Following on this earlier profile, the Chronicle’s Mike Tolson provides this extensive profile today of former Enron CEO Jeff Skilling as he gears up for the commencement of the Super Bowl of Enron criminal trials next Monday.
Echoing thoughts that have long been presented on this blog, Skilling in the article talks about the difficulty of defending himself in an intensely anti-Enron environment:

Skilling, as ever, insists Enron was a great, innovative company that did not deserve the fate that befell it.
“It was a complicated business, and the fact that it was complicated led to misrepresentations and a lot of what I call the urban myth of Enron,” [Skilling] said.
Rather than gather enough information to understand it, he said, people accept popular notions that it was a house of cards, perpetuated by fraud, and that Skilling was a master manipulator of impressionable young MBAs and a supersmart bamboozler who persuaded investors to buy overpriced stock so he could keep raking in fortunes in stock options.
“The way I have been portrayed is a caricature,” he said. “I don’t care what book or movie or article you are talking about, the caricature has been created and the real person kind of loses out in the process.”

Then, Skilling asks a very common sense question:

“If I were who I have been made out to be, could I have built a company? Who would have followed such a guy that has been portrayed like that?”

John Emshwiller of the Wall Street Journal ($) weighs in today on the defense strategy of former Enron key executives Ken Lay and Jeff Skilling for their upcoming criminal trial, and he is surprised to find that Lay and Skilling are not conceding the government’s theory that the former executives covered up a financial house of cards at Enron:

Four years of investigations and intense news coverage have made Enron a synonym for fraud and sleaze. But when the trial of former top executives Jeffrey Skilling and Kenneth Lay begins Jan. 30, defense lawyers will make a bold argument: Everything their company did was legal.

That approach stands in stark contrast to some other big-name corporate defendants in recent history. Lawyers for former WorldCom Inc. Chief Executive Bernard Ebbers and former HealthSouth Corp. chief Richard Scrushy didn’t dispute that large-scale financial shenanigans had occurred at the companies. They simply argued that their clients didn’t know about the wrongdoing. . .

The government wants to persuade jurors that the case is simply about two rich and powerful men lying to protect their troubled business empire. [Skilling lawyer Daniel] Petrocelli’s task is to show that it wasn’t so simple. The matters at the heart of the government’s indictment involve sophisticated accounting and financial decisions that were fully vetted by Enron’s outside lawyers and auditors, says Mr. Petrocelli.

Read the entire article, which is really one of the best articles about the defense strategy in the case that has appeared in a major newspaper to date. But it’s an interesting dynamic that Mr. Emshwiller — who has covered the Enron scandal from the beginning — thinks that Lay and Skilling’s defense is “audacious.” In point of fact, there is nothing in his article about the Lay-Skilling defense strategy that has not already appeared in the many previous posts about the Enron case on this blog, although I must concede that the WSJ’s readership is a tad larger than that of this modest forum. ;^)

Nevertheless, Emshwiller’s surprise over the defense strategy reinforces just how the conventional Enron story — i.e., that the company was merely a house of cards and that the company’s intrinsic instability was hidden from the investing public by a greedy and deceitful management team — has become engrained in the psyche of American society.

Indeed, as reflected by this discussion over the injustice of what happened to the Merrill Lynch executives in the Nigerian Barge case, many otherwise thoughtful and intelligent people believe that they understand the Enron morality play so thoroughly that they seemingly lose the capacity for independent thought regarding Enron and reject any notion of ambiguity or fair-minded analysis in ferreting out the truth of what really happened at Enron.

It’s better late than never that Emshwiller is providing a fair piece on Lay and Skilling’s story about what happened at Enron. But the shattered lives and companies that result from the witch-hunt mentality of cases such as Enron and Michael Milken is a stark reminder of the enormous societal cost of criminalizing corporate agency costs rather than allowing responsibility for alleged wrongdoing in such cases to be sorted out in a civil context.

Update: Don’t miss Larry Ribstein’s typically insightful comment on the Emshwiller article, which includes the following foreboding observation for the next executives who are subjected to prosecution in the criminalization-of-agency-cost lottery:

But it’s worth noting that future Skillings may not even have the opportunity to mount a defense like this. The CEO of the next Enron that goes down will be criminally prosecuted under SOX section 906 for signing off on financials when they knew, at least in hindsight, there were defective internal controls, whatever that means. I guess after the next $40 million defense (and God knows how much taxpayer money for the prosecution) we’ll find out.

Fresh off this informative article on the energy trading industry from over the weekend, the NY Times’ Alexei Barrionuevo scores again with this entertaining article on how former Enron chief executive officer Jeff Skilling designed and outfitted his defense team’s offices across the street from Houston’s federal courthouse.
One of the most interesting nuggets of information in the article is that Skilling’s younger brother — who is an attorney — moved to Houston from Istanbul over the past two years to help his older brother in his time of need. That type of brotherly devotion and sacrifice is unusual and impressive, and is another indication that Skilling’s true human nature is far different and more nuanced than the overwhelmingly negative portrayals of Skilling’s character that are common in the mainstream media.

Although not as well-known as John Emshwiller of the Wall Street Journal and Kurt Eichenwald of the NY Times when it comes to covering the Enron scandal, Carrie Johnson of the Washington Post has been doing some of the best and most balanced reporting on Enron, and she scores again today with this interesting article profiling the Enron Task Force prosecution team that will be handling the upcoming trial of the Task Force’s legacy case against former key Enron executives, Ken Lay and Jeff Skilling.
Ms. Johnson notes that the stakes are high for the prosecution team, which has had a decidedly better record in cutting plea deals than in actually obtaining convictions in court:

For all its success in dealmaking, the task force’s record when it takes cases to a jury has been mixed.
The trial last year of former executives in Enron’s broadband Internet unit dragged on for three months under the weight of testimony about the division’s technological capabilities. The case ended in a hung jury in July. Weeks earlier, the U.S. Supreme Court unanimously tossed out the government’s groundbreaking conviction of audit firm Arthur Andersen LLP because of faulty jury instructions. Both cases were prosecuted by the task force, but lawyers involved in the coming Lay trial had little involvement in investigating those defendants.

The prosecution team is led by 38-year-old Chicago lawyer Sean Berkowitz, who replaced the controversial Andrew Weissmann as Task Force director at the conclusion of the Enron Broadband trial in July of last year. Interestingly, it appears that the prosecutors on the Task Force trial team in the Lay-Skilling case did not have much to do in preparing the sweeping indictment against Lay and Skilling, which may explain why the prosecution is narrowing its case against the defendants as the commencement of the trial approaches.
Even with such narrowing, however, the Chronicle’s Mary Flood reports that the Task Force is currently predicting that it will take over two months for the prosecution to present its case in chief in the Lay-Skilling trial. Such predictions are notoriously speculative, but two months is a long time to present a case and poses a substantial risk of juror rebellion.

Chronicle business columnist Loren Steffy has been a harsh critic of Enron and its former key executives, Ken Lay and Jeff Skilling.

In their motion to transfer venue of their upcoming criminal trial, Lay and Skilling have used Steffy’s past columns as examples of the biased and negative reporting in Houston that makes it far less likely that an unbiased jury can be found here than in, say, Denver, Phoenix or Atlanta.

In his column today, Steffy responds by conceding that he has been critical and mocking of Lay and Skilling, but arguing that jurors can put aside inflamed passions and biased reporting to render a verdict based solely on the evidence presented in court.

Besides, Steffy snipes, that Lay and Skilling are entitled to a fair trial does not mean that he shouldn’t be allowed to express his outrage in his columns over what happened at Enron.

Well, it’s pretty clear that Steffy has missed the point of Lay and Skilling’s use of his columns, which is not uncommon for someone who is promoting a certain view toward a case rather than a more balanced one.

Lay and Skilling’s pleadings never question Steffy’s right to express whatever viewpoint he wants in regard to Enron or their case.

Rather, Lay and Skilling’s point is that the Chronicle and local media’s almost total failure to provide a counterbalance to the one-sided views of those expressed by Steffy and others has greatly contributed to the overwhelmingly negative views toward Lay and Skilling that are expressed in the responses to the juror questionnaire that was transmitted to prospective jurors several months ago.

As noted many times on this blog, there does exist a different view toward what happened at Enron than that which Steffy shares with the vast majority of the mainstream media.

The problem is not with Steffy’s viewpoint. Rather, the problem is with the effect on potential jurors of the promotion of that viewpoint to the almost total excluson of the contrary view.

On a related note, Larry Ribstein and Thom Lambert (of the terrific new blog, Truth on the Market) comment on the effect of bloggers expressing balancing views to those of the mainstream business media.

The Chronicle’s Mary Flood reports on one of the final pre-trial hearings before the commencement of the January 30 criminal trial against former key Enron executives Ken Lay and Jeff Skilling, and while it looks as if U.S. District Judge Sim Lake is going to let the parties put on their respective cases, he left little doubt that monkey business will not be tolerated. Thus, the Task Force won’t be able to use tape recordings Enron traders joking about stealing money from grandmothers during the California energy crisis while the defense won’t be able to bring up key prosecution witness Andrew Fastow’s apparent penchant for viewing pornography on his company computer.
However, the most important ruling that Judge Lake made was denying most of the Task Force’s motion to exclude an impressive group of expert witnesses that the Lay-Skilling defense team has assembled to assist the defense in explaining to the jury their version of what happened to Enron. Given the bias of most mainstream media accounts of what occurred at Enron, Lay and Skilling have already been indicted, tried and convicted by the media outlets that have generated those one-sided accounts. Accordingly, it is vitally important for the Lay-Skilling defense to be able to present independent experts to explain objectively to the jury that there is a far more nuanced story about what happened to Enron than most of the mainstream media accounts provide.
Speaking of which, it’s a bit hard to get a handle on the Task Force’s theory about what happened at Enron at this point. There is little doubt that the Task Force is going to present the case against Lay and Skilling as a material non-disclosure case, but the Task Force appears to be having a bit of a problem getting the rest of its story straight on what went wrong at Enron.
Initially, the prosecution alleged that Lay and Skilling presided over a house of cards at the company that was hidden from the investing public by the fraudulent behavior of Enron management and its auditor, Arthur Andersen. Then, after putting Andersen out of business with an over-the-top prosecution that was later rebuked by a unanimous Supreme Court, the Task Force modified that story to allege that Lay and Skilling had also fooled Andersen about the company’s true nature. More recently, the Task Force’s story has evolved into allegations that Enron was in fact a highly-profitable trading company, but that Lay and particularly Skilling hid the company’s enormous trading profits to fool the investing public into thinking that the company was a stable “logistics” company rather than a volatile trading company.
The Task Force is required to file with the Court today its final statement before trial explaining what charges it actually intends to pursue against Lay and Skilling. One can only wonder at this point which of the above stories about Enron that the Task Force will choose to use. So it goes in the wacky world of criminalizing agency costs.

Professors Bainbridge and Ribstein point to this Roger Parloff/Fortune magazine article that does a good job of summarizing the problems that confront the Enron Task Force in making its case against former key Enron executives Ken Lay and Jeff Skilling, a point that has been addressed in recent posts here, here, here and here. Professor Ribstein places the particular problems with the Task Force’s case against Lay and Skilling in the larger context of how justice and respect for the rule of law is eroded by such criminalization of corporate agency costs:

Lay and Skilling were not the best managers money could buy. But to apportion guilt in a way that maximizes the law’s deterrence function requires a scalpel, not the bludgeon of the criminal law.
And the moral force of the criminal law should be reserved for the cases that deserve it. Even if Lay and Skilling are convicted, the question wonít turn on, for example, whether they were at the scene of the crime. Of course they were. But the jury has to make a very difficult determination as to the precise positions of their eyes and ears. Years in jail should not hang on such details.

Just as years in jail should not hang on one’s duty to handle the closing of a presumably legal deal or one’s obtaining of an unenforceable oral assurance related to such a deal.
Peter Elkind and Bethany McLean, authors of the Enron book The Smartest Guys in the Room (Portfolio 2003), also weigh in here with a more extensive background piece on the case, which includes numerous examples of their decidedly biased view toward the Lay-Skilling defense. The piece is another example of the conflict of interest in covering the Lay-Skilling case that is common among certain mainstream media sources who have a vested interest in presenting the case in a light that is consistent with the view embraced in their book (that point was addressed earlier here).

As noted earlier here, the clear drift over the past several weeks of the Enron Task Force’s case against former key Enron executives Ken Lay and Jeff Skilling has been toward the charges relating to alleged misleading disclosure of material facts relating to Enron’s business and away from the more technical charges pertaining to alleged fraud in Enron’s accounting and structured finance transactions.
Well, this Mary Flood/Chronicle article provides even more confirmation that the Task Force has chosen to make the Lay-Skilling trial a material non-disclosure case. As Ms. Flood notes, the Task Force last week quietly arranged for Mark Koenig, the former head of Enron’s investor relations section, to alter the statement that he made in connection with an August 2004 cooperation agreement with the Task Force under which Koenig pled guilty to a single count of aiding and abetting securities fraud. Koenig faces a possible 10 year sentence on the charge, but he clearly expects to receive a lesser sentence through his cooperation with the Task Force. A copy of Koenig’s explanation of his revised statement is here, a copy of his revised statement is here and a copy of the transcript of the hearing in which Koenig agreed to his plea deal can be downloaded here.
The gist of Koenig’s revised plea bargain statement is that he misrepresented in his initial statement what occurred during a July 12 2001 conference call between Enron executives and securities analysts. In his initial statement, Koenig confessed to telling analysts during that call that Enron Energy Services was reorganized “to get some more efficiency” when the true purpose of the reorganization was simply to conceal losses. You may recall that EES also figured prominently in former Enron chief accountant Richard Causey’s statement in connection with his plea deal.
In his revised statement, Koenig now contends that — based on a recent review of an audiotape of the July 12 2001 conference call — it was Skilling who made the “get some more efficiency” representation to analysts and not Koenig, after all. Koenig’s revised plea statement clearly is intended to head off the type of impeachment that occurred with regard to the testimony of key prosecution witness Ken Rice during last year’s Enron Broadband trial.
Nevertheless, Koenig’s revised statement raises almost as many questions as it answers, not the least of which is why Koenig — who was under treatment and medication for depression at the time of his plea deal — agreed to a relatively harsh plea deal and admitted to making the key false statement in the charge against him in the first place when, in fact, he didn’t make the statement? Similarly, how did Koenig’s lawyer miss such a key error in the original plea deal?
Meanwhile, Ms. Flood also reports that the Lay-Skilling defense team filed a pleading yesterday that could certainly liven up the examination of witnesses during the upcoming trial. The pleading requests that U.S. District Judge Sim Lake allow the defense to attempt to impeach the credibility of certain government witnesses during the trial by allowing the defense to cross-exam those witnesses regarding such matters as their use of pornography, unlawful drug use, solicitation of prostitutes and/or extramarital affairs. This Carrie Johnson/Washington Post article reports that the defense motion is pointed particularly toward former Enron CFO, Andrew Fastow:

One unnamed witness, described by a source familiar with the case as former finance chief Andrew S. Fastow, had “pornography habits, which were so extensive that when his computer files were seized they were submitted to the FBI for criminal investigation,” defense lawyers claimed in court filings.

Looks as if at least the defense wants to avoid what occurred during a large portion of the trial of the Enron Broadband case last year.

The NY Times’ Landon Thomas, Jr. — whose interesting article on former Merrill Lynch executive Nigerian Barge defendant Daniel Bayly was highlighted in this previous post — scores again today with this fascinating article on Michael J. Kopper, the former Enron executive who orchestrated along with with former Enron CFO Andrew Fastow the effective embezzlement of millions from Enron through the company’s transactions with special purpose entities (“SPE’s”) that the two controlled.

Despite Kopper’s role in orchestrating the embezzlement and the resulting breach of market trust that ultimately led to Enron’s demise into bankruptcy, Mr. Thomas notes that Kopper’s plea bargain with the Enron Task Force is likely to result in a relatively light prison sentence, perhaps even probation.

One has to wonder how former Enron chief accountant Richard Causey — who didn’t receive a penny from the tens of millions that Fastow and Kopper embezzled from Enron — feels about that turn of events. Larry Ribstein comments along those same lines here.

Given the societal bias against all things related to Enron, it’s easy to overlook the key role that Kopper had in Enron’s collapse. A good case can be made that the true criminal acts at Enron were limited to Fastow, Kopper and a relatively small group of their underlings who also profited from the transactions between Enron and the SPE’s that Fastow and Kopper controlled.

The original concept of the SPE’s — before Fastow and Kopper hijacked them — was actually sound and creative.

With equity owned primarily by investment banks and other financial institutions, the SPE’s were initially intended to be private equity funds with completely separate management from Enron. The main attraction of the SPE’s for investors was the funds’ preferred right to invest in Enron assets, which benefited Enron by allowing the company to preserve liquidity and hedge risk.

Former Enron treasurer Jeff McMahon — who often clashed with Fastow over Fastow’s machinations with the SPE’s and ultimately lost his treasurer’s position because of those clashes — recruited a bright investment banker from Bankers Trust in London named Michael Jakubik in 1998 to run the SPE’s.

However, after Jakubik had moved to Houston to take the position of running the equity funds, Fastow engineered a last-minute coup in which he installed Kopper in the position with the SPE’s intended for Jakubik and directed McMahon to put Jakubik in another position with Enron.

That set the stage for Fastow and Kopper’s embezzlement from Enron using the SPE’s, the public disclosure of which triggered the the breach of trust that caused the markets to turn on Enron.

Mr. Thomas’ colleague at the Times, Kurt Eichenwald does a good job of describing the foregoing events on pp. 194-219 of his book on the Enron scandal, Conspiracy of Fools (Broadway 2005).

The Chronicle’s Mary Flood reports that former Enron chief accountant Richard Causey, who pled guilty to a single count of securities fraud last week under an plea deal in which he agreed to serve seven years in prison, is still not listed on the most recent witness list that the Enron Task Force was required to provide yesterday to the defense teams of Causey’s co-defendants, former key Enron executives Ken Lay and Jeff Skilling.

Ms. Flood reports that the Task Force also dropped several witnesses on three topics — Enron Broadband, the Coyote Springs deal and the valuation of an Enron asset dubbed “Mariner.”

The Task Force’s indecision on whether to use Causey as a witness is really not surprising despite much of the mainstream media’s expectation that he would transform into a key witness against his former co-defendants simply because he agreed to a plea deal.

Unlike discredited former Enron Broadband CEO Ken Rice, Mr. Causey’s plea deal with the Task Force is not a cooperation agreement, so he is under no obligation to assist the Task Force in its prosecution of Messrs. Lay and Skilling.

Moreover, as Ms. Flood notes, the Task Force may still elect to revise its witness list closer to trial to add Causey as a witness and may gain a small tactical advantage in doing so by delaying the delivery of his witness statements to the Lay-Skilling defense team.

However, the Task Force better not wait too long if they want to use Causey because U.S. District Judge Sim Lake probably would not look kindly upon such gamesmanship.

The lastest revelation is just more confirmation that the Task Force is dispensing with a substantial number of its allegations in its indictment against Lay and Skilling regarding alleged accounting fraud and focusing on developing a case that is based on alleged false or non-disclosure of material information to the investing public.

Given the Task Force’s experience in the Enron Broadband case, simplification of its case against Lay and Skilling is probably a prudent move, although it sure opens up legitimate questions that the defense can raise with the jury on why the Task Force alleged in the indictment dozens of other inflammatory allegations — particularly against Skilling — and then didn’t pursue them.

Finally, the Chronicle’s business columnist Loren Steffy wrote this interesting column in which he speculates that Causey’s plea deal was the result of a good man coming to terms with his wrongdoing.

Maybe so, but the circumstantial evidence indicates that my explanation is closer to the truth.