Amidst echos of the Supreme Court oral argument in the Arthur Andersen case, this NY Times article reports that the oral argument before the Second Circuit Court of Appeals in former Credit Suisse First Boston investment banker Frank Quattrone‘s appeal of his criminal conviction did not go well for the prosecution. Earlier posts on Mr. Quattrone’s appeal are here and here.
Mr. Quattrone was convicted in May 2004 of witness tampering and obstructing federal grand jury and SEC investigations into whether Credit Suisse First Boston was improperly requiring kickbacks in the form of larger than normal commissions from customers in exchange for hot initial public offerings. Mr. Quattrone was sentenced to a year and a half in jail, but — unlike former Merrill Lynch investment banker Daniel Bayly — remains free pending disposition of his appeal.
With the Supreme Court’s recent decision in the Arthur Andersen case as a backdrop, the three-judge appellate panel considering Mr. Quattrone’s appeal focused on how much the former investment banker needed to know about the investigations he was convicted of obstructing. As in the Andersen appeal, the judges focused on whether the trial judge’s instructions gave the jury leeway to convict Mr. Quattrone of a crime even if he lacked the requisite intent to commit the crime.

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The Chronicle’s Mary Flood — who has done a fine job as the Chron’s primary reporter on both the Enron-related Nigerian Barge trial and the ongoing Enron Broadband trial — files this report on the final arguments in the latter trial that began on Tuesday morning and will conclude today.
No surprises have occurred so far in the closing arguments. As expected, the prosecution repeatedly pointed to the “elephant in the courtroom” — i.e., the huge amount of money that Defendants Hirko, Shelby and Yeager made on Enron stock sales (between the three, about over $150 million) during the period in which the prosecution contends that they were making false public statements about Enron Broadband’s technological capabilities. Similarly, counsel for Defendants Hirko and Yeager attacked the credibility and motives of key government witness and former Enron Broadband co-CEO Ken Rice, whose testimony was impeached at least to some extent earlier in the trial when he testified falsely that a portion of an Enron Broadband promotion video had been shown to analysts when, in fact, it had not.
An unexpected problem that developed for the prosecution during the trial reared its head again during the first day of closing arguments — that is, the highly different status of Defendants Howard and Krautz from Defendants Hirko, Shelby and Yeager, who made the big money in Enron stock sales. Messrs. Howard and Krautz did not make any huge stock sales and are charged instead with fraud in connection with their involvement in an Enron Broadband structured finance transaction. Nevertheless, the prosecution largely ignored them for large parts of the trial, choosing to focus on the more juicy securities fraud and insider trading charges against Defendants Hirko, Shelby and Yeager. From accounts of Tuesday’s arguments, the same trend continued, which may be an indication that the prosecution does not have much faith in its case against Messrs. Howard and Krautz and is trying to bear down on its case against the three big money defendants. Counsel for Messrs. Howard and Krautz will give their closing arguments this morning.
After an often tortuous three month trial, it’s doubtful that a day and a half of closing arguments will have much of an effect on the jury. In most long trials, my experience is that jurors have made up their minds long before closing arguments and, at this point, are simply interested in getting into deliberations so that they can freely talk about the trial among themselves. After the closing arguments conclude today, U.S. District Judge Vanessa Gilmore will read the charge to the jurors, who will then probably meet briefly and then adjourn for the day. Substantive jury deliberations will likely commence on Thursday morning.
Update: Here is Ms. Flood’s report from the remainder of the closing arguments on Wednesday.

The blogosphere has finally responded to New York AG (“attorney general” or “aspiring governor,” take your pick) Eliot Spitzer‘s campaign of criminalizing business, which recently crossed the line from merely misguided to petty and vindictive.
Check out Spitzer Watch, which is “exposing the hypocrisy of New York State Attorney General and gubernatorial candidate Eliot Spitzer.”
My sense is that this is going to be a very busy blog.

As this Chronicle article reports, the evidentiary phase of the Enron Broadband trial closed on Friday as the prosecution rested after putting on a thankfully short rebuttal case that lasted less than a day in a trial that just finished the three month mark. The attorneys in the trial and U.S. District Judge Vanessa Gilmore will meet on Monday to finalize jury instructions and then, on Tuesday, final arguments in the trial will begin.

Interestingly, the Chronicle article on the trial did not report on another potentially important incident of Enron Task Force misconduct that occurred as the defense case wound down this past Thursday afternoon.

During a trial in which the prosecution has already elicited false testimony from its key witness and treated two witnesses (Beth Stier and Lawrence Ciscon) in such a manner that both testified that they felt threatened, Judge Gilmore harshly rebuked Enron Task Force prosecutor Cliff Stricklin for asking a question on cross-examination of defendant Kevin Howard that, if not in direct violation of a limine order (i.e., 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 Enron Task Force prosecutors.

The rebuke came at the end of cross-examination of Mr. Howard when Mr. Stricklin asked a question about Canadian Imperial Bank of Commerce (“CIBC”), one of the bank’s that provided financing for the Enron Broadband unit. CIBC entered into this deferred prosecution agreement with the Enron Task Force back in December, 2003 and Judge Gilmore had apparently at least instructed Enron Task Force prosecutors not to ask any questions on that agreement during the Enron Broadband trial. The following is the exchange that occurred:

Mr. Stricklin: In fact, Enron went to CIBC often to fund such deals, isn’t that correct?

Mr. Howard: We had set up a very large investment to fund with a number of banks.

Mr. Stricklin: Including CIBC, is that true?

Mr. Howard: Yes, sir.

Mr. Stricklin: And are you aware that [CIBC has] entered into a deferred prosecution agreement with the Department of Justice . . .

Mr. Howard’s defense attorney: Objection, your Honor!

Judge Gilmore: Stop! Mr. Stricklin, just stop it right now! Have a seat! That’s the end of the questions!

With that, a clearly angered Judge Gilmore — standing in front of her seat on the bench — terminated any further questioning of Mr. Howard by Enron Task Force prosecutors and excused Mr. Howard as a witness. Taking advantage of Judge Gilmore’s reprimand of Mr. Stricklin for emphasis, each of the attorneys for the five Enron defendants promptly announced that each of the defendants had completed putting on their defense.

Given the recent similar incident that occurred in the trial of former HealthSouth Corp CEO Richard Scrushy, it appears that we can now add ignoring judges’ instructions — in addition to at least chilling defense witnesses and making disingenuous market loss claims — as another dubious tactic that Department of Justice prosecutors are willing to use in attempting to taint a jury against unpopular business defendants. However, that tactic backfired in the Scrushy trial, and the use of the tactic in the Enron Broadband trial smacks more of desperation in a prosecution team that is clearly worried about the outcome of a trial that they thought would be the legal equivalent of a tap-in at the outset.

The Chronicle’s Mary Flood reports that Lea Fastow — who served a longer sentence under harsher conditions because of her marriage to former Enron CFO Andrew Fastow — was released early this morning to go home from a halfway house in downtown Houston. Here are the previous posts on the Lea Fastow case.
Mrs. Fastow is the first person in the Enron-related criminal prosecutions to complete her prison sentence. Her husband — who, as with Mrs. Fastow, struck a plea bargain with Enron Task Force prosecutors — is presently scheduled to be sentenced at about this time next year.

Showing an appalling lack of prosecutorial discretion that has become commonplace in this post-Enron era of criminalizing business, prosecutors from the office of New York attorney general Eliot Spitzer announced Thursday that they will re-prosecute beginning August 22nd the four counts in the criminal case against former Bank of America Corp. broker Theodore C. Sihpol on which a mistrial was declared last month. Here are the previous posts relating to the Sihpol case.
Mr. Spitzer’s dubious move comes despite the fact that the jury in the previous trial against Mr. Sihpol deadlocked 11-1 in favor of acquittal on the four charges and acquitted Mr. Sihpol on the other 29 counts that Mr. Spitzer asserted relating to alleged larceny, falsifying business records and related charges. The four counts involved in the re-trial relate to allegations that Mr. Sihpol falsified mutual-fund trading documents and participated a scheme to defraud investors.
Inasmuch as Mr. Sihpol’s defense attorneys will almost certainly request that much of the evidence in the first trial be excluded from the second trial on the grounds that it relates to charges on which Mr. Sihpol has been already found not guilty, Mr. Spitzer’s second prosecution of Mr. Sihpol faces even greater obstacles than the first. But then, Mr. Spitzer has always been more talented in espousing propaganda and demagoguery, so why should he be bothered with actually proving criminal conduct in court, anyway?

After three often tortuous months, the end is finally in sight for the Enron Broadband trial, the Chronicle’s Mary Flood reports today.
The last of the five defendants to testify — former Enron Broadband Services CFO, Kevin Howard — took the stand yesterday and will likely finish his testimony today. Inasmuch as the prosecution may begin its rebuttal case today, Ms. Flood is predicting that final arguments will take place next week. As noted in this prior post, this trial has turned out to be a far harder one than the Enron Task Force expected, and the outcome will almost certainly affect the Task Force’s approach to future Enron-related prosecutions, particularly the Task Force’s “legacy” case — that is, the case against former Enron chairman Ken Lay and former Enron CEO Jeff Skilling.

One of the hot button legal issues in white collar criminal prosecutions these days is the calculation of the financial damage resulting from the defendant’s allegedly criminal actions. Inasmuch as the federal sentencing guidelines correlate the length of a sentence to the amount of financial damage resulting from the criminal act, the government has developed damage models that maximize the amount of financial damage to buttress the prosecution’s argument in favor of draconian prison terms for business defendants.
In that regard, the Chronicle’s Tom Fowler weighs in with this article that reports on the prosecution’s damage claims in the group of criminal cases against Houston business figures categorized as “the trader cases” (previous posts here, here, here, here and here.

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In this NY Times op-ed, Joseph Nocera tees off on the lead Enron class action securities fraud plaintiffs’ lawyer, William Lerach, who has his share of troubles these days (noted here and here). After noting Larry Ribstein’s compliment of Mr. Lerach’s complaint against Enron and its investment banks (although I suspect that’s not all Professor Ribstein observed to Mr. Nocera regarding Mr. Lerach and securities fraud class actions), Mr. Nocera lays the wood to Mr. Lerach:

While I have no way of knowing whether Mr. Lerach is innocent of the charges he may soon face – or whether the investigation is politically inspired – I do know that Mr. Lerach is hardly a candidate for canonization. For much of his career, he made his living playing a dirty game.
He would watch for the stocks of companies to drop, especially volatile high-technology stocks that missed their earnings estimate, and then he would round up a small shareholder like Mr. Lazar and race to the courthouse to be first in line to file a suit seeking class-action status. And then, usually with little else to go on, he would essentially torture the company with discovery motions and deposition requests and legal filings until it finally settled to make him go away.
And he was so gleeful about it! And so taunting! And so vindictive! He sued 3Com five times. Intel, too. He would tell executives of the companies he was suing, “I’m going to take away every penny you own.” Once when Alan Shugart, the C.E.O. of Seagate Technology, which was being sued by Mr. Lerach, started a campaign against “abusive litigation,” Mr. Lerach sent him a note that said, “Dear Al: More is coming.”
John Doerr, the Silicon Valley venture capitalist, has called Mr. Lerach “a cunning economic terrorist.”

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