So, week one of the Lay-Skilling trial is in the books. Let’s review what we’ve learned.

U.S. District Judge Sim Lake handles matters faster than the prosecutors and the defense attorneys do.

Opening arguments are too long.

The key evidentiary issue in the trial has not yet been addressed, but another court expressed interest in the issue.

Former Enron investor relations chief Mark Koenig thinks that he and Messrs. Lay and Skilling misled investors about Enron’s financial condition, but — over five years after doing so — he still cannot explain why he did it.

Sheila Jackson Lee knows where the cameras are (don’t miss Slampo’s comments on SJL), and could one or more of the trial participants end up on What Not to Wear?

As is usually the case, it’s difficult, if not downright impossible, to predict what effect all of this is having on the jurors.

But the prosecution has to be concerned about the glacial pace of the trial. The prosecution lost a similar trial last year after putting the jury to sleep during long stretches of the Enron Broadband trial.

Anticipating such problems in Lay-Skilling, the prosecution promised the jurors during opening argument that the trial would be about lying and not about boring financial matters.

Then, with its first witness, the prosecution proceeded to take a good part of the first two days of testimony going over boring financial matters, resulting in the prosecution failing to finish its direct examination of that first witness before the week concluded.

That is not the way to win friends on a jury.

This is not meant as a criticism of the Task Force prosecutors. Indeed, I suspect that they are among the best in the Justice Department for handling such trials.

Rather, this type of chloroforming slog is the inevitable result of criminalizing what amount to business judgments over which people can reasonably differ.

Justice would be much better served with the prosecution taking a third of the time that it took with Koenig and, instead, bringing to the witness stand every top-level former Enron executive to testify about how Enron’s management actually evaluated Enron’s finances and reported them to the public.

But if that were to occur, then the prosecution might lose the trial.

So, the prosecution effectively prevents those potentially more truth-revealing witnesses from testifying and spends an inordinate amount of time with a witness such as Koenig, who wasn’t even involved in the mechanics of how Enron’s management evaluated its finances.

As a result, rather than being allowed to handle the messy process of sorting out the truth, the jury gets a prosecution script of what it thinks the truth should be.

As we saw in the Enron Broadband trial, sometimes juries have a way of figuring such things out.

Former Enron investor relations chief Mark Koenig led off the prosecution’s presentation of evidence yesterday in the criminal trial of his former bosses, Ken Lay and Jeff Skilling, and it quickly became clear that the Enron Task Force’s boring approach to putting on a case that almost caused a jury uprising in the earlier Enron Broadband trial may also be a problem for the prosecution in the Lay-Skilling trial.

As the Mary Flood/Chronicle, Carrie Johnson/WaPo, and Alexei Barrionuevo/NY Times articles all report, Koenig testified about several instances in which he allegedly prepared reports and presentations at the direction of Skilling and Lay that misled investors and analysts about the performance of Enron’s Broadband unit and Energy Services units.

However, to get to the nuggets of relatively exciting testimony, the jury had to endure hours of mind-numbing and largely irrelevant testimony regarding Enron’s structure, the company’s bankruptcy and related matters.

As a result, the prosecution could not finish its direct examination in an entire day of testimony and apparently is going to use a good part of today for further direct examination.

If that schedule holds, cross-examination of Koenig will almost certainly take a couple of days, which means that the second witness in the case — former Enron Broadband executive Ken Rice — may not begin until Tuesday afternoon or Wednesday of next week.

So much for the prosecution’s earlier prediction that it will take nine weeks to put on its case.

At any rate, one of the problems with Koenig’s testimony — which is being given under a plea deal with the government — is that it is not based on any meaningful involvement in the mechanics of how Enron’s executives evaluated its financial affairs and earnings.

Stated another way, Koenig was involved in how Enron’s financial matters were presented, but not in how they were determined.

As a result, his knowledge of the company’s financial affairs is a mile wide and an inch deep, a point that will almost certainly be hammered home by the defense on cross.

Meanwhile, the fact that the prosecution is relying so heavily on witnesses such as Koenig who have copped plea deals in return for favorable prosecution testimony will become an increasingly important issue as the the trial proceeds.

Houston criminal defense attorney Kent Schaffer — one of the half-dozen attorneys providing legal analysis for the Chronicle on the trial — noted in a blog post in the Chron on why people such as Koenig enter into plea bargains. The sad fact is that people often do plead guilty to crimes that they do not think that they really committed, particularly when the defendant sees the draconian sentence that can result from protesting one’s innocence. As Schaffer notes:

“Get ready to see grown men in Oxford suits and wingtip shoes rolling over, playing dead, and barking while on their hind legs; trying to earn a few extra biscuits.”

Well, I wasn’t able to put other pressing matters aside to attend opening arguments yesterday in the criminal trial of former key Enron executives Ken Lay and Jeff Skilling, but I did score a transcript yesterday evening and was able to read it.

In doing so, I was reminded of a point that a wise, old trial attorney-mentor made to me early in my legal career — “Almost all opening statements are too long.”

Now, Lay-Skilling is a complicated business case, so there is a lot of explaining to do. And when the prosecution takes an hour and a half in opening, the defense often feels that it is necessary at least to match that length in opening or the jury might presume that the defense doesn’t really have an answer for everything that the prosecution alleged.

So, there are valid reasons for long opening arguments.

Nevertheless, my experience is that, even during the most spellbinding opening arguments, the attention of jurors tends to begin wandering after 30 minutes or so.

My wise old mentor also advised me: “Make all your important points in the first 20 minutes of your opening — sort of like a sermon at church — because those jurors tend to wander off after that — just like in church.”

As I read the transcript last night, it occurred to me that, if jurors were allowed to ask a question of the attorneys during opening arguments, one of them would have almost certainly raised their hand and asked: “Could you go over that whole ‘reserve account thing’ again?”

At any rate, the first round of the trial is done and it’s reasonably clear from the reading the transcript and the first hand accounts (Chronicle Enron team blog and Loren Steffy’s blog) and the reports (NY Times/Alexei Barronuevo and WaPo/Carrie Johnson) that neither side scored any early knockdowns.

Opening arguments are for helping jurors establish a framework within which they can evaluate the evidence to come, so it’s risky to try and land a haymaker that could put the other side on its back early. Neither side took that risk.

The Enron Task Force’s John Hueston continued to push a theme in the prosecution’s case that has become apparent since the Task Force’s earlier failures in both the Arthur Andersen case and the Enron Broadband case — i.e., that the case against Messrs. Lay and Skilling is really a simple case of non-disclosure about Enron’s true financial condition.

In a nutshell, Hueston contended that Enron was a formerly successful company that was having severe financial problems by 2001 that both Skilling and Lay covered up so that they could unload their company stock at higher prices than what they would have gotten had they disclosed the true financial condition of the company to the investing public.

From reading the transcript, Hueston’s argument appeared to be competent and reasonably well-organized. However, I was left wondering whether the Task Force may have overdone its goal of simplicity.

I mean, did Lay and Skilling really orchestrate this alleged massive fraud simply because they are greedy men?

Indeed, as the defense attorneys proceeded to point out, there is certainly much in Lay and Skilling’s life stories that indicates that they are not particularly greedy. After reading Hueston’s opening, I could almost imagine a juror thinking: “Well, fine. But with all this hubbub, don’t you have more of a story than that?”

Defense attorneys Dan Petrocelli (Skilling) and Mike Ramsey (Lay) clearly understood this dynamic, as both of them emphasized their respective client’s humble backgrounds and continually pointed out the conflict between the prosecution’s simple case theory and the wide-ranging and almost indecipherable allegations contained in the government’s indictment against two defendants.

In that connection, Mr. Ramsey pointed out what appeared to me to be the biggest oversight of the day — the government’s failure to mention the word “conspiracy” in its opening remarks even though the prosecution is banking a large part of its case on Lay and Skilling’s alleged orchestration of one of the largest criminal conspiracies in history.

Similarly, it also appeared that Hueston made a mistake in opening by failing to acknowledge that Lay’s stock sales were pursuant to margin calls.

How can the government accuse Lay of being greedy because of his stock sales when those sales were involuntary?, Ramsey reasoned.

By the way, as Mr. Steffy noted on his blog during the arguments yesterday, Ramsey’s courtroom style really appeared to resonate with the jury. Here are just a few of Ramsey’s gems:

“Now, there’s a lot of talk about Andy Fastow and and the various thefts that he committed at Enron. [The money that] Andy stole [was] peanuts. Andy stole crumbs. What Andy stole [of importance] from Enron was its good name.”

“[Fastow’s] thefts themselves spread out over a three-year period probably wouldn’t be coffee money and Coke money for Enron during that period of time. Nowhere near enough to sink a company the size of, and successful as, Enron. What happened was the odor of the wolf got into the flock and the flock stampeded.”

“Bankruptcy is not a crime. If it were, we would have to turn Oklahoma back into a penal colony because there would be so many people to lock up. It might help [University of Texas] football, but it won’t solve much else.”

“The point of the matter is people will not accept risk if failure means you go to prison. And bankruptcy is not a crime. In order to commit a crime you have to specifically intend to do something the law forbids. And failure in and of itself is not a crime.”

“This is the indictment . . .[It] is 66 pages long. Someday you may be called upon — God save you — to have to read it. If you do, you’ll find it is enormously complex. I don’t blame the [prosecutors] at the table here; I think their predecessors wrote it.

But with all the power and precision of the English language, it is a babbling kind of indictment [that makes it] very hard to pin down, very hard to determine what you are actually charged with. . .”

“When you don’t have a case, you talk about something else, and that’s what [the prosecution is] doing when they are trying to make Ken Lay look greedy and when they start talking about him selling stock based on inside information.”

Several months ago, I was attending a hearing in the Lay-Skilling case on a day in which Mr. Ramsey was not fairing particularly well with U.S. District Judge Lake.

On multiple occasions, Judge Lake refused to do what Mr. Ramsey requested and then finally told him to sit down and stop arguing.

A lawyer from the East Coast who was also attending the hearing leaned over and remarked to me: “Gee, it sure doesn’t appear as if Ramsey is particularly effective in presenting matters to Judge Lake, does it?” I replied:

“Mike Ramsey is not on the defense team for his ability to persuade Judge Lake. But wait until you see him talk to a jury.”

The trial cranks back up at 8:30 a.m. today with former Enron investor relations chief Mark Koenig expected to be the first prosecution witness.

Dwight Silverman is the technology columnist for the Houston Chronicle and is primarily responsible for ushering the local newspaper into the forefront of media and citizen blogging.
In this timely post, Dwight outlines the logistics involved in gearing up the Chronicle team of reporters for blogging on and reporting the developments in the criminal trial for former key Enron executives Ken Lay and Jeff Skilling.
Take note, mainstream media, what Dwight and the Chronicle are doing — and what the Wall Street Journal has done with Peter Lattman’s blog — is the wave of the future. Adapt or be left behind. Quickly.

Peter Lattman posts this interesting piece on the oral argument in the Bernie Ebbers appeal that could well impact the key evidentiary issue in the ongoing trial of former Enron executives Ken Lay and Jeff Skilling.
In the Ebbers appeal, Ebbers counsel Reid Weingarten — who is also counsel for former Enron chief accountant Richard Causey — is arguing that the Ebbers prosecution team unfairly prevented the defense from calling key defense witnesses by fingering them as targets of the WorldCom criminal investigation. In so doing, Weingarten is arguing that the prosecution effectively prevented the defense from presenting exculpatory testimony to the jury because each of the targeted witnesses declined to testify on the basis of their privilege against self-incrimination under the Fifth Amendment of the U.S. Constitution. The Second Circuit panel appeared sympathetic to the argument during oral argument of the Ebbers appeal, which is potentially bad news for a prosecution team that has taken the tactic of chilling potential defense witnesses to an entirely new level in the Lay-Skilling case and other Enron-related prosecutions. Ellen Podgor comments here along the same lines.

To the surprise of no one who has ever tried a case before U.S. District Judge Sim Lake, a jury was empaneled yesterday (NY Times article here) in the Enron Task Force’s legacy case against former key Enron executives Ken Lay and Jeff Skilling, which means that opening arguments will proceed in the trial this morning.

Judge Lake has a way of keeping matters on schedule.

Opening arguments are always anxiously anticipated in high-profile cases such as this, particularly in view of the fact that many of the preliminary matters — such as jury selection — are downright boring.

Contrary to popular belief, jurors do not often make up their minds during either opening or closing arguments, but it remains reasonably clear that jurors often form during opening arguments the framework within which they consider the evidence that is presented during the trial.

Thus, the goal of opening arguments is to establish broad themes that resonate with the jurors. Leave the details for later.

In this case, the prosecution clearly has the advantage in opening arguments because of “the presumption” in business cases. No, that’s not the presumption of innocence. Rather, it’s the presumption that most lay people have that at least some criminal conduct is involved in any business enterprise that collapses, particularly one that does so in such spectacular style as Enron.

The Enron Task Force has played up the presumption effectively in its public relations campaign and in its previous Enron-related prosecutions, so the Task Force prosecutors will hammer the jurors with that presumption throughout their opening argument.

Conversely, one of the primary goals of defense attorneys Dan Petrocelli (Skilling) and Mike Ramsey (Lay) during opening argument will be to challenge the validity of the presumption so that the jurors can form a framework that views the presumption with skepticism while evaluating the evidence that is presented during the trial.

Although the prosecution has the easier task during opening arguments, its job gets much tougher once it has to put on its case.

The Task Force has been much more successful in bludgeoning plea bargains out of former Enron executives than actually obtaining convictions in court.

The only “successful” Enron-related trial for the Task Force to date has been the trial of Nigerian Barge case, which was a narrow trial of a specific transaction. Even then, one of the two Enron executives who were prosecuted in that case was acquitted, and the conviction of the Merrill Lynch executives in that case was anything but a clear-cut victory for the Task Force.

In comparison, in the two other Enron-related trials — the Arthur Andersen case and the Enron Broadband case — the prosecution alleged broad conspiracies and amorphous charges, and both cases ended disastrously for the Task Force.

Inasmuch as the charges in the Lay-Skilling trial have much more in common with the Andersen and Broadband cases than the Nigerian Barge case, the prosecution has been attempting to shift its strategy and simplify its case against Lay and Skilling during the weeks preceding the trial.

Nevertheless, it remains unclear whether the Task Force will be successful in that approach, particularly when a good part of its case against Lay and Skilling will be based on testimony of impeachable witnesses who have copped pleas and other statements that may not even get into evidence based on how Judge Lake rules on the key evidentiary issue in the case.

Thus, expect a lot of talk today about the presumption of criminal conduct in business collapse cases from the prosecution and broad themes challenging that presumption from the defense.

Frameworks may be built today, but the tougher work of actually filling those frameworks with substance is what will, in the end, determine which side succeeds or fails during this trial.

9 a.m. today: Jury selection, Ceremonial Courtroom, 11th floor, Bob Casey Federal Courthouse, 515 Rusk. The NY Times’ Alexei Barrionuevo and Simon Romero report on the all-important jury selection process, which U.S. District Judge Sim Lake will handle himself and will complete today.
9 a.m., Tuesday, January 31: Opening arguments, Courtroom 9B, ninth floor. Prosecution gets two hours and each defendant gets two hours.
Late Tuesday afternoon or 8:30 a.m. Wednesday, Feb. 1: The prosecution puts on its first witness, which I am betting is former Enron investor relations chief, Mark Koenig. Given Judge Lake’s desire to move things along, it would not surprise me if he requires the prosecution to put its first witness on the stand on Tuesday afternoon, even after six hours of opening arguments.
The trial will run four days a week with each Friday generally being an off day. The prosecution currently estimates that its case-in-chief will take 36 days of court-time to present. There are about 60-65 spaces available on a first come basis for the general public in courtroom 9B, but a closed circuit telecast of the proceedings is available for overflow spectators on the fourth floor of the courthouse in one of the old Bankruptcy Court courtrooms.
By the way, Chronicle Enron reporter Mary Flood and Chronicle business columnist Loren Steffy are live-blogging the trial, and my old friend Joel Androphy is blogging the trial as KTRK-13’s legal analyst.

The Chronicle’s Mary Flood leads today with this timely article on the key evidentiary issue in the upcoming criminal trial of top Enron executives, Ken Lay and Jeff Skilling — to what extent the prosecution will be able to get around the hearsay rule by using out-of-court statements made by alleged co-conspirators against Messrs. Lay and Skilling.

The issue is important because, according to the Enron Task Force, just about anybody who worked in Enron’s upper management ranks was a co-conspirator.

In an unprecedented move, the Task Force has named over 100 co-conspirators in the case. So, the potential definitely exists for substantial testimony about out-of-court statements going to the jury without the defense ever having an opportunity to cross-examine the persons who made the alleged statements.

Moreover, fingering unindicted co-conspirators is an equally effective technique for the Task Force to prevent testimony that is favorable to the defense because persons named as unindicted co-conspirators are likely to the assert their Fifth Amendment privilege against self-incrimination and thus, not be defense witnesses during the trial.

Thus, the Task Force’s liberal use of the co-conspirator tag has a double-whammy effect — not only does it allow the Task Force to use out-of-court statements against defendants without having the declarant of the statements subjected to cross-examination, it has also effectively prevented previous Enron-related defendants from obtaining crucial exculpatory testimony from alleged co-conspirators who have elected to take the Fifth and declined to testify.

The co-conspirator tactic has had a huge impact on two of the previous Enron-related trials.

During the Nigerian Barge trial, the Task Force used out-of-court statements of co-conspirators regarding the key factual issue in the case — that is, what was said during a conference call between several Merrill and Enron executives, including former Enron CFO Andrew Fastow — without ever having to put a witness on the stand who actually participated in the call.

Similarly, none of the dozens of unindicted co-conspirators testified on behalf of the defendants during that trial, so the Task Force’s use of the tactic effectively prevented the Merrill Lynch executives in that case from providing the jury with exculpatory testimony.

Not surprisingly, the Task Force’s liberal use of the co-conspirator tactic has become a key appellate point for the Merrill executives in the appeal of their convictions.

Similarly, the importance of the co-conspirator issue on freezing out exculpatory testimony was brought into full focus during the trial of the Enron Broadband case last year.

In a trial that, at the outset, appeared to be a sure-thing for the prosecution, the Task Force’s case unraveled quickly as witnesses Lawrence Ciscon and Beth Stier both testified to a riveted jury about how the Task Force’s threats of prosecution against them gave them second thoughts about providing the exculpatory testimony that they gave during the trial.

That trial ended in a disastrous mix of acquittals and jury deadlock on the prosecution’s charges.

Thus, Judge Lake’s handling of the issue could have an equally dramatic effect on the Lay-Skilling trial.

Although reasonable people can disagree about whether the charges against executives such as Lay and Skilling would be better sorted out in a civil case rather than a criminal one, there is no reasonable justification for allowing the government to prejudice Lay and Skilling’s right to a fair trial by manipulating the unindicted co-conspirator tactic to use otherwise inadmissible hearsay testimony and to chill witnesses from providing exculpatory testimony.

That the government feels compelled to use such dubious tactics to obtain convictions of Lay and Skilling is strong evidence that the government’s criminalization of agency costs in the post-Enron era is contrary to justice and the rule of law.

The Chronicle’s Claudia Feldman reports on the logistical challenge of accomodating the overflow of media representatives and spectators during the upcoming trial of former key Enron executives Ken Lay and Jeff Skilling. Inasmuch as U.S. District Judge Sim Lake’s courtroom will only accomodate 30 spaces for media, the District Clerk has arranged for a simulcast room at the courthouse that will provide another 120 seats on a first-come basis. The article notes that gibberish from certain of the media has already begun, perhaps best reflected by a BBC reporter’s over-the-top assessment of the case:

“Enron made the ground shake. This was the granddaddy of corporate scandals ó the one that made us doubt what we were being told as investors, the one that made us look at corporations in a whole new light.”

My sense is that the BBC needs to work on its story line a bit. That whole “corporations are evil” thing is so “1980’s/Gordon Gekko,” don’t you think?
Meanwhile, the Chronicle’s Mary Flood reports that the Lay-Skilling defense team are taking an interlocutory appeal to the Fifth Circuit Court of Appeals in New Orleans of Judge Lake’s most recent order denying the defense’s request for a change of venue for the upcoming trial. Inasmuch as the Fifth Circuit will evaluate the appeal under the extremely difficult-to-meet standard of whether Judge Lake abused his discretion in denying the change-of-venue request, the interlocutory appeal is almost a sure loser.
Finally, the NY Times Kurt Eichenwald — whose Conspiracy of Fools (Broadway 2005) remains the best book written to date about the Enron scandal — weighs in with colleague Alexei Barrionuevo in setting the stage for the trial, which includes the following insight into the Enron Task Force’s ever-shifting theory of the case:

The government’s case is built not so much on showing that Enron was destroyed by fraud, but rather on showing that fraud, including the suspected deceptions by Mr. Lay and Mr. Skilling, prevented the marketplace from knowing how badly things were going inside the company.

As the scheduled Monday commencement of the criminal trial of former key Enron executives Ken Lay and Jeff Skilling draws nearer, the Chronicle’s Mary Flood — who has spent more time on the frontlines of Enron-related cases than any other reporter — provides this overview of what to expect from the upcoming trial and John Roper follows this earlier Chronicle profile of Mr. Skilling with this article on Mr. Lay’s preprarations for the trial.
Meanwhile, over at the sparring ring where the respective legal teams prepare for battle, it looks as if the Enron Task Force is continuing to have a bit of trouble deciding on what to present to the jury. In a pleading (download here) filed earlier in the week, the Lay-Skilling defense teams reveal that the Task Force is attempting to add about a dozen, previously undisclosed allegations of wrongdoing against Messrs. Lay and Skilling in the week before trial. Such last-minute modifications reflect a prosecution team that is not particularly confident in its case. U.S. District Judge Sim Lake is expected to rule on that matter and other remaining pre-trial issues in a final pre-trial conference tomorrow afternoon.