Harvard Business School issued this press release and interview yesterday of Malcolm S. Salter, the Harvard professor who has written the latest book — Innovation Corrupted: The Origins and Legacy of Enron’s Collapse (Harvard University Press) — in what seems to be a continuing stream on the demise of Enron. From the looks of it, Professor Salter has figured out that the recent collapse of Bear Stearns is a good hook for his book:

Q: Can an Enron-type calamity happen again? Why or why not?

A: Perverse incentives are legion throughout our system today. For example, perverse incentives for both mortgage brokers and investment bankers helped create the subprime crisis that we are now living through. Many boards are also still struggling to improve their oversight. Preventing future Enron-type disasters will require the kind of attention to board oversight, financial incentives, and ethical discipline that I address in Innovation Corrupted.

You don’t say?

Interestingly, Professor Salter notes that Enron’s collapse was triggered by its third-quarter 2001 charge against earnings and equity write-down, which were relatively small in comparison to the losses, charges and write-downs that Wall Street firms have endured over the past year during the sub-prime meltdown:

In the third week of October 2001, Arthur Andersen, Enron’s highly compromised outside auditor, "discovered" several large accounting irregularities related to the off-balance-sheet partnerships. This forced Lay—who returned as CEO after Skilling resigned that August—to announce a $544 million charge against earnings, and a $1.2 billion write-down in shareholders’ equity, largely related to the impending closure of Enron’s Raptor partnerships. Within weeks, Enron collapsed into bankruptcy as its trading partners quickly lost faith—proving, once again, that even a hint of negligence or misconduct can be devastating to a company.

Ah, yes. That pesky trust-based business model.

Chronicle legal reporter Mary Flood covered many of the Enron-related criminal trials, so it was only natural for her to pick up a copy of former Enron Task Force prosecutor, law professor and current Oregon attorney general candidate John Kroger‘s new book, which includes several chapters on his work in several Enron-related criminal cases.

You may remember Kroger. He is the fellow who tried early on to broker his experience on the Task Force to make a name for himself in academic circles. He was involved in preparing some of the worst carnage that the Task Force generated — the Arthur Andersen debacle, the Enron Broadband disaster, and the Nigerian Barge abomination.

Ms. Flood reports on her blog that the Enron-related chapters of Kroger’s book are downright bizarre:

[Kroger’s book] is a self-congratulatory look at Kroger’s years as a federal prosecutor. The four somewhat conflicted chapters on Enron talk alternately about his prowess, his lack of knowledge, how careful prosecutors were, how ruthless prosecutors were, how terrific his case against the Enron broadband executives was and how it hasn’t been successful in court. [.  .  .]

What may be most surprising about the book is Kroger’s admission of a lack of knowledge about how to go about these cases, an admission that the DOJ was out for quick scalps, and an admission that they threatened many witnesses. These are especially odd to see in print given that one of the allegations the defense made was prosecutorial misconduct in this case — too much threatening and coercing of witnesses. One witness in the 2005 case even testified a member of the task force tried coerce him out of testifying for the defense.

Kroger frequently brags about his own prowess as an interrogator and lawyer, even guessing the broadband cases might be over now if he’d tried them. And he casts doubt on just about everyone else in the process.

Despite talking about the pressure the task force was under to get scalps and how aggressive they were, he creates a hypothetical conversation to illustrate how a defense attorney might try to trick a witness into saying no crimes were committed.

Amid the sometimes stunning hubris seems to be much angst about the decision of others to charge Lea Fastow in order to get to her husband and thus get to Jeff Skilling and Ken Lay.

He questions his colleagues, not just over the Lea Fastow charging decision (even including a mean-spirited comment a fellow prosecutor made about the Fastow children possibly winding up in foster care) but in general saying, in his career as a prosecutor he learned:

". . . that even well-intentioned prosecutors can present false testimony at trial, that a just process and a just result cannot always be obtained at the same time, that informants are both necessary and deceitful, that a certain small percentage of agents are corrupt, that our law enforcement policies often encourage crime rather than prevent it, and that successful interrogation requires the ethically questionable manipulation of other human beings.”

Just another chapter in the increasingly dubious legacy of the Enron Task Force.

The stench of prosecutorial abuse has long hung over the Enron-related criminal cases.

But the extent of that abuse became crystal clear this afternoon when the Fifth Circuit Court of Appeals granted former Enron CEO Jeff Skilling’s motion to unseal his supplemental brief relating to the government’s interview notes of former Enron CFO and chief Skilling accuser, Andrew Fastow.

The brief reveals suppression of exculpatory evidence by the Enron Task Force on a massive scale. The entire brief is devastating to the Task Force’s prosecution of Skilling and the late Enron chairman, Ken Lay. The excellent 11-page introduction of the brief includes the following passage:

The raw notes are shocking. The 420 pages of contemporaneous notes, which we have spent the last many weeks comparing to the thousands of pages of trial record and the Task Force’s pretrial disclosures, confirm our worst fears. On the most crucial issues in Skilling’s case—especially where it was only Fastow’s word against Skilling’s—the Task Force suppressed vital exculpatory evidence from its “composite” FBI Form 302s for Fastow and all other disclosures given to Skilling. The Task Force then proceeded to present critical testimony and argument at trial it knew was contradicted by the evidence withheld from Skilling.

Much of the suppressed evidence directly relates to—and refutes—the Task Force’s pivotal contention that Skilling orally agreed to “secret side deals” to manipulate Enron’s financial statements. This “side deal” theory underlies every count of conviction against Skilling.

By depriving Skilling of key exculpatory evidence that Fastow conveyed in his interviews, the Task Force was able to skew the proof and convince the jury to accept Fastow’s word over Skilling’s. As the Task Force later told Fastow’s sentencing judge and recounted in a law review article, Fastow’s testimony and credibility were the cornerstones to convicting Skilling.  .   .  . Enron Task Force Prosecutor John C. Hueston, Behind the Scenes of the Enron Trial: Creating the Decisive Moments (“Hueston”), 44 AM. CRIM. L. REV. 197, 197-99 (2007). The substantial evidence the Task Force kept from Skilling all shares one chatacteristic—it was harmful to the Task Force’s case against Skilling.  .    .    .

The implications of this brief reach far beyond the Skilling appeal. For example, the already-reeling re-prosecution of the three former Merrill Lynch bankers in the Enron-related Nigerian Barge case would appear to be over. The Enron Task Force in the first trial of that case not only withheld exculpatory evidence, but put on incriminating testimony from former Enron treasurer and Fastow confidant Ben Glisan that directly contradicted the exculpatory evidence that Fastow provided to Task Force prosecutors during his interviews. Other Enron-related criminal cases — as well as plea bargains — could well be affected.

I’ve often noted on this blog that fair-minded people can disagree over whether the government’s prosecutorial power is an appropriate tool to regulate business. However, my fervent hope is that even those who favor using the state’s awesome power to criminalize merely questionable business transactions will be appalled by what the prosecution did in the criminal case against Skilling and Lay, as well as the other Enron-related criminal cases.

In truth, none of us would be able to survive, as Thomas More reminds us, “in the winds that blow” from the unjust exercise of the government’s overwhelming prosecutorial power. I continue to hope that Jeff Skilling’s unjust conviction and sentence are reversed on appeal, not only for his and his family’s benefit, but also for ours.

Update: The Chronicle’s Kristen Hays, who is the only mainstream media reporter who I know of following this story, has an article on the Skilling brief here (the Chronicle story links to the copy of the Skilling supplemental brief).

Probably in response to an off-the-record response from the DOJ, Hays writes that the Skilling supplemental brief contends that “some of [Fastow’s] initial statements to authorities were not as damning as those in his testimony.” That’s a stark understatement of what the Skilling supplemental brief describes.

The initial Fastow statements set out in the Skillling brief may not have been as damning as Fastow’s trial testimony, but they were irreconcilable with that trial testimony and described completely legal activity, even by Fastow.  Consequently, had the Enron Task Force not been able to pry Fastow off his original story, the core of the Task Force’s case against Skilling and Lay would not have been contradicted by Fastow, who was Skilling’s main accuser at trial.

And the fact that the DOJ did not disclose to the Skilling defense team how Fastow’s incriminating testimony evolved over time from his exculpatory initial statements while Fastow and the Task Force were negotiating a dubious plea deal is beyond reprehensible. What is the DOJ going to say now, that they didn’t disclose the exculpatory earlier statements to Skilling’s defense team because Fastow was protecting Skilling in these initial meetings? Yeah, right.

Update 2: The blogosphere is picking up the story quickly, as Larry Ribstein, Ellen Podgor (see also here) and Warren Meyer have already commented.

Curious, isn’t it, that the mainstream media is lagging well behind. Could it be that the story simply does not comport with the media’s pre-conceived notions of the Enron saga?

Update 3: The WSJ’s John Emshwiller, who covered the Lay-Skilling trial for the WSJ despite legitimate questions about his objectivity, reports on the latest developments here.

Update 4: John Hueston, the former Enron Task Force prosecutor who is quite proud of his work in nailing Skilling and Lay on an admittedly weak case, is mentioned often in the Skilling supplemental brief because of the law review article he authored that is cited in the passage above. Hueston’s law firm bio used to link to a copy of the article, but the firm took the link down some time ago. However, Cara Ellison, who has followed the Enron-related criminal cases closely, provides this handy link to Hueston’s article.

Update 5: The DOJ has replied to the Skilling Supplemental Brief. The DOJ argues essentially that, put in what the DOJ considers to be the proper context, each portion of the Fastow interview notes on which Skilling relies to establish Brady violations contains information that Skilling already had prior to trial or is evidence that would have had “minimal” value in impeaching Fastow.

Frankly, the DOJ’s analysis stands Brady on its head. The essence of Brady is that the prosecution does not retain the power to make such determinations regarding exculpatory evidence unilaterally — that information is a part of the mix that the jury and the Court sort out in determining facts and in applying the law. If what the Enron Task Force withheld here is truly harmless error, then the DOJ’s need of 70+ pages to explain why that is the case belies that contention. Ellen Podgor passes along similar thoughts regarding the DOJ’s brief here.

First, thank you to all of the many readers who have communicated their concerns and prayers for the family crisis that is precluding me from daily blogging for now. Your kind thoughts and words are comforting and much appreciated.

But now for a quick blog post. While working this week, I was checking the docket of an appeal in which I am involved at the Fifth Circuit Court of Appeals. While there, I ambled over to the docket of the appeal of former Enron CEO Jeff Skilling just to see if there was anything interesting happening. Check out the following recent entries:

3/4/08 Motion filed by Appellant Jeffrey K Skilling to file supplemental briefs. [5976818-1] Supplemental brief included? (Y/N): Y, to unseal A’s suppl. brief brief [5976818-2] Date of COS: 3/3/08 Sufficient [Y/N]: Y [06-20885] (jmw)

3/5/08 Motion filed by Appellant Jeffrey K Skilling [5976825-1] to place supplemental brief under seal. Date of COS: 3/4/08 Sufficient [Y/N]: Y [06-20885] (jmw) 3/5/08 Response/opposition filed by Appellee USA to motion to file supplemental briefs [5976818-1] by Appellant Jeffrey K Skilling. Reply to Resp/Opp due on 3/14/08. Date of COS: 3/4/08 Sufficient [Y/N]: y [5976831-1] [06-20885] (jmw)

3/7/08 Reply filed by Appellant Jeffrey K Skilling to response/opposition [5976831-1], motion to file supplemental briefs [5976818-1] Reply to Resp/Opp due ddl satisfied., motion to unseal brief [5976818-2] Sufficient [Y/N]: Y [5978302-1] [06-20885] (jmw)

Translated, the foregoing means that Skilling’s appellate team filed a motion on Tuesday requesting that the Fifth Circuit grant permission to the parties to file supplemental briefs and, because of confidentiality concerns, requested that the supplemental brief be filed under seal (in other words, not for public consumption).

The government must have been expecting the Skilling motion because they filed a response in opposition to it the following day (Wednesday). Not to be outdone in terms of alacrity, the Skilling team filed their response today to the government’s opposition and, for good measure, requested that the Fifth Circuit unseal the Skilling supplemental brief and make if available for public review.

Anyone want to bet that these developments might have something to do with this (see also earlier posts here and here)?

Looks to me like a good opportunity for a mainstream media outlet to intervene and demand that the Fifth Circuit order the supplemental briefs be made available for public review, don’t you think?