As noted in earlier posts here and here, New York attorney general Eliot Spitzer does not take kindly to other governmental agencies infringing on his various crusades to demonize wealthy business interests in his seemingly unending quest to promote his political career. But at least he previously maintained the public front of cooperation with other governmental investigators.
But now, as this Washington Post article notes, the Lord of Regulation is no longer maintaining even the pretense of cooperation with other governmental investigators. Apparently, the interagency squabbles were intensified by news leaks from Mr. Spitzer’s office of a high-profile April 11 interview of Warren E. Buffett. Mr. Buffett’s Berkshire Hathaway, Inc., is the parent of General Re Corp., which is the company that — along with AIG and other insurers — is the subject of a criminal investigation into structured finance transactions known as finite risk reinsurance. Here are the previous posts on the various investigations into AIG and Berkshire’s General Re.
Mr. Spitzer did not help relations with his federal counterparts when, as a part of his usual propaganda campaign that parallels his various criminal investigations, he blasted the Department of Justice in a speech on May 2 for failing to investigate allegedly illegal practices in the insurance industry. Now, the feud between Mr. Spitzer’s office and federal investigators has heated to the point where prosecutions of various targeted executives could be compromised.
It would be sweet justice if Mr. Spitzer’s ambition and pride undermines criminal investigations and prosecutions of business executives that never should have been inititated in the first place.

In a development that is intriguing by its timing, Andrew Weissmann is resigning as director of the Justice Department’s Enron Task Force, reportedly to enter private practice, although that report has not been confirmed. Another Task Force prosecutor — Sean Berkowitz — replaces Mr. Weissman as the director of the Task Force. Mary Flood’s Chronicle article on Mr. Weissman’s resignation is here.

Mr. Weissman joined the Task Force three years ago to lead the prosecution team in the Task Force’s controversial prosecution of Arthur Andersen, which led to the giant accounting firm’s demise and the loss of 30,000 jobs in the United States alone. He has been head of the Task Force since early March, 2004 when he replaced Leslie Caldwell, who resigned to enter private practice.

Since its inception in early 2002, the Enron Task Force has been particularly adept at generating propaganda demonizing Enron and bludgeoning former Enron executives into plea bargains. Such bludgeoning is most commonly carried out through the Task Force’s threat of seeking absurdly long prison sentences for former Enron executives if they elect to defend themselves in a highly-charged atmosphere against anything having to do with Enron that the Task Force has flamed to its advantage.

The Task Force has been much less effective at actually proving its charges against former Enron executives in court, as only one former Enron executive — a mid-level manager in the Nigerian Barge case — has actually been tried and convicted of a crime in the Task Force’s three and a half year existence. The only other former Enron executive prosecuted in that trial — former mid-level accountant Sheila Kahanek — was acquitted.

The timing of Mr. Weissman’s resignation is unusual because it was announced as jury deliberations are ongoing in the first trial involving primarily former Enron executives, the Enron Broadband trial. That trial has not gone well for the the Task Force and that unexpected turn of events has occurred against a backdrop of recent setbacks and several troubling incidents of apparent prosecutorial misconduct within the Task Force.

The first blow to the Task Force came in the sentencing hearings of the four former Merrill Lynch executives and one former Enron executive who were convicted of fraud and conspiracy in the Nigerian Barge trial, a trial in which the Task Force chilled dozens of defense witnesses from testifying by its questionable tactic of fingering the witnesses as either unindicted co-conspirators or targets of the Enron criminal investigation.

During the sentencing hearings, U.S. District Judge Ewing Werlein, Jr. firmly denied the Task Force’s dubious arguments for draconian sentences against the barge defendants based on the alleged market effect of the relatively small transaction involved in that case. Judge Werlein was clearly disturbed by the fact that the Task Force’s arguments on the market effect of the transaction contradicted the position that the Justice Department had taken before the U.S. Supreme Court well before the Nigerian Barge sentencing hearings in the case that the Supreme Court later decided in Dura Pharmaceuticals v. Broudo.

The second setback for the Task Force came in the Supreme Court’s stunning reversal in a unanimous decision of the Task Force’s conviction of Arthur Andersen, which brought into clear focus the dubious nature of both the Task Force’s decision to put Andersen out of business and the specious arguments that the Task Force used in criminalizing Andersen’s legitimate docket retention policy.

Next, during the Enron Broadband trial, a series of almost brazen examples of prosecutorial misconduct began to to unfold. First, the Task Force elicited false testimony from its key witness, former Enron Broadband co-CEO Ken Rice. Then, after that mistake, two witnesses (Beth Stier and Lawrence Ciscon) testified that, based on discussions with the Task Force before their testimony, they both felt threatened by a possible indictment if they testified on behalf of the Broadband defendants.

Finally, toward the close of the trial, U.S. District Judge Vanessa Gilmore sharply rebuked an Enron Task Force prosecutor for asking a question on cross-examination of Broadband defendant Kevin Howard that, if not in direct violation of a pre-trial order directing attorneys not to refer to certain subjects during the trial, at least violated the judge’s prior instructions to the Task Force prosecutors.

Finally, in arguably the most serious indication of prosecutorial misconduct within the Enron Task Force, U.S. District Judge Sim Lake recently issued an ex parte order in the Task Force’s “legacy case” against former Enron chairman Ken Lay, former CEO Jeff Skilling and former chief Enron accountant Richard Causey based on an ex parte motion that Messrs. Lay, Skilling and Causey had filed filed with the court under seal.

Without revealing the contents of the ex parte motion, Judge Lake ruled that he had concluded that the defendants had established a prima facie case of entitlement to subpoena under Fed. R. Crim. P. 17(c) all evidence relating to communications between the Enron Task Force and the 15 former Enron employees who have pled guilty under plea arrangements with the Enron Task Force.

Although the contents of the ex parte motion is a closely-guarded secret of the defense teams of Messrs. Lay, Skilling and Causey, speculation is rampant among Houston attorneys involved in the Enron case that the defendants had provided Judge Lake with compelling evidence that the Enron Task Force was threatening potential defense witnesses in the Lay-Skilling-Causey trial with criminal charges that could result in long prison sentences if the witnesses testified on behalf of the defendants. In a separate recent court filing, the Skilling defense team observed that “[t]he Task Force has taken control of the witnesses in this case to an unprecedented and impermissible degree. Witnesses will not meet or speak with us for fear of reprisal.”

Consequently, count me as tad skeptical of the “official” reason given for Mr. Weissman’s resignation during jury deliberations in the Broadband trial. In view of the foregoing setbacks and prosecutorial misconduct it would not be surprising if the Task Force’s superiors at the Department of Justice had simply decided that Mr. Weissman’s removal was advisable and that any further delay in naming a new director could adversely affect the Task Force’s preparations for its legacy case against Messrs. Lay, Skilling and Causey.

If that move results in a more judicious Task Force approach to the remaining Enron-related prosecutions, then perhaps at least a small part of the serious injustice that the Enron Task Force’s demonization of Enron has heaped on innocent businessmen and their families can still be corrected.

Following on this post from earlier this week on the closing arguments in the Enron Broadband trial, a Clear Thinkers reader offered the comments below on the closing arguments, a transcript of which is downloadable here (the pdf file is bookmarked in Adobe Acrobat for each morning and afternoon session of the arguments).
Inasmuch as the author of the following comment actually attended the closing arguments (I did not), the author’s account is different — and likely far more accurate — than mine:

The trial may have been a snoozer, but the closing arguments were not — everything but [Prosecutor Ben] Campbell’s arguments, that is.
From watching the jury, about three of the fourteen were even looking at Campbell during his three hour argument, which included such “zinger” lines as: “I’m from Iowa, and I didn’t just fall of the turnip truck, and neither did you,” and “As Jerry Maguire said, ‘Show me the money!'” That’s right, he referenced Jerry Maguire.
Defense attorneys had a better time holding the jury’s attention, Dave Angeli through power-points and videos, and Tony Canales through colorful analogy and talking directly to the jury. At the end of both attorneys’ arguments, the jury was intent and leaning forward. After Mr. Canales’s, half the jurors — and all of the defendants’ families and friends — were in tears. At some point Canales retorted, “Show me the money? How about show me the evidence!” He also showed the indictment to the jury (though the government filed a motion to keep it away from the jury) which, if you read it, is all about the Shelby BOS video, which was never shown. He then said, in reference to the supposedly damning Collins lipstick email, “you can put all the lipstick you want on this indictment, it isn’t going away.” If at this point the jury just wants relief from the drudgery of the trial, they got their wish from the defense.

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With the criminal investigation of American Insurance Group, Inc. and Berkshire Hathaway unit General Re heating up earlier this week, former AIG chairman and CEO Maurice “Hank” Greenberg made his first detailed public comments regarding the propaganda campaign that New York AG Eliot Spitzer has orchestrated against him.
Mr. Greenberg told a group of current and former AIG executives that at least one of the accounting “errors” that AIG has acknowledged subsequent to his leaving the company — the failure of AIG to expense executive compensation provided by a Greenberg-controlled company — had been thoroughly reviewed and approved by AIG’s lawyers and accountants before AIG ever approved the arrangement.

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On the day that the jury in the Enron Broadband trial began deliberations, the Enron Task Force announced that Christopher Calger, a former executive with Enron North America, had pleaded guilty to a criminal conspiracy count and agreed to cooperate with Task Force prosecutors in their investigation of a transaction that is expected to be part of the Task Force’s upcoming “legacy” criminal trial against former Enron top executives, Kenneth Lay, Jeffrey Skilling, and Richard Causey. The Department of Justice press release on the indictment is here.
The plea bargain involved a convoluted 2000 transaction known as Coyote Springs II in which the company sold some energy assets — including a turbine and an equity interest in a power plant — to another company called Avista Corp. That transaction is part of the wide-ranging indictment against Messrs. Skilling and Causey in which the Task Force alleges that Mr. Causey knew about the hidden role in the deal of LJM2, which is one of the seperate partnership entities that Andrew Fastow managed while serving as CFO of Enron. Although Mr. Causey’s name is not used in the plea deal, Mr. Calger admits that Mr. Causey had approved part of the LJM2 financial arrangement.

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Berkshire Hathaway’s decision to roll over and provide government investigators anything they want in connection with the multiple investigations into the transactions between Berkshire General Reinsurance Corp. and American International Group, Inc. is starting to look like a very costly one.
This Wall Street Journal ($) article reports that federal prosecutors are examining whether Joseph Brandon, chief executive of General Re and a close confidant of Berkshire’s icon, Warren Buffett, played a role in the transaction between General Re and AIG that has spawned a cottage industry of investigations into General Re, AIG, and other companies that have engaged in similar “finite risk” structured finance insurance transactions. The 46 year old Mr. Brandon — who took over as General Re’s CEO in 2001 — is the highest-ranking executive at General Re to be investigated in the matter who is still employed at General Re.
A portion of the WSJ article describing the investigation underscores the absurd length to which the government will now go in its campaign to criminalize agency costs:

The fact that Mr. Brandon learned about Gen Re’s accounting for the AIG transaction as a loan rather than insurance around the time of the conversations with Mr. Buffett may not present problems for him in the eyes of regulators, people close to the situation say. But if investigators determine that Mr. Brandon also understood the purpose of the transaction for AIG and how AIG accounted for it, he might be vulnerable to charges, the people close to the inquiries say.

Stated another way, prosecutors appear to be suggesting that if Mr. Brandon was informed that the transaction was beneficial for AIG from an accounting standpoint, then he committed a crime.
It is simply impossible to square the foregoing theory of criminal liability with the following language of Chief Justice William Rehnquist in the Supreme Court’s recent Arthur Andersen decision:

We have traditionally exercised restraint in assessing the reach of a federal criminal statute, both out of deference to the prerogatives of Congress, . . . and out of concern that “a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed.”

Former WorldCom CEO 63 year old Bernard J. Ebbers received a 25 year sentence for his conviction on charges of securities fraud, conspiracy and seven counts of filing false reports with regulators relating to an a multi-billion accounting fraud that resulted in the bankruptcy of WorldCom. Here are the previous posts on the Ebbers case.
Meanwhile, former mid-level Dynegy executive Jamie Olis continues to serve a 24 year sentence even though the market loss (if any) attibutable to the accounting project on which he worked is a fraction of that which occurred in regard to WorldCom. Indeed, Mr. Olis continues to serve his sentence despite the fact that the prosecution’s market loss argument in his case contradicted the Justice Department’s position on market loss that the U.S. Supreme Court adopted in Dura Pharmaceuticals v. Broudo. Similarly, the government continues to defend an appeal of Frank Quattrone’s conviction for witness tampering even after the Supreme Court strikes down Arthur Andersen’s conviction on the same charges under similar circumstances.
Finally, Daniel Bayly is scheduled to report to prison tomorrow and William Fuhs will likely do so in the near future, while Theodore Sihpol goes home (at least for the time being), John and Timothy Rigas are allowed to remain free pending appeal of their convictions for looting their company, Richard Scrushy continues teaching his Sunday school class, and Gary Winnick counts his millions.
Folks, these highly disparate results are not the product of a rational deployment of our criminal justice system. And as Professor Ribstein points out, the Ebbers sentence is worse than any wrong that he committed. Ellen Podgor has these thoughts along the same lines.

This sure sounds pretty darn similar to the corporate case of the decade:

[Stephen] Crawford, a former investment banker who was appointed co-president by Philip J. Purcell in March amid a power struggle, left the firm yesterday. . . Mr. Crawford’s pay package is particularly unusual because he was co-president for only three months, yet he will take home a severance package that pays him [$32 million] as if he had been co-president for two years and allows his stock to vest – the executive-suite equivalent of hitting the lottery.

That’s pretty good work if you can get it. ;^)