As noted earlier here, former Enron CEO Jeff Skilling will report to a minimum-security prison in Waseca, Minnesota on Tuesday to begin serving the brutal 24 year sentence that he was assessed on October 23rd.

On January 2, former Enron accountant Richard Causey is scheduled to report to the federal prison in Bastrop near Austin to begin serving his five-and-a-half-year sentence that he received on November 15.

Former Enron CFO Andrew Fastow is serving his a six-year term in a federal prison at Oakdale, Louisiana that he received on September 26, and former Enron Energy Services CEO David Delainey is in a Lompac, California federal prison serving the two-and-a-half-year sentence that he received on September 19th.

But for some unknown reason, former Dynegy mid-level executive Jamie Olis — who has endured a three year ordeal in having his absurd 24 year sentence reduced to six years on September 22nd — remains in the marginally humane Federal Detention Center in downtown Houston awaiting reassignment to a federal prison.

Olis reported to federal prison on May 20, 2004 and was originally assigned to the Bastrop unit, about an hour and a half away from San Antonio where his wife and young daughter are living.

However, in January 2005, Olis was inexplicably yanked out of the Bastrop unit and transferred to a much harsher medium-security unit in Oakdale, Louisiana, 400 miles away from his family.

Then, after the Fifth Circuit set aside Olis’ original 24 year sentence on October 31, 2005, U.S. District Judge Sim Lake ordered Olis transferred to the Federal Detention Center in downtown Houston on December 20, 2005 to await his resentencing.

The Detention Center is essentially an interim facility containing small jail cells that are most commonly used to hold prisoners before the Bureau of Prisons assigns them to a federal prison where they will serve their sentence. It has nominal inmate facilities (it doesn’t even have a prison yard) and is ill-equipped to hold a prisoner for longer than a couple of weeks. Although closer to San Antonio than Oakdale, the Houston facility is still a four hour drive for the Olis family.

In transferring Olis to the Detention Center, Judge Lake probably thought that the resentencing would occur quickly and that it would be more expeditious to have Olis in Houston.

However, the prosecution engaged in a series of delaying tactics over most of the past year that delayed Olis’ re-sentencing until September 22, almost 11 full months after the Fifth Circuit ordered it.

To make matters even worse, Olis has now endured almost a year in his cramped Detention Center cell and still has not been assigned to a prison unit to serve the balance of his sentence. This despite the fact that he was re-sentenced three months ago and a number of federal criminal defendants sentenced after Olis — including Skilling, Fastow and Causey — have already been assigned to the prisons where they will serve their sentences.

The mainstream media has now moved on from the Olis case. But make no mistake about it, Olis’ continuing ordeal is a stark reminder of the injustice that is intrinsic to the dubious governmental policy of using the state’s overwhelming prosecutorial power to criminalize merely questionable business transactions.

Maybe some folks insulate themselves from the brutality of Skilling’s sentence because they simply can’t relate to a top executive of a large U.S. corporation, but most of us could have been in the same position as Olis.

As Sir Thomas reminds us, “do you really think that you could stand upright in the winds” of abusive governmental power that Jamie Olis is enduring?

Richard A. Epstein of the University of Chicago and the Hoover Institution authors this WSJ ($) op-ed that takes up a common topic on this blog over the past couple of years (see also here) — the improper use of deferred prosecution agreements by prosecutors to blackmail companies into agreeing to absurd fines and “corrective” measures to avoid a deabilitating indictment. Professor Epstein notes one particularly egregious such arrangement:

In one such notable agreement, the U.S. attorney for New Jersey, Christopher J. Christie, put the screws to Bristol-Myers Squibb, which got into hot water because of a potential securities violation for inflating its quarterly earnings by a business practice known as channel stuffing. BMS told its distributors that they had to take into inventory large amounts of BMS products immediately, with the understanding that down the road they could return the excess for a refund. The alleged securities violation arises from the overstated earnings quarterly reports, without indication of any expected future write-offs.
The naÔøΩve reader might think that a DPA should prohibit the firm from engaging in future conduct of the sort that got it into hot water in the first place. But Mr. Christie had larger ambitions. The most striking evidence of the abuse of power is paragraph 20 of the agreement, which requires BMS to “endow a chair at Seton Hall University School of Law,” Mr. Christie’s alma mater, for teaching business ethics, a course that he himself could stand to take.

And Professor Epstein understands precisely what needs to be done to correct this prosecutorial misconduct:

[T]he Department of Justice should engage in unilateral disarmament by disavowing the odious Thompson memo, and rethinking why it ever needs to threaten the nuclear option of a corporate indictment. For its part, our new Congress should repeal by statute the doctrines of vicarious liability for criminal conduct in a corporate context — because these give the government unwarranted and arbitrary power over corporations.
At bottom, corporations are just individuals tied together by an elaborate network of contracts; and we don’t need yet another sorry reminder of how mindless government policies harm the innocent shareholders whom they are supposed to protect. The government has a vital role in criminal enforcement. So let it go after real, i.e., human, criminals the old-fashioned way, by careful investigation and skilled prosecution.

Epstein makes his point without even mentioning the Enron Task Force’s irresponsible destruction of wealth in connection with prosecuting Arthur Andersen out of business. As Geoffrey Manne asked awhile back — Where’s the outage?

Two more former Enron executives who copped pleas will be sentenced this morning, former Andy Fastow confidant, Michael Kopper, and former Enron investor relations chief, Mark Koenig.
Both men will likely be presented today as paragons of virtue who simply had a lapse of judgment while embroiled in the corruption of Enron. The truth is far different, as explained in this earlier post about Kopper and this previous one about Koenig. Kopper is one of the relatively few real criminals in the entire Enron affair and should be receiving a sentence on par with that of Fastow, although that is unlikely to occur. On the other hand, Koenig is not a criminal and probably should be doing what Chris Calger is attempting to do, but that doesn’t make his dubious testimony after copping a plea any less despicable.
Update: Kopper gets 3 years a month in prison and Koenig receives 18 months (Chronicle story here).

This earlier post highlighted the Enron Task Force’s extraordinary concession regarding the invalidity of four of five counts upon which the the conviction of former Enron Broadband executive Kevin Howard was based. As noted in that post, the Task Force made a half-hearted argument that the fifth count — falsifying Enron’s books and records — should not be vacated, but this response from Howard exposes the vacuity of the Task Force’s position:

The key principle here is that when the basis for the conviction cannot be determined by examining the verdict form, and a ground exists which cannot be legally support such a conviction, the conviction must be set aside. One just cannot guess that the jury chose a proper basis instead of the improper basis.
This has been the law for almost half a century: [. . .]
The consistent teaching of the cases cited by the Government is that when a reviewing court reverses a conspiracy conviction for legal error, a reversal is also required for an offense which is the object of the conspiracy unless the Government proves beyond a reasonable doubt that there was no Pinkerton connection — that is, the defendant was convicted solely on his own direct conduct, and not because of the conduct of a co-conspirator acting in furtherance of the conspiracy.
The very heavy burden cannot be met by the Government . . . No impartial observer could find that Kevin Howard personally made any entry in the books and records of Enron Corporation, false or otherwise, or was responsible for any other person doing so. Most importantly, on this record, no reviewing court could find beyond a reasonable doubt that no co-conspirator from the common plan alleged in [the conspiracy to commit honest services wire fraud count] made such entry.

Howard’s conviction is almost certain to be vacated, just as the convictions of the four Merrill Lynch executives were vacated in the Nigerian Barge case. The Task Force prosecuted the case against Howard in the same manner as the case against the Merrill Four — assert an unwarranted expansion of a criminal law intended to punish kickbacks and bribes against defendants who did no such thing, and then blatantly appeal to the strong juror resentment (see also here) against anyone having anything to do with Enron to obtain a conviction.
Christine Hurt is currently working on a paper regarding the disparate burdens on civil and criminal defendants in business misconduct cases, and she notes here that many of the Enron Task Force prosecutors who promoted these failed prosecutions have gone on to lucrative careers in private practice. Professor Hurt observes that a defendant in a civil business misconduct lawsuit has protections against another party’s vexatious litigation tactics, but those protections do not exist in a criminal business misconduct case against an unpopular and usually wealthy defendant. As a result, justice and the rule of law is easily compromised in such cases, and the damaged lives, ruined careers, and destroyed wealth that lie in the wake of the Enron Task Force is tangible evidence of the enormous cost of such spurious prosecutions. As Professor Hurt wryly asks, are the now-wealthy former Enron Task Force prosecutors going to be held responsible for that cost?

The NY Times’ Alexei Barrionuevo provides this entertaining article on former Enron CFO Andrew Fastow’s deposition in connection with the various civil lawsuits involving the demise of Enron.
Frankly, it’s rather remarkable that anyone would be particularly interested in what Fastow might have to say or so gullible to believe anything that might come out of his mouth, but you know how such lawsuits go.

Flying somewhat beneath the radar screen of the lynch mob that is fascinated with watching former Enron CEO Jeff Skilling imprisoned for the rest of his life is the case of former Enron Broadband executive, Kevin Howard.

As you may recall, Howard was tried and convicted of five counts of conspiracy, wire fraud, and falsifying the books and records under extremely prejudicial circumstances at the end of the Lay-Skilling trial. Subsequent to Howard’s conviction, however, the Fifth Circuit issued its decision in the Nigerian Barge case, which formed the basis of Howard’s motion to vacate his conviction on all charges.

The Enron Task Force put off responding to Howard’s motion to vacate for several weeks hoping that the Fifth Circuit might reconsider its Nigerian Barge decision. However, the Fifth Circuit recently declined to do so, so the Task Force was required to buck up and finally respond to Howard’s motion. In an uncharacteristic moment of clarity, the Task Force essentially admits in its response that Howard’s entire conviction must be vacated:

The United States concedes that under [the Fifth Circuit’s Nigerian Barge decision] the conduct that forms the basis for Howard’s convictions on Counts One through Four does not fall within the honest services provision. Because a reviewing court cannot determine whether the jury relied on the honest services theory to convict Howard, his convictions on those counts must be vacated.

The Task Force’s response goes on to argue unpersuasively that Howard’s conviction on one count of falsifying Enron’s books and records should not be vacated, but it’s clear that the Task Force does not have much confidence in its position on that count. I will be surprised if U.S. District Judge Vanessa Gilmore does not throw out Howard’s conviction on all counts.

Thus, the Task Force’s response underscores what I have been saying for almost three years now. The true criminal activity in regard to the Enron was limited to former CFO Andrew Fastow and a few of his close associates — such as Ben Glisan and Michael Kopper — who effectively embezzled millions from Enron.

As with Jeff Skilling, Kevin Howard didn’t embezzle a dime from Enron and was simply trying to do the best job he could of preserving value in Enron Broadband under difficult market conditions.

Violation of honest services charges are supposed to address the situation where an executive takes a kickback or a bribe from a third party in violation of his fiduciary duty to his company. In Howard’s case — as with the case against Jeff Skilling — the Task Force simply used those inapplicable charges as a means to appeal to juror resentment against anything having to do with Enron to obtain a conviction.

As the Fifth Circuit panel observed in its decision in the Nigerian Barge case, if you start from the premise that a defendant is guilty of a crime, then it’s far easier to conclude that the defendant is guilty of the crime. It’s far tougher to prove it honestly.

Given this record of criminalizing business interests for political gain, it’s not surprising that New York’s next governor was stacking the deck to obtain convictions in a number of his prosecutions. This David Hechler/Law.com article reports the ugly news:

Like the U.S. Department of Justice, New York state Attorney General Eliot Spitzer has also pressured companies to stop paying the legal fees of employees who face criminal charges. Spitzer appears to be the only state AG who has raised fee payment as an issue. [. . .]
Most of Spitzer’s targets are financial institutions swept up in his probe of mutual funds. According to a Corporate Counsel review of 17 agreements that Spitzer’s office struck with companies accused of market timing, nine settlements included “no indemnification” clauses. These provisions prohibit a business from paying the legal fees of indicted employees unless its bylaws require it. In one instance, Bank of America Corp. agreed to a no-indemnification clause even though its bylaws require it to pay fees. Moreover, the bank had already begun advancing expenses in at least one case.
Spitzer’s office declined to comment on the no-indemnification clauses. (Spitzer is running for governor of New York.)

Continue reading →

As noted in this prior post, one of the most perverse elements of the government’s criminalization of business in the post-Enron era has been the trial penalty — that is, the substantially longer prison sentences that executives face if they elect their Constitutional right to a trial instead of copping a plea bargain.
Over the past two years, Stetson Law Professor Ellen S. Podgor has been examining the trial penalty over at the White Collar Crime Prof Blog. In this Law.com op-ed, Professor Podgor analyzes the current landscape well:

Whether it be an individual or company, it is clear that those who play in the government’s sandbox will be their friends and will reap enormous benefits through a sentence reduction or deferred prosecution. In contrast to the rewards received for cooperation, availing oneself of the constitutional right to trial by jury is an incredible gamble, with the stakes raised higher than ever before, as the sentencing guidelines provide for draconian sentences in white-collar cases. [. . .]
The government needs cooperators to make their cases. Cooperators also provide a more efficient system that reduces the costs for a government prosecution. But when the risk of a conviction after trial is so distinct from that received for cooperating with the government, it diminishes the right to a trial by jury, an essential part of our constitutional democracy.
Justice Byron White, in the famed case of Duncan v. Louisiana, 391 U.S. 145 (1968) noted the importance of this right when he stated that “the right to trial by jury is granted to criminal defendants in order to prevent oppression by the government.” Id. at 155.
We have to wonder whether this right is fully realized when so many individual defendants and companies are folding to government demands because of the high risk entailed in proceeding to trial.

Add in the willingness of prosecutors to scapegoat business executives and appeal to the resentment of most jurors toward wealthy executives, and you have an environment where gross injustices such as what happened to the Merrill Four in the Nigerian Barge case and the sad case of Jamie Olis, among others. Meanwhile, a serial liar such as Andy Fastow is rewarded, even when it is clear that he testified falsely (see also here) against Jeff Skilling and Ken Lay.
This is not the product of a rational criminal justice system.