The big Enron-related news this week was the U.S. Supreme Court’s refusal to hear the appeal of the Fifth Circuit’s decision to dismiss securities fraud claims against several of Enron’s banks (Ted Frank explains the decision).

In light of the Supreme Court’s recent Stoneridge decision, the denial of the Enron-related appeal was not surprising, although I agree with Larry Ribstein that the Supreme Court should have been clearer in defining the rule against holding third parties liable for another company’s alleged securities fraud. Oh well.

Meanwhile, continuing to fly under the mainstream media’s radar screen is the growing scandal relating to the Department of Justice’s failure to turnover potentially exculpatory evidence to the defense teams in two major Enron-related criminal prosecutions (see previous posts here and here). The DOJ has a long legacy of misconduct in the Enron-related criminal cases that is mirrored by the mainstream media’s refusal to cover it.

A motion filed recently in the Enron-related Nigerian Barge criminal case describes the DOJ’s non-disclosure of hundreds of pages of notes of FBI and DOJ interviews of Andrew Fastow, the former Enron CFO who was a key prosecution witness in the Lay-Skilling trial and a key figure in the Nigerian Barge trial.

Enron Task Force prosecutors withheld the notes of the Fastow interviews from the defense teams prior to the trials in the Lay-Skilling and Nigerian Barge cases.

If the Fastow notes turn out to reflect that prosecutors withheld exculpatory evidence or induced Fastow to change his story over time, then that would be strong grounds for reversal of Skilling’s conviction and dismissal of the remaining charges against the Merrill Lynch bankers in the Nigerian Barge case.

The recent motion underscores the impact of the DOJ’s non-disclosure of the Fastow notes in both trials:

The circumstances surrounding the debriefing of Andrew Fastow by the FBI are extraordinary and suspicious. Normally, when the FBI interviews a witness, it creates a 302 contemporaneously with each interview. Here, the government held scores of interviews with Mr. Fastow over 18 months, yet compiled only one composite 302 after apparently destroying any individual 302s or prior drafts of the composite 302 that were created. This does not comport with FBI policy and is highly unusual. . . . Skilling’s Opposition [to the United Statesí Motion for Reconsideration by a Three-Judge Panel of Order Requiring it to Produce FBI Raw Notes] sheds light on this troubling and highly unusual practice:

One of Skilling’s claims on appeal is that the government impermissibly thwarted his ability to cross-examine Fastow. It did so by violating FBI policy and Brady, Giglio, and their progeny, inter alia, in (1) failing to prepare an FBI form 302 memoranda for each interview it conducted with Fastow; (b) scripting a 200-plus page composite Form 302 that masked inconsistencies, contradictions, and the evolution of Fastow’s story; (c) destroying all drafts of the composite 302s; and (d) refusing to provide Skilling with copies of the underlying raw notes from its more than 1,000 hours of interviews with Fastow.

Moreover, defense counsel in Barge I were never informed by the government that the FBI, contrary to its customary policy, had prepared only one composite 302, rather than a separate 302 for each Fastow interview. This troubling practice of compiling a single 302 to encompass thousands of hours of interviews with Fastow has effectively denied the defendants the benefit of gauging the evolution of Fastow’s story over time, and the shaping by the government of his story. It is not surprising that given these unusual circumstances, and the critical nature of Fastow’s involvement in Enron prosecutions, the Fifth Circuit took the unusual step of ordering the release of the Binders even before final briefing or oral argument in the Skilling appeal.

The motion goes on to describe the DOJ’s continued resistance to turning over the Fastow notes, even in the face of the Fifth Circuit order to do so in the Skilling appeal and the DOJ’s agreement to do so in open court in the Nigerian Barge case.

So, why is the mainstream media ignoring this scandal? Enron fatigue? Or does it not fit neatly into the media and prosecution-fueled myth that Enron was merely a financial house of cards that its managers knew would ultimately fail? Truth and justice doesn’t depend on adherence with such a myth, now does it?

You won’t read about it much in the mainstream media, but the Enron-related criminal prosecutions increasingly smell like a rotting carcass.

After Jeff Skilling was lynched by an angry mob, most of the mainstream business media moved on to other stories, such as various Wall Street firms taking write downs that are far in excess of the $1.1 billion in non-recurring 3rd quarter 2001 charges that began the media-fueled run on Enron that ended with the firm in bankruptcy and many of its executives in the cross-hairs of federal prosecutors.

Contrary to public perception, the Enron Task Force’s actual effort in proving Enron-related crimes was nowhere near as effective as its public relations campaign in demonizing the defendants in the Enron-related criminal cases.

To her credit, the Chronicle’s Kristen Hays remains one of the few mainstream media reporters who is following up on the Enron-related prosecutions.

In this recent article, Hayes reports on the oral argument at the Fifth Circuit Court of Appeals of the Department of Justice’s attempt to salvage at least a smidgen of the dubious conviction that the Task Force obtained in 2006 against former Enron Broadband executive Kevin Howard. U.S. District Judge Vanessa Gilmore threw out the conviction based largely on the Fifth Circuit’s prior decision in the Nigerian Barge case.

During oral argument on its appeal, the DOJ’s “best” argument before the Fifth Circuit panel was that the prosecution should not have given Judge Gilmore a flawed jury instruction linking the one count that it contends should survive with the four counts that the DOJ concedes should be tossed out.

As Hayes reports, “A skeptical [Fifth Circuit Judge Patrick E.] Higginbotham noted that the prosecution supported the instruction and nearly two years later on appeal is saying it shouldn’t have been given.”

As they say in appellate circles, that’s not a good signal from the bench for the DOJ.

If the Fifth Circuit does as expected and denies the DOJ’s appeal, then the DOJ will confront whether to try Howard for a third time on Enron-related charges. And given the DOJ’s track record, I wouldn’t put it past them.

Meanwhile, in a development that I didn’t see picked up by any of the mainstream media, U.S. District Judge Ewing Werlein effectively put off the trial of former Merrill Lynch bankers Daniel Bayly and Robert Furst for a year or so by granting Bayly and Furst an interlocutory appeal of a part of his recent decision denying their motion to dismiss the DOJ’s ongoing attempt to re-try them in the Nigerian Barge case. Judge Werlein’s decision puts that re-trial off for the better part of a year, at least.

Finally, as this recent post noted, Skilling’s defense team and the defense teams for the former Merrill bankers are currently sifting through the notes of FBI and Task Force interviews with former Enron CFO Andrew Fastow, who was a key witness in the Skilling trial and a key player in the Nigerian Barge trial.

Inasmuch as Task Force attorneys withheld information from those interviews from both defense teams prior to the trials in both cases, if the notes of the Fastow interviews reflect that prosecutors withheld exculpatory evidence or induced Fastow to change his story over time, then that would be strong grounds for reversal of Skilling’s conviction and dismissal of the remaining charges against the Merrill bankers. Stay tuned.

Quite a record of that Enron Task Force, eh?

Update: Larry Ribstein points out that these should have never been criminal cases in the first place.

I normally throttle down blogging during the holiday season to just one post a day, but I wanted to pass along something that you don’t see every day in connection with former Enron CEO Jeff Skilling’s appeal of his convictions and in the Nigerian Barge case involving the re-trial of three former Merrill Lynch bankers.

As this CNBC news release reports, the Fifth Circuit last week ordered — over the Department of Justice’s strenuous opposition — that the DOJ prosecutors must deliver to Skilling’s defense team the FBI’s notes of their interviews with former Enron CFO, Andrew Fastow.

Then, this past Friday, U.S. District Judge Ewing Werlein cited the Fifth Circuit’s order in Skilling’s case in granting the Merrill bankers’ motion in the Nigerian Barge case requiring the DOJ to turnover the same notes of the Fastow interviews to the bankers’ defense teams.

The DOJ’s refusal to provide the criminal defense teams the notes of the Fastow interviews has long been a point of contention in several Enron-related criminal cases. The defense teams suspect that the notes will show that Fastow changed his story during his extensive interviews with FBI agents.

Prosecutors in the Skilling and Nigerian Barge cases have have previously refused to turnover the notes to defense attorneys and provided only a prosecution-prepared “summary” of Fastow’s statements to FBI agents.

Fastow was a key witness against Skilling and was a central figure in the first Nigerian Barge trial.

Thus, if the notes of the Fastow interviews reflect that prosecutors withheld exculpatory evidence or induced Fastow to change his story over time, then that would be strong grounds for reversal of Skillings’ conviction and dismissal of the remaining charges against the Merrill bankers.

By the way, the re-trial of Merrill bankers Dan Bayly and Robert Furst in the Nigerian Barge case is currently scheduled for January 28th, although the docket reflects a number of dispositive motions that must be ruled on before the case can proceed to trial.

The re-trial against the third Merrill banker — James Brown — has been severed for a separate trial, which has not yet been scheduled.

Finally, Skilling’s appellate team filed his reply brief this past Friday, although my sense is that the document that was filed will likely not be the final version. As with Skilling’s first brief, the Skilling team has requested that the Fifth Circuit waive its page limitations for reply briefs. Consequently, once the Fifth Circuit rules on that request, the Skilling team will probably then file the final version of the reply brief, which will include tables of contents and authorities that the current version lacks.

I am looking forward to reading the brief over the holidays and will pass along my thoughts after I have done so. In the meantime, both Ellen Podgor and Doug Berman have already posted their typically insightful thoughts on the brief.

As Ashby Jones and Peter Henning noted on Friday, lawyers for Jeff Skilling filed his appellant’s brief this past Friday along with a motion requesting that the Fifth Circuit Court of Appeals waive length-of-brief rules under the special circumstances of Skilling’s appeal.

Inasmuch as the brief is a 240-page tome, my sense is that it will probably be modified slightly to include tables of contents and authorities when the final version is filed after the Fifth Circuit rules on the the length-of-brief motion

I read the entire brief while watching football over the weekend and it is brilliant. The brief is extremely well-written and organized, and eschews much of the technical legal jargon that often makes appellate briefs a chore to read. It would be extremely difficult to read this brief objectively and come to the conclusion that Jeff Skilling has not been the victim of a gross miscarriage of justice.

The first statement of the brief — the usually mundane statement advising the appellate court whether the appellant believes that oral argument would be helpful to the court — Skilling’s appellate team crafted the best such statement that I’ve ever read:

Defendant-appellant Jeffrey Skilling requests oral argument. This case is perhaps the most prominent and publicized white-collar case ever prosecuted.

But with certainty, it is the most misunderstood case, enveloped from the outset by perceptions and myths that bear little resemblance to the actual facts.

Almost everyone believes, for instance, that Skilling was indicted, tried, and convicted for causing the 2001 bankruptcy of Enron Corporation and its devastating effects on thousands of Enron employees and shareholders. As the government itself conceded, however, the case against Skilling had nothing to do with Enron’s collapse.

Profound, inherent weaknesses in the government’s case — not just gaps in its evidentiary proof, but doubts about its basic theories of criminality — motivated the government to resort to novel and incorrect legal theories, demand truncated and unfair trial procedures, and use coercive and abusive tactics.

Skilling submits that oral argument is essential to assist the Courtís understanding of the remarkable record in this case, including the multiplicity of substantial legal and procedural errors that have put Skilling in prison for 24 years not only for crimes that he did not commit, but for acts of business judgment that are not crimes at all.

Following that statement is an 11-page introduction, which — if you don’t have time to read the entire brief — is an excellent overview of the arguments presented. My favorite parts of the brief are as follows:

The Statement of the Case (pp. 15-59). This is a marvelously clear description of Enron’s business and the superficiality of the evidence that the Enron Task Force presented at trial against Skilling. In discussing Enron with hundreds of folks over the past several years, I understand how few people really understood that Enron was an innovative and successful business before its demise. Fewer still understood the shallowness of the Task Force’s case against Skilling. This section of the brief takes on those widely-held misconceptions and dispenses with them cogently.

The Change of Venue Section (pp. 122-175). Given the venomous environment in Houston regarding all things related to Enron, U.S. District Judge Sim Lake’s refusal to grant Skilling’s motion to change the venue of the trial has always struck me as odd. Skilling’s brief provides truly shocking information (heretofore not public) about the enormous bias against Skilling expressed in the answers to the juror questionairres of the jurors who ended up on Skilling’s jury! Also provided in this section is heretofore non-public information on Judge Lake’s questionable refusal to grant Skilling’s proposed multiple strikes for cause on a large number of the jurors who who had expressed clear bias against Skilling and Lay. As the brief notes, if there was ever a trial that called for a change of venue, Lay-Skilling was the one.

The Prosecutorial Misconduct Section (pp. 175-206). The subject of this section has been a common topic on this blog, but this section provides additional unknown evidence of the Task Force’s abusive tactics in prosecuting Skilling and other Enron executives. Moreover, the brief sums up brilliantly the prejudicial impact of the Task Force’s threats against witnesses who would have provided exculpatory testimony for Skilling (all record citations contained in the brief are excluded here):

At trial, the severe imbalance in witness access was obvious.

The Task Force’s case consisted mostly of cooperators from Enron’s senior management,people who worked with Skilling at Enron and who were his friends, including some of his closest friends. With plea or non-prosecution agreements with the Task Force, these witnesses were under the Task Force’s complete domination and control. They were obligated to testify, contractually bound to admit guilt and support the allegations against Skilling, and their ultimate fate rested in the “sole and exclusive discretion” of the Task Force. None of them would meet with Skilling or his counsel. At least two (Rice and Belden) — and probably all of them — were clearly ordered not to.

In contrast, most of Skilling’s key defense witnesses never took the stand. Specifically, Skilling sought to call David Duncan of Arthur Andersen and seven Enron executives: Greg Whalley, Rick Buy, Lou Pai, Jeff McMahon, Georgeanne Hodges, Janet Dietrich, and Joe Hirko. Each possessed critical exculpatory evidence, and would have directly refuted testimony given by Task Force cooperators. Yet all eight invoked the Fifth Amendment, fearing Task Force reprisals. Hoping to overcome this, Skilling asked the Task Force to immunize them, as it did for Ben Glisan (its own witness). The Task Force declined, thereby ensuring that vital exculpatory testimony never saw the light of day.

Without these (and many other) key witnesses, the defendants were forced to rely primarily on their own testimony. Roughly two-thirds of the defense case consisted of Skilling and Lay’s testimony; the remainder was a patchwork of character witnesses, experts, and others — anyone courageous enough to testify. Most could offer relatively narrow testimony on limited issues. Besides Skilling and Lay, only two senior executives testified for the defense, and neither was deeply involved in many transactions at issue.

Compounding the prejudice, the Task Force argued in closing that Skilling’s defense was not credible because it did not square with the testimony of many witnesses. By intimidating witnesses into silence and then refusing to immunize them — knowing they would give testimony favorable to the defense — it was the Task Force that prevented witnesses from corroborating Skilling. U.S. v. Golding, 168 F.3d 700, 702-05 (4th Cir. 1999) (“The government did not stop with the threat. Instead, the prosecutor further abused her power by using the very situation she had created against the defendant in closing argument.”). Skilling, meanwhile, could not explain to the jury why his best witnesses were missing, because the district court explicitly prohibited him from introducing any evidence of the Task Force’s threats and other misconduct.

The prejudice was irreparable. It obstructed Skilling’s preparations before trial, distorted the presentation of evidence at trial, and affected the outcome. Gregory, 369 F.2d at 188-89 (“A criminal trial is a quest for truth. That quest will more often be successful if both sides have an equal opportunity to interview the persons who have the information from which the truth may be determined.”).

As if on cue, even before the ink on the Skilling brief was dry, some of the more vitriolic members of the mob that lynched Skilling were already dismissing it without so much as a smidgen of analysis. But my bet is that a fair review of this brief will leave most readers shocked over the weakness of the case against Skilling and the government’s ruthless tactics in pursuing a conviction despite that weakness.

The popular myth of the mob is that Enron was a house of cards that was propped up by a conspiracy of greedy executives who told lies to trusting but unknowing investors.

The truth is that Enron was simply a highly-leveraged, trust-based business with a relatively low credit rating and a booming trading operation that got caught in a liquidity crunch. That liquidity crisis occurred when the credit and equity markets became spooked by a variety of factors in late October, 2001, including revelations about Fastow’s embezzlement of millions and the volatility in markets after the September 11, 2001 attacks on New York and Washington, D.C.

As I’ve noted many times over the years, Fastow’s embezzlement from Enron is a crime, but Enron’s unfortunate demise is not, nor should it be.

Beyond the shattered lives and families, the real tragedy here is that an angry mob convicted Jeff Skilling, trampling the rule of law and the administration of justice along the way.

In truth, none of us would be able to survive, as Thomas More reminds us, “in the winds that blow” from the exercise of the government’s overwhelming prosecutorial power in response to the demands of the mob.

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.

Tongues were wagging all over Houston this weekend as a result of Wall Street Journal reporter John Emshwiller’s exclusive interview ($) with former Enron treasurer and Andy Fastow confidant, Ben Glisan (excerpts of the interview are here).

The theme of the interview is that Glisan initially deluded himself into thinking that he hadn’t done anything wrong while at Enron, but that he discovered his true self during his 4+ year prison term and came to terms with his criminality.

Emshwiller — whose coverage of the Enron case has been subject to serious conflict of interest issues before — laps up the morality play. Next thing you know, Glisan will be joining Sherron Watkins as a speaker on the “corporate governance reform” rubber chicken circuit.

However, as with almost everything pertaining to Enron, the true story about Glisan is more nuanced than meets the eye.

Glisan was a golden boy at Enron, a rising star in the management circles who Fastow plucked as his hand-picked replacement after running off Enron treasurer Jeff McMahon in early 2000. Contrary to the unsupported statements contained in the interview with Emshwiller, there are real questions as to whether Glisan did much of anything wrong in his duties as Enron’s treasurer.

However, it does appear that he used poor judgment in getting drawn into one of Fastow’s partnership deals in which he made a quick $1 million in mid-2001 on a nominal investment, although it remains unclear as to whether Glisan actually knew that he was engaged in any criminal wrongdoing in taking that return on his investment.

Nonetheless, later in 2001, a month or so before Enron filed its chapter 11 case, Glisan was ultimately canned as Enron’s treasurer because of his failure to disclose that investment in connection Enron’s failed merger negotiations with Dynegy, and so he quickly came under the scrutiny of federal investigators who were suspicious that Glisan’s $1 million return violated the “too good to be true rule” that prosecutors often rely upon to prosecute wealthy businesspeople.

For over a year and a half after being fired by Enron, Glisan continued to maintain to investigators that he had not engaged in any criminal conduct while at Enron. But soon after being indicted in 2003, Glisan — who had not made big money at Enron and was not financially capable of mounting a formidable defense to the criminal charges — copped his deal with the Enron Task Force and began serving his prison sentence.

The rest of the story is not particularly surprising. Glisan was treated roughly during his early days in prison and he quickly began negotiating with the Task Force prosecutors for better accommodations in return for testimony in other Enron-related criminal cases.

He ended up being one of the key witnesses in the Nigerian Barge trial, even though he was not directly involved in the transaction. Most of his testimony in that trial was hearsay of alleged statements made by other “co-conspirators” that was admitted as evidence under an exception to the hearsay rule that would have otherwise excluded such testimony. That testimony helped lead to the improper convictions of four former Merrill Lynch executives that were later overturned on appeal.

Glisan then parleyed his Nigerian Barge work into a transfer to a better prison, where he offered his testimony against former Enron executives Jeff Skilling and Ken Lay in return for liberal furloughs from prison to Houston, where he lived at home while working with prosecutors.

Although the Lay-Skilling jurors viewed him as an effective prosecution witness, there remain substantial questions whether Glisan was truthful during much of his testimony.

So, what to make of all this?

Simple morality plays are easier to write and understand, and certainly easier (and legally safer) to spin on the rubber chicken circuit. The truth in such matters is often far less certain and more difficult to understand, but it’s far more likely to prevent the injustices that have been heaped upon the four former Merrill Lynch executives, Jeff Skilling, Ken Lay, Kevin Howard and Chris Calger, just to name a few. As Ellen Podgor comments:

Although not the focus of [the Glisan interview], it is interesting to note that the risk and cost of trial weigh heavily in the decision to plea. Glisan, like Martha Stewart realized the value of “getting it over with,” and “moving on.” But is that the way the justice system is supposed to work?

The Chronicle’s Kristen Hays reports on the news that was bubbling through the Houston legal community on Thursday afternoon — the Department of Justice has decided not to mount an appeal to the U.S. Supreme Court of the Fifth Circuit Court of Appeals’ decision vacating the convictions (see also here) of the four Merrill Lynch executives in the Enron-related travesty known as the Nigerian Barge case.

Although expected, the DOJ’s decision in the Nigerian Barge case reverberates through several other pending Enron-related cases.

The DOJ can retry three of the four former Merrill Lynch executives, but that would be petty by even the DOJ’s standards given the eviscerated nature of the original charges and the fact that each of the defendants has already spent a year of their lives in prison based on a prosecution that was based more on resentment than on true criminal conduct.

The Fifth Circuit’s now final decision in the barge case casts doubt on a substantial number of the charges upon which former Enron CEO Jeff Skilling was convicted, and dispositively blows away over 80% of the case against former Enron Broadband executive Kevin Howard.

In addition, the re-trials of Howard’s former co-defendants from the prosecution disaster that was the first Enron Broadband case are now in various states of disarray, as is the pressured plea deal of former mid-level Enron executive, Chris Calger.

And don’t forget the mess that is the DOJ’s case against the NatWest Three.

And this is the product of what the Wall Street Journal called “a good record overall?”

Look, this carnage is what happens when government is allowed to bastardize charges. In these cases, the prosecution abused the honest services charge that is supposed to pertain to bribery or kickback cases.

In the Enron-related criminal cases, the prosecutors misapplied the honest service charge to merely questionable business transactions in order to transform juror resentment of wealthy businesspeople into politically popular convictions.

The damage to the defendants, their careers and their families that this abuse of power has caused is bad enough. But the carnage to justice and respect for the rule of law is even more ominous. Does anyone really think that they could stand upright in the winds of such abusive governmental power if those winds turned toward them?

In response to my recent lengthy posts on the injustice of the conviction and brutal sentencing of former Enron executive Jeff Skilling, many folks who have not followed the Enron criminal cases closely have observed to me that they did not realize that the Enron Task Force relied almost entirely on testimony from cooperating witnesses who had copped pleas with the Task Force in convicting Skilling.

That approach, coupled with the Task Force’s equally dubious tactic of freezing exculpatory testimony for Skilling and the late Ken Lay out of the trial, raises serious appellate issues regarding the legitimacy of the entire prosecution against Skilling and Lay.

Interestingly, the same dynamic is at play in the current prosecution of the Milberg Weiss law firm. Larry Ribstein has been at the forefront of pointing out the injustice of the prosecutorial tactic of “paying” witnesses and proposing a framework for addressing it.

Recently, Professor Ribstein posted the paper that he and Bruce Kobayashi are developing on this issue, The Hypocrisy of the Milberg Indictment: The Need for a Coherent Framework on Paying for Cooperation in Litigation, which includes in its abstract a wonderfully cogent sentence regarding the essence of the problem:

[T]he . . .important hypocrisy is that Milberg’s prosecutors are essentially paying the same witness . . . that Milberg is being prosecuted for paying.