Once of those was the sad case of former Dynegy executive Jamie Olis in which the prosecution threatened Dynegy with indictment if the company followed its corporate policy of paying for Olis’ defense of a government’s indictment against him. As a result, Dynegy stiffed Olis for his defense costs and Olis — who is not a wealthy man — was forced to scrape together funds for what amounted to a skeletal defense at trial. Dynegy’s forced betrayal of Olis undoubtedly contributed to the disastrous result at trial as Olis was convicted and sentenced to over 24 years in prison. Much later, after the Fifth Circuit Court of Appeals overturned that abomination, Olis was resentenced to about six years in prison.
But now for the rest of the story. After Olis was convicted, Terry Yates, Olis’ trial counsel, filed a civil lawsuit against Dynegy seeking to recover damages in the amount that Dynegy should have paid him for Olis’ defense. The case went to trial in state district court in Houston earlier this month, but flew under the radar screen of the media. So, it was with great interest that I read the following short blurb in the Chronicle’s “Around the Region” column yesterday:

Jury wants Dynegy to pay lawyer
A jury said Tuesday that Dynegy owes $2.5 million in legal fees and damages to the lawyer of former Dynegy worker Jamie Olis.
The state court jury determined Dynegy committed fraud when it did not pay Terry Yates, Olis’ attorney during the November 2003 trial, for representing him during the trial. Olis was found guilty and sentenced to 24 years in prison but later had his sentence overturned and reduced to six years.
Yates was awarded $500,000 in legal fees and $2 million in damages.
A spokesman for Dynegy said the Houston-based energy company respects the jury’s verdict but is still considering its options, including an appeal.

The Reuters story on the jury verdict is here. Here’s hoping that Yates is able to obtain a judgment based on the jury verdict and collects every dime of the damages. I only wish that the government lawyers who strong-armed Dynegy into welching on the company’s obligation to defend Olis and deprived him of at least a fairer trial are the ones who would have to pay Yates.

David Radler, the key prosecution witness against former Hollinger International chairman and CEO Conrad Black, is currently testifying in the trial. Mark Steyn’s blog of the trial continues to be the “go to” site for keeping up with the proceedings.

In thinking about Radler’s testimony, it occurs to me that the criminal case against Black is quite similar to the notoriously misguided prosecution in the Nigerian Barge case (see also extensive discussion thread here) against four former Merrill Lynch executives in connection with the demise of Enron.

In the barge case, the prosecution contended that the Merrill Lynch executives had entered into a secret oral “side deal” with Enron CFO Andy Fastow that rendered illegal Enron’s accounting of the sale of a energy-producing barge interest to Merrill.

Among many other problems with the prosecution, the government’s theory ignored the undisputed fact that the written agreements between the parties contained standard provisions that rendered any such oral side agreements unenforceable and specifically provided that neither party in doing the deal was relying on oral representations of the other that were not contained in the written contract.

In Black’s trial, the prosecution essentially contends that Black and several of his associates stole $60 million in sales proceeds that should have gone to Hollinger International despite the fact it is undisputed that the Hollinger board of directors approved multiple documents in the ordinary course of their duties that disclosed the payment of $60 million in non-compete fees out of the sales proceeds to Black and his associates.

Moreover, in both cases, the government liberally appealed to jury bias against wealthy businessmen and relied on only one key witness (it was Ben Glisan in the barge trial) who cut a deal with the government in return for testimony against the defendants.

So, in both cases, the prosecution pursued criminal cases against wealthy businessmen regardless of undisputed documentary evidence that might well have formed the basis of a summary judgment for the defendants in a civil case involving the same allegations.

At the very least, the documentary evidence in both cases established reasonable doubt regarding the government’s allegation that a crime had occurred. Nevertheless, the prosecutions proceeded, stellar business careers were badly damaged, families who rely on these men were disrupted, four men have already been unjustly imprisoned for a year, and Conrad Black’s freedom hangs in the balance.

Do we really want the most powerful force in American society pursuing criminal cases in such a manner?