The U.S. Supreme Court’s recent decision in Blakely v. Washington (prior posts here) — which has called into question the Constitutionality of both state and federal sentencing guidelines — has prompted Enron Task Force prosecutors to re-indict defendants in the two Enron criminal cases that are scheduled for trial in the near future.
The Enron grand jury this week reindicted the six people accused in what is known as the “Nigerian barge case” scheduled for trial in August before U.S. District Judge Ewing Werlein and the seven ex-Enron executives charged in the Internet broadband division case scheduled for trial in Houston federal court this October.
Included in both new indictments are allegations that each scheme caused the loss of more than $80 million, an allegation that can add years to a sentence under existing federal guidelines. The new indictments were spurred by the Blakely decision, 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.
Not explained by the Task Force 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 damages to Enron.

In announcing its second quarter results today, J.P. Morgan Chase & Co. announced that it has increased its total litigation reserve to $4.7 billion before taxes. The reserve covers Morgan’s contingent liability in the ongoing Enron civil litigation and other securities cases, including the company’s dispute with WorldCom investors.
Excluding the litigation reserve charge, J.P. Morgan Chief Executive William B. Harrison Jr. described the second-quarter results as “comparable to the prior year.” That’s a bit like saying that, except for the elephant in the middle of the room, the rest of the room remains quite neat and tidy.

U.S. Bankruptcy Judge Arthur Gonzalez approved Enron Corp.’s Chapter 11 reorganization plan today in New York, under which $63 billion of claims will share about $12 billion in cash and the value of stock in newly formed companies that will hold and probably sell Enron assets.
Enron now employs 9,300 people, about a third as many as before its bankruptcy filing. Inasmuch as the Enron plan essentially calls for a going concern liquidation of Enron’s assets, most of the employees who are left will become employees of other companies that will hold and then sell Enron’s assets.
Enron’s domestic pipelines are being transferred to CrossCountry Energy Corp., which Enron is currently selling at a rather lively auction. Enron is awaiting regulatory approval on a sale of Portland General Electric, its Oregon utility, to a group headed by Texas Pacific Group, a Fort Worth, Texas, investment concern. A substantial portion of Enron’s remaining foreign assets are being transferred to a new entity, Prisma Energy International Inc., which may be sold or spun off to creditors.
However, the main legacy of Enron’s plan is the litigation that Enron’s bankruptcy has generated. Literally hundreds of lawsuits have been filed against former employees, trading partners, and many financial institutions that furnished money to partnerships that Enron used to mask its highly-leveraged financial condition. Those cases will continue to drain attorneys’ fees from Enron’s bankruptcy estate for years.
The Enron bankruptcy estate has already paid Enron’s attorneys, various other committee attorneys, and two examiners’ attorneys in the hundreds of millions in attorneys fees. When the final professional fees tab is calculated, the Enron case almost certainly will be the most expensive chapter 11 case in the history of reorganization law in the United States.

This Houston Chronicle article reports on a survey that defense attorneys commissioned in connection with one of the upcoming Enron-related criminal trials. The survey concludes that over 80% of potential jurors in Houston believe that believe that the indicted Enron executives are guilty.
The survey claims 81.4% of potential jurors said they thought the former Enron executives accused of misleading the public and profiting off the sale of their own Enron stock were guilty, 7.8% said they were not guilty, and 8.7% said they did not know. The survey also polled potential jurors in Austin, Corpus Christi and Albuquerque, N.M., and the percentages of those who said the Enron executives were guilty in those cities were 71.9%, 67.9% and 71.1%, respectively.
In discussing the change of venue issue with one of the defense attorneys for a prominent former Enron executive, I asked him where he would prefer to try the case. His reply:
“How about Rio?”

This NY Times article reports on yesterday’s announcement that Bank of America Corp. is the first bank defendant to settle claims against it in the Enron Corp. class-action lawsuit alleging that some of the country’s top banks and securities firms and two law firms participated in a scheme with Enron’s top executives to deceive shareholders.
B of A tentatively agreed to pay $69 million to investors who suffered billions of dollars in losses as a result of Enron’s collapse during late 2001. The lead plaintiff in the lawsuit — the Regents of the University of California — lost nearly $150 million alone in regard to its investment in Enron.
According to a prepared statement, B of A denied that it “violated any law,” in connection with Enron and stated that it was making the settlement payment “solely to eliminate the uncertainties, expense and distraction of further protracted litigation.”
Inasmuch as B of A was a relatively small-scale player in Enron’s financial dealings and was not accused of fraud in the lawsuit, the settlement agreement indicates that other banks and securities firms that were more involved with Enron will have to dole out much more to settle the litigation claims against them. Financial firms still involved in the lawsuit include Merrill Lynch & Co.; Credit Suisse First Boston; Deutsche Bank AG; Canadian Imperial Bank of Commerce; Barclays PLC; Toronto-Dominion Bank; and Royal Bank of Scotland PLC. So far, the only other firm to settle in the lawsuit is Andersen Worldwide SC, the Swiss organization that oversees Andersen Worldwide’s independent partnerships, which settled in 2002 for $40 million.

The Enron-related criminal case dubbed the “Nigerian Barge case” would already be in trial but for a conflict with the Judge’s previously scheduled vacation that resulted in a postponement of the trial until mid-August. Using that delay to their advantage, the Enron Task Force yesterday filed a superceding indictment that added two new wire fraud charges against all six defendants and a new false statement charge against Defendant Dan Boyle, the former vice president of Enron’s Global Finance unit. Previous posts on this case may be reviewed here.
The Chronicle article on this development speculates that the superceding indictment may result in a further postponement in the trial of the case, but that’s highly unlikely. Inasmuch as the charges relate to the same transaction as the previous indictment in the case, there probably is not any unfair prejudice to the defendants in indicting them on the new charges, although the late indictment coming a month and a half before trial certainly calls into question the Task Force’s handle on the case. If the new charges would justify a postponement of the trial date for the defendants, U.S. District Judge Ewing Werlein would probably dismiss the new charges before he would postpone the current August 16 trial date.

Reuters reported Tuesday that Enron Corp. has received an offer for its CrossCountry Energy unit from an unidentified “investment-grade company” that is substantially larger than the earlier bid that Houston oilman Oscar Wyatt’s company made earlier this year. This Chronicle story reports that the new suitor for the assets is Southern Union Co.
Wyatt and his financial partners (which includes Citigroup) offered Enron $2.2 billion for CrossCountry, a collection of Enron’s North American natural gas pipelines. The Wyatt offer included $1.74 billion in cash, the assumption of $461 million in debt, and a $25 million “stalking horse” fee if Wyatt’s group were to be outbid for the pipelines.
The new offer includes about $55 million more in cash and is not conditioned on the payment of a “stalking horse” fee. Consequently Enron’s largest unsecured creditors are now requesting that U.S. Bankruptcy Judge Arthur Gonzalez accept the new offer instead of the bid from the Wyatt-led consortium. A hearing is scheduled on the matter this Thursday in New York.

This NY Times article does a good job of describing what Lea Fastow, the wife of former Enron CFO Andrew Fastow, will face while serving her one year prison sentence at the Houston Federal Detention Center in downtown Houston.

This Chronicle story reports that the Fifth Circuit Court of Appeals in New Orleans announced earlier this afternoon that it has affirmed the 2002 criminal conviction of Enron Corp‘s former accounting firm, Arthur Andersen for obstruction of justice.
Here is the Fifth Circuit’s opinion.

Lerach Coughlin Stoia & Robbins LLP — lead plaintiffs’ counsel in the multi-district civil litigation against Enron Corp. — announced today that it is merging effective August 1 with Boca Raton-based Geller Rudman PLLC. Both firms specialize in class action and individual cases on behalf of shareholders and institutional investors.
As reported in this previous post, Lerach Coughlin is a spin off of the former class action firm, Milberg Weiss Bershad Hynes & Lerach.