The defendants began putting on their cases this week in the Enron-related Nigerian Barge trial in Houston federal court, and already there have been some significant developments.
Attorneys for defendants and former Merrill Lynch executives James Brown and Daniel Bayly rested their cases on Tuesday without putting their clients on the stand. In white collar criminal cases, this is a highly risky move. Juries in such trials generally expect to hear the defendant’s story. Even though they are not supposed to hold the defendant’s decision not to testify against the defendant, juries nevertheless often do so.
In recent high profile white collar cases, neither Martha Stewart nor Jamie Olis testified, and their juries both voted for conviction. On the other hand, Frank Quattrone did testify during his trial and his jury voted to convict, anyway. So, electing to testify certainly does not ensure an acquittal in white collar cases, but my experience is that electing not to testify in such cases ratchets up the risk of conviction significantly. Meanwhile, William Fuhs, one of the Merrill Lynch defendants in the Nigerian Barge case, did elect to testify yesterday. He will be subjected to the prosecution’s cross-examination today.
Left unstated in the mainstream media’s accounts of the trial is the continued dubious nature of the government’s case in this trial. The government spent three weeks putting on its case in chief, which consisted almost entirely of testimony from former Enron executives who admitted that they were liars and cheats. Each of these witnesses stated that they had lied about the Nigerian Barge transaction to prosecutors initially, but now allege — after copping plea bargains with the government — that they are telling the truth in supporting the government’s theory that the Nigerian Barge transaction was a sham.
The government’s theory of the case is that Enron orally promised Merrill Lynch through its main liar — Andrew Fastow — that Enron would either buy the barges back or broker a deal for the barges in six months at an agreed rate of return for Merrill Lynch. Therefore, reasons the government, Merrill Lynch was not truly at risk with regard to the transaction and, thus, Enron’s booking of the deal as a sale was fraudulent.
However, it is undisputed at the trial that the deal documents — entered into after Fastow’s oral inducements to Merrill — did not include any such Enron agreement to repurchase or broker the barges. Likewise, it is undisputed that the written agreement between the parties includes the standard provision that Merrill could rely only on Enron’s written representations in the deal documents and could not rely on any prior oral representations (such as Fastow’s oral promises) in electing to enter into the deal. Consequently, it is undipusted that Merrill Lynch could not have enforced Fastow’s oral promise against Enron in civil court had Fastow not arranged to have one of his off balance sheet partnerships buy the barges from Merrill.
So, where does all that leave us? The government’s case relies on the theory that the unenforceable oral promise of someone who the government says is a liar and cheat — i.e., Fastow — rendered Merrill’s risk in buying the barges non-existent. Or, stated another way, the moral obligation of a liar and cheat to do something that he is not legally required to do is such a sure thing that Merrill was not at risk in entering into the transaction.
Quare: Inasmuch as it is undisputed that Fastow is a liar and a cheat, and that the deal documents did not obligate Enron to buy or broker the barges for Merrill’s benefit, how could Merrill not be at significant risk of having to hold the barges for a long term where its only known exit strategy from the deal was a liar and cheat’s unenforceable moral obligation to take Merrill out?
I have said it once, but I am compelled to say it again — this case is an abomination that would not be prosecuted but for the fact that the government believes that they can obtain a conviction against anyone who associated with the disgraced Enron. That is a dangerously poor reason for the government to exercise its awesome power to take away the freedom of citizens.

I was in federal court yesterday, so I had occasion to drop in again (here is my earlier report on the trial) on the ongoing Enron-related Nigerian Barge trial, which was concluding its third week. The prosecution’s second star witness — former Enron treasurer and Andy Fastow favorite son, Ben Glisan — finished his testimony and the prosecution rested. Despite the mainstream media’s continued simplistic analysis of everything related to Enron generally and this trial in particular, the prosecution’s case has not gone well.
There are huge holes in the prosecution’s case. First, the prosecution’s case relies almost entirely on the testimony of former Enron executives Michael Kopper and Glisan, who both admitted that they are prodigious liars and that they copped deals with the Justice Department to hedge their risk of lengthy jail sentences. Moreover, the government inexplicably failed to call the person — that is, Fastow — who supposedly originated the sham side deal between Enron and Merrill. Indeed, the prosecution did not even call an independent expert witness to testify on a key issue in the trial — i.e., that Fastow’s legally unenforceable oral inducement to Merrill that Enron would either buy the barges back or broker a deal for them rendered false Enron’s accounting of the deal and, thus, misleading to Enron’s investors.
For what it’s worth, Glisan’s testimony dovetailed generally with that of Kopper, although Kopper thought Merrill was at real risk with regard to the barge deal while Glisan downplayed that risk. Similar to Kopper, Glisan dumped on former Enron treasurer Jeffrey McMahon, who Glisan contends told him he was “was comfortable” with Fastow’s oral inducement to Merrill. Consistent with its approach to this case, the prosecution failed to elicit from either Glisan or Kopper that Fastow and them did not get along with McMahon, who was not involved in receiving any of the millions of dollars that Fastow, Kopper and Glisan received from “investing” in Fastow’s off-balance sheet partnerships. In fact, Fastow ultimately engineered both McMahon’s firing as Enron’s treasurer (because of McMahon’s criticism of Fastow’s off-balance sheet partnerships to former Enron CEO, Jeff Skilling), and Glisan’s replacement of McMahon as Enron’s treasurer. That the prosecution would allow the Fastow cabal to defame the unindicted McMahon in such a manner without pointing out their well-established acrimony toward him is just one example of how the Justice Department is willing to dispense with a balanced presentation of the facts to obtain convictions in this case.
Meanwhile, two of the Merrill defendants appear to have pretty darn good grounds for a directed verdict of acquittal. Tom Hagemann, defense counsel for Merrill defendant Daniel Bayly, argued persuasively that the prosecution’s case against Mr. Bayly consisted solely of testimony that Mr. Bayly participated in the telephone call in which Fastow made the oral inducement to Merrill to buy the barges, and then that Mr. Bayly directed the Merrill representatives to send an engagement letter to Enron that included Fastow’s oral representation that Enron would take Merrill out of the barge deal within six months. Inasmuch as the prosecution presented no further evidence that Mr. Bayly was involved in the deal in any respect after that point and did not attempt in any way to cover up the fact that Fastow had made the oral inducement, Mr. Hagemann pointed out that it is simply impossible for the prosecution to meet its burden of proof that Mr. Bayly was involved in a wide-ranging conspiracy with Enron to cover up the true nature of the deal.
Equally persuasive was David Spears‘ motion for a directed verdict of acquittal for Merrill defendant William Fuhs. Incredibly, the prosecution did not present even one witness who knew or had ever talked with Mr. Fuhs regarding the barge transaction! Consequently, the prosecution’s case against Mr. Fuhs relies totally on about a half dozen documents and emails that the prosecution could not prove that Mr. Fuhs ever read and which are subject to various interpretations. As Mr. Spears pointed out, based on that evidentiary record, the prosecution cannot sustain its burden of proof that Mr. Fuhs was involved in any type of conspiracy with Enron or that he was involved in fraud on Enron’s investors.
Finally, in a devastating cross-examination of Glisan, Lawrence J. Zweifach, Merrill defendant James Brown’s attorney, elicited that Fastow’s supposed promise to buy back the barges from Merrill made no economic sense and, thus, is of dubious credibility. Inasmuch as such a buy back would have required Enron to restate earnings and endure the market’s bad reaction to such a restatement, Glisan admitted that it would have been far less damaging to Enron in terms of the investor market not to sell the barges to Merrill and simply to take the one penny-per-share earnings hit in the fourth quarter of 1999. In short, reasoned Mr. Zweifach, why would Fastow risk the much worse market effect of a restatement by making the oral side deal when simply holding the barges would not result in much of a market effect in the first place? Glisan had no answer to that question.
Of course, as noted in my earlier post, no one really knows how all of this plays out with either Judge Werlein or the jury. But one thing is crystal clear — the Justice Department believes that it is shooting fish in a barrel even when it puts on as flimsy a case as this because it figures that most jurors will be biased against any defendant having anything to do with the cultural pariah Enron.
Beyond the effect on the individual lives involved in this case, that’s the real societal significance of this case. For if the government can use its power to obtain convictions and long jail sentences in a case as weak as this one, then business executives everywhere should be concerned that the risk of doing business in the United States will have just risen to an entirely new level.

Timothy DeSpain, Enron’s assistant treasurer from 1999 to 2002, was arraigned before a federal magistrate Tuesday and released on a $100,000 bond in connection with securities fraud criminal charges that he conspired with other Enron executives to present Enron’s financial picture in a false light to investors.
Late Tuesday, Mr. DeSpain entered into a plea agreement (his statement in support of the plea deal is here) in which he pled guilty to a single count of securities fraud in return for the Justice Department’s agreement to grant him immunity from prosecution for any other crimes that he committed at Enron or his subsequent employer so long as Mr. DeSpain truthfully testifies in Enron-related criminal trials and cooperates with the Justice Department’s on-going Enron criminal investigation.
According to the Justice Department criminal information pleading, Mr. DeSpain was in charge of keeping Enron in touch with credit-rating agencies and was involved in schemes intended to make Enron appear healthier than it was to pump and maintain investment-grade credit ratings. Low or below investment-grade credit ratings make it expensive for companies to borrow money, which was critical to Enron’s online energy trading business. Under his plea agreement, Mr. DeSpain alleged that, at the direction of Enron treasurers, he and others frequently misrepresented cash flow from operations in order to hide the nature of the transactions and benefit from the pumped-up credit rating.
Mr. DeSpain worked for three treasurers at Enron. Ben Glisan, who is currently serving a five year prison sentence after pleading guilty to one count of conspiracy to commit wire and security fraud in September 2003; Raymond Bowen, who resigned last week as Enron’s chief financial officer and treasurer and who has never been charged with a crime; and Jeffrey McMahon, who has never been charged with a crime, but whose name was recently mentioned by Michael Kopper during his testimony in the ongoing Enron-related Nigerian Barge criminal trial as Andy Fastow‘s proposed “fall guy” if Enron’s accounting treatment of the barge transaction were ever to fall apart.
Another transaction mentioned in Mr. DeSpain’s plea bargain involves Project Nahanni, an Enron deal that arose in 1999 when Enron was at least short of its cash flow target. Enron reported cash from the sale of Treasury securities as a result of Profect Nahanni, but Mr. DeSpain alleges in his plea bargain that he was aware of no business purpose for the transaction other than to create cash flow. As a result, Mr. DeSpain claims that Enron falsely advised credit agencies that Project Nahanni was the sale of a merchant asset rather than explaining the true nature of the transaction, which Mr. DeSpain contends would have undermined Enron’s credit rating.
Finally, in his plea bargain, DeSpain also alleges that he was involved in fraudulent conduct in connection with Enron’s “prepay” strategy where the company reported that it had sold an asset and generated cash, but did not disclose that it had incurred a future debt obligation. Mr. DeSpain alleges that Enron’s treasurers ordered him no to reveal to the credit rating agencies the true nature of the prepay transactions.
The Justice Department’s plea deal with Mr. DeSpain is consistent with the strategy for generating witness testimony that the prosecution is currently using in the Nigerian Barge trial. Four of the prosecution’s first six substantive witnesses in that trial intially denied any wrongdoing in connection with the transaction. However, after reaching plea bargains with the Justice Department, those witnesses now contend that they were involved in a coverup of an alleged “side deal” between Enron and Merrill Lynch. The prosecution contends that the alleged side deal, if disclosed to Enron’s auditors, would have required Enron to restate earnings that it booked from the transaction with Merrill Lynch.

Three former Natwest Bank bankers appeared in a London court yesterday to fight extradition to the United States, where they are facing fraud charges in connection with a deal with Enron Corp.
Natwest bankers David Bermingham, Giles Darby and Gary Mulgrew, are accused of conspiring with Enron’s former CFO, Andrew Fastow and his colleague Michael Kopper, to fleece their employer, Natwest Bank, of around 4 million pounds, which equates to about $7.3 million. The three face extradition to stand trial in Houston on seven counts of wire fraud and illegally gaining money via international banking systems. Messrs. Fastow and Kopper have already admitted involvement in the alleged scheme as part of a plea bargain.
Interestingly, none of the British bankers have have ever been charged with a criminal offense in England. In fact, Natwest Bank is still lending the defendants money to cover their legal defense costs. The defendants contend that they will not receive a fair trail in Texas in the aftermath of the Enron scandal, which is likely true given the adverse publicity regarding Enron that the Government has promoted throughout the Enron investigation.
The Government claims that the bankers conspired with Messrs. Fastow, Kopper and other senior Enron executives in 2000 to sell a stake in a Cayman Island company for $1 million when the true value was much higher. A month later, the company was re-sold and the trio each made a large profit while Messrs. Fastow and Kopper pocketed $12 million each.
Remarkably, if the three are extradited, they could face an extended period of time in a U.S. federal penitentiary before their case gets to court because, as foreign citizens, they could be held without bail until trial. The controversial three-day extradition hearing in London is the first under the new British Extradition Act, which was promoted by British politician David Blunkett to trap suspected terrorists.
Meanwhile, as the Government continues prosecution of its flimsy case in the Nigerian Barge case in Houston federal court, this Wall Street Journal ($) article reports that the Enron Task Force has elected not to pursue criminal charges against Citigroup executives in regard to an Enron-Citigroup transaction that was much larger and strikingly similar to the Nigerian Barge transaction that prompted the Government to indict four former Merrill Lynch executives and two mid-level former Enron executives.
The lack of any meaningful prosecutorial discretion of the Bush Administration’s Justice Department in regard to the prosecution of alleged business crimes continues to be highly troubling. Is this what the Republican Party suggests is a “business-friendly” administration?

I had a hearing on Monday afternoon in federal court, so I went a bit early and sat in on the ongoing trial of the first Enron-related criminal case to go to trial — the Nigerian Barge case. Today was a big day during the trial because one of Andy Fastow‘s most trusted lieutenants — Michael Kopper — took the stand as the Government’s main witness.
The first four days of the trial that took place last week were remarkable only because the testimony of the initial Government witnesses confirmed that there is not all that much dispute between the prosecution and the defense about the salient facts of the case. The big difference is in the interpretation of the facts, and that’s why Kopper is an important witness for the Government.
In effect, Kopper is standing in for Fastow, who the Enron Task Force prosecutors do not want to call in this trial of two low-level Enron executives and four Merrill Lynch executives over a relatively small deal. Kopper is testifying under a plea bargain deal in which the Government has agreed not to prosecute Kopper’s gay lover for profiting off of Enron’s off-balance sheet partnerships and to recommend a minimum prison sentence for Kopper if he testifies in accordance with the government’s theory of the case in this trial and others.
Kopper makes a good impression as a witness — young, handsome, courteous, articulate, bright, and soft-spoken. And apparently, he testified this morning in support of the government’s theory of the case — i.e., Enron induced Merrill Lynch to buy the barges at the end of 1999 by orally guaranteeing through Fastow that Enron would arrange a sale of the barges for Merrill by the end of June 2000 at a pre-arranged profit. If such an Enron guaranty existed, then the Government contends that Enron’s booking of the profit from the deal was improper and the Defendants engaged in a fraud on Enron’s investors.
But if the morning went according to the Government’s form, the afternoon was a different story. Kopper was ravaged during cross-examination, first by Lawrence Zweifach, who represents Merrill Defendant James Brown, and then by David Spears, who represents Merrill Defendant William Fuhs.
Kopper readily admitted to Mr. Zweifach that the barge transaction was such a risky deal that he would not approve it originally as an asset purchase for one of Fastow’s now infamous off balance sheet partnerships that Enron used liberally to buy assets from Enron. Inasmuch as the Government’s theory of the case is based largely on the allegation that Merrill’s purchase of the barges was not a risky deal because of Enron’s guaranty, this line of cross-examination of the Government’s primary witness did not go over well with the prosecution lawyers. They objected often and ineffectively throughout the cross-examination as U.S. District Judge Ewing Werlein overruled almost every Government objection.
Then, Mr. Spears took over and Kopper admitted the truth of a mid-2000 memo written by an Enron analyst that openly stated that Enron faced a dilemma with regard to the barges and Merrill — either Enron needed to broker a sale of the barges to an investor to preserve Enron’s client relationship with Merrill or Enron should simply buy the barges back and restate its financial statements to account for the deal as a loan rather than a sale. There was no mention whatsoever in the memo of any Enron “guaranty” to Merrill or that restatement of earnings was all that big of a deal for Enron. Again, you could almost hear the air leaking from the Government’s balloon as Kopper’s cross-examination proceeded.
However, no one really knows how all of this plays out with the jury, which is the only reason that this case is being prosecuted in the first place. The Government figures that it can get convictions on such a flimsy case because most jurors will be biased against anything having to do with the cultural pariah Enron.
Based on what I know about this case and what I witnessed today, if the Government gets convictions in as weak a case as this one, then the Government will have little disincentive to bring equally dubious cases against business executives. Accordingly, if you represent business clients, stay tuned to developments in this trial.

The Wall Street Journal ($) is reporting today that brokerage house Lehman Brothers Holdings Inc. is close to a $220 million settlement to resolve a class-action lawsuit alleging that it and other big brokerage firms participated in a scheme with Enron Corp. executives to mislead shareholders. Lehman’s propoed settlement follows a similar settlement in July in which Bank of America Corp. agreed to pay $69 million to settle similar allegations.
Bank of America and Lehman were underwriters in just a handful of Enron-related deals, so attorneys involved in the case believe their roles (and thus their settlement payments) are small in comparison to firms like Citigroup Inc. and J.P. Morgan Chase & Co. who did more Enron-related deals. Citigroup and J.P. Morgan are among the firms that have reserved billions of dollars to cover Enron-related exposure.

After three years from Enron Corp.’s demise into bankruptcy, dozens of indictments and plea bargains, and an unprecendented government and media campaign to demonize former Enron executives, the first criminal trial against former Enron executives will begin Monday in Houston before U.S. District Judge Ewing Werlein in the case that has been dubbed “the Nigerian Barge case.” Here are earlier posts about this case.
The trial is about a relatively small Enron deal with Merrill Lynch & Co. involving three electricity-producing barges off Nigeria’s coast. But the outcome of the trial is likely to have much larger implications on the government’s other Enron-related criminal prosecutions and future prosecutions of investment bankers and corporate executives generally.
Two former midlevel Enron executives and four former Merrill executives face conspiracy and fraud charges. One of those charged is Merrill’s former head of investment banking, Daniel Bayly, the highest-ranking securities industry figure to be criminally charged in the corporate scandals that emerged after the stock market bubble burst earlier this decade.
The government contends that Enron’s 1999 sale to Merrill Lynch of an interest in the barges was a sham that and that the energy company improperly booked about $12 million in pretax profit as a result of the deal.
Merrill Lynch got into the barge deal because it was trying accomodate Enron, with which it wanted to do more business. As 1999 came to a close, Enron wanted to sell an interest quickly in the barges and book the profit in the fourth quarter. Such end-of-the-quarter deals are routine at big companies. So, Enron turned to Merrill, which concedes that it invested $7 million in the deal as a favor to Enron. As an inducement to make an investment that it would not make but for accomodating a valued corporate custormer, former Enron CFO Andrew Fastow orally represented to the Merrill executives that Enron would either buy or broker a sale of the barge interest the following year for a nice profit to Merrill.
Mr. Fastow’s oral inducement is the key fact in the case. If that promise was truly a part of the deal, then Merrill’s investment was never truly at risk, the transaction was not a “true sale,” and Enron’s booking of the $12 million in profit from the transaction was illegal. On the other hand, if Mr. Fastow’s oral representation was simply encouragement to a relunctant investor to do the deal and Enron had no legally enforceable obligation to repurchase or broker a deal for the interest in the barges the following year, then Enron’s booking of the transaction was entirely proper and no crime occurred.
So, Merrill decided to buy the interest in the barges and the deal closed in the fourth quarter of 1999. The parties entered into typical deal documents for such a transaction that specifically provide that neither party relied on any prior oral representations in entering into the transaction, that any such prior oral representations are void, and that the parties are relying solely on the written representations contained in the deal documents in entering into the deal. Mr. Fastow’s oral inducement to Merrill during the prior negotiations was not included in the deal documents, which were approved by both Merrill and Enron’s lawyers.
Nevertheless, in mid-2000, Mr. Fastow followed through on his oral promise by arranging for Merrill to sell its barge interest at a profit to one of the off-balance partnerships that Mr. Fastow operated and partly owned. As a result, the government contends that the Merrill purchase was never a legitimate transaction because of Mr. Fastow’s oral guarantee that Merrill would not lose any money. With Merrill never at risk, the government argues that no true sale actually occurred and, thus, Enron’s booking of the earnings from the deal was fraudulent.
After Mr. Fastow pleaded guilty to committing crimes at Enron and agreed to cooperate with prosecutors earlier this year, you would expect that the government would make him their star witness in the barge trial. However, the government has indicated that it does not even plan to call Mr. Fastow to testify in the upcoming trial. Rather, the government’s primary evidence of the alleged sham nature of the deal appears to be the “nervousness” that Merrill executives openly expressed about the deal in emails both before and after the transaction was consummated. The government interprets that nervousness as evidence that the Merrill executives knew that the deal was a sham and that they could be caught participating in a fraud with Enron.
However, there is a much more reasonable interpretation of Merrill’s nervousness regarding the deal — that is, that they really were nervous about the business risk of the deal, not because they thought it was a sham and a fraud, but because they knew that they could not rely on Mr. Fastow’s unenforceable oral assurance that Enron would broker a sale of the barges the following year. Accordingly, they were understandably concerned they might be making a bad investment that would result in Merrill having to hold the barges for a long time rather than the short term they preferred.
Stated another way, the Merrill executives were nervous because they knew that this was a real deal in which the deal documents controlled the rights of the parties, and that Mr. Fastow’s oral assurances to get them out of the investment could not be enforced if Enron failed to live up to them.
Under normal circumstances, it is highly unlikely that the government would have even pursued an indictment in a case of such marginal criminal liability. Inasmuch as the written deal documents would have dispostively undermined any attempt by Merrill Lynch to enforce through the civil justice system Mr. Fastow’s oral promise for Enron to repurchase or broker a deal for the barges, how does the government expect to prove beyond a reasonable doubt that such an unenforceable promise was really a part of the deal?
But Enron has become such a corporate pariah in American culture that nothing is normal that has anything to do with Enron. The barge trial will test the extent to which the pool of potential jurors in Houston has been tainted by Enron’s collapse. Given the extraordinary media coverage — much of which has been fueled by governmental officials’ public statements — private polls that the barge defendants’ defense attorneys have conducted reflect that over 75% of the jury pool would not be impartial in deciding a criminal case against a former Enron executive.
Thus, rather than using prosecutorial discretion to pass on prosecuting a case of dubious merit, the government in the barge case continues to pursue convictions because it knows that the public bias against Enron — partly stoked by the governmental officials’ derogatory public statements about Enron — gives it a good chance of obtaining convictions, anyway.
Moreover, the barge case took another twist recently after the U.S. Supreme Court’s recent decision in Blakely v. Washington (prior posts here), which held that the state of Washington’s sentencing laws were unconstitutional because they only allowed judges, not juries, to consider factors that increased sentences. Some legal experts have speculated that the decision calls the Constitutionality of federal sentencing guidelines into question for the same reason.
As a result of the Blakely decision, Enron prosecutors re-indicted the barge defendants to include new allegations that the barge deal caused market loss of more than $80 million, an allegation that can add years to a sentence under existing federal guidelines.
Not explained in the new indictment is how the Nigerian Barge deal — which was a relatively small transaction involving about $12 million in allegedly illegal profit for Merrill Lynch — could have caused $80 million in market loss. In fact, neither Enron nor Merrill Lynch lost a dime on the transaction, and the allegedly questionable accounting on the deal was not even discovered until well after Enron had filed bankruptcy and its equity value had already become worthless. During his distinguished legal career as a defense attorney before becoming a federal judge, Judge Werlein often defended corporate clients against dubious damage claims. It will be interesting to watch how he deals with the government’s equally questionable market loss allegations in this case.
Thus, watch this trial closely. If the criminal justice system works properly and the trial results in either a judge-directed or jury acquittal, then hopefully such a result will prompt the government to concentrate on its clearer cases of fraudulent conduct against former Enron officials and wrap up the investigation in reasonably short order. But if the government obtains convictions in this remarkably weak case, then the government will understandably believe that it can obtain a conviction against virtually any person having anything to do with Enron, and many others will come into the government’s sights for indictment.
Although it’s hard to emphathize with former Enron executives, Martha Stewart or Frank Quattrone, we should all be concerned about the increasingly common abuse of the criminal justice system that is disguised in popular prosecutions of unpopular corporate executives. For if we allow the government to abuse its power against unpopular defendants, it is a small step for the government to use that same power against you and me.
Meanwhile, here are the Houston Chronicleand NY Times stories on the barge trial and this Washington Post article speculates that recent plea bargains of former Enron executives have improved the government’s chances of obtaining convictions agaisnt former Enron chairman and CEO Kenneth Lay and former COO and CEO Jeffrey Skilling.

The Wall Street Journal ($) is reporting that Stephen F. Cooper, the independent chief executive officer of Enron Corp. during its chapter 11 case, is preparing to request approval of a $25 million bonus for his and his firm’s (Kroll Zolfo Cooper, a unit of Marsh & McLennan Cos.) work in connection with Enron’s nearly three year old reorganization. The request is in addition to $63.4 million in fees that Mr. Cooper and his firm have already collected from Enron during the chapter 11 case.
Not bad work if you can get it.
Enron’s Chapter 11 disclosure statement estimates that fees to all of the bankruptcy professionals involved in the Enron chapter 11 case will eventually reach nearly $1 billion. Although arguably outrageous, the amount needs to be kept in perspective. Enron’s reorganization plan is a “going concern” liquidation plan that the company believes will generate about $12 billion for distribution to creditors. That translates to a recovery of about 17 cents on the dollar for the largest group of creditors holding unsecured claims. If Enron had simply liquidated immediately after filing bankruptcy, the company estimates that the amount available for distribution to creditors would have likely have been only about $6 billion. So, the reorganization professionals have been at least partly responsible for preserving value for creditors.
But that’s still some serious scratch.

Remarkably, almost three years after Enron‘s descent into bankruptcy amid wide-ranging allegations of corporate fraud, the Enron Task Force still has not taken a criminal indictment against a former Enron executive to trial.
And one of the first Enron-related criminal cases scheduled to go to trial this fall — the indictment against five former officers of Enron’s telecommunications unit, Enron Broadband — has been pushed back to March of next year. Yesterday, U.S. District Judge Vanessa D. Gilmore in Houston postponed the trial of the Enron Broadband criminal case to March 1, 2005.
Former Enron Broadband CEO Ken Rice pleaded guilty to one charge in July, while former Chief Operating Officer Kevin Hannon pleaded guilty to one charge earlier this week.
The first trial involving former Enron executives is scheduled to begin on September 20 in U.S. District Judge Ewing Werlein‘s court in Houston in the case that is known as the Nigerian Barge case. Now that the Enron Broadband case has been pushed back to March of next year, there is a decent chance that Ken Lay‘s request for a speedy trial may result in his case being the second trial to occur of a former Enron executive.
Under normal circumstances, the Government’s cases in both the Nigerian Barge case and the Lay case appear to be weak. However, anything related to Enron is atypical. Given the public bias against Enron, the Government has a decent shot at convictions in even their weak Enron-related cases.

Enron Corp. agreed to sell its CrossCountry Energy business to a venture of Southern UnionCo. and a General Electric Co. unit in a deal the companies valued at $2.45 billion. CrossCountry Energy holds Enron’s interests in three domestic natural-gas pipelines that were one of the company?s most valuable assets when it filed its Chapter 11 bankruptcy case in early December 2001. Earlier posts on the spirited competition for these assets can be reviewed here and here.
The sale ? which is at a price that is $100 million more than the auction winner’s initial offer ? remains subject to approval by the Enron Bankruptcy Court in New York on Sept. 9. The deal is expected to close by mid-December.
NuCoastal LLC, a company run by Texas billionaire and Coastal Corp. founder Oscar Wyatt Jr. offered $2.2 billion in May. In June, Southern Union and joint-venture partner GE Commercial Finance Energy Financial Services put forward a rival offer of $2.35 billion. Both offers included the assumption of about $430 million in debt.
The CrossCountry sale is a key part of Enron’s ?going concern liquidation? reorganization plan, which also proposes to sell Enron?s interest in Portland General Electric, its Pacific Northwest utility, to an investment group backed by Texas Pacific Group. That deal is for $1.25 billion in cash and $1.1 billion in assumed debt.