I was in federal court yesterday, so I had occasion to drop in again (here is my earlier report on the trial) on the ongoing Enron-related Nigerian Barge trial, which was concluding its third week. The prosecution’s second star witness — former Enron treasurer and Andy Fastow favorite son, Ben Glisan — finished his testimony and the prosecution rested. Despite the mainstream media’s continued simplistic analysis of everything related to Enron generally and this trial in particular, the prosecution’s case has not gone well.
There are huge holes in the prosecution’s case. First, the prosecution’s case relies almost entirely on the testimony of former Enron executives Michael Kopper and Glisan, who both admitted that they are prodigious liars and that they copped deals with the Justice Department to hedge their risk of lengthy jail sentences. Moreover, the government inexplicably failed to call the person — that is, Fastow — who supposedly originated the sham side deal between Enron and Merrill. Indeed, the prosecution did not even call an independent expert witness to testify on a key issue in the trial — i.e., that Fastow’s legally unenforceable oral inducement to Merrill that Enron would either buy the barges back or broker a deal for them rendered false Enron’s accounting of the deal and, thus, misleading to Enron’s investors.
For what it’s worth, Glisan’s testimony dovetailed generally with that of Kopper, although Kopper thought Merrill was at real risk with regard to the barge deal while Glisan downplayed that risk. Similar to Kopper, Glisan dumped on former Enron treasurer Jeffrey McMahon, who Glisan contends told him he was “was comfortable” with Fastow’s oral inducement to Merrill. Consistent with its approach to this case, the prosecution failed to elicit from either Glisan or Kopper that Fastow and them did not get along with McMahon, who was not involved in receiving any of the millions of dollars that Fastow, Kopper and Glisan received from “investing” in Fastow’s off-balance sheet partnerships. In fact, Fastow ultimately engineered both McMahon’s firing as Enron’s treasurer (because of McMahon’s criticism of Fastow’s off-balance sheet partnerships to former Enron CEO, Jeff Skilling), and Glisan’s replacement of McMahon as Enron’s treasurer. That the prosecution would allow the Fastow cabal to defame the unindicted McMahon in such a manner without pointing out their well-established acrimony toward him is just one example of how the Justice Department is willing to dispense with a balanced presentation of the facts to obtain convictions in this case.
Meanwhile, two of the Merrill defendants appear to have pretty darn good grounds for a directed verdict of acquittal. Tom Hagemann, defense counsel for Merrill defendant Daniel Bayly, argued persuasively that the prosecution’s case against Mr. Bayly consisted solely of testimony that Mr. Bayly participated in the telephone call in which Fastow made the oral inducement to Merrill to buy the barges, and then that Mr. Bayly directed the Merrill representatives to send an engagement letter to Enron that included Fastow’s oral representation that Enron would take Merrill out of the barge deal within six months. Inasmuch as the prosecution presented no further evidence that Mr. Bayly was involved in the deal in any respect after that point and did not attempt in any way to cover up the fact that Fastow had made the oral inducement, Mr. Hagemann pointed out that it is simply impossible for the prosecution to meet its burden of proof that Mr. Bayly was involved in a wide-ranging conspiracy with Enron to cover up the true nature of the deal.
Equally persuasive was David Spears‘ motion for a directed verdict of acquittal for Merrill defendant William Fuhs. Incredibly, the prosecution did not present even one witness who knew or had ever talked with Mr. Fuhs regarding the barge transaction! Consequently, the prosecution’s case against Mr. Fuhs relies totally on about a half dozen documents and emails that the prosecution could not prove that Mr. Fuhs ever read and which are subject to various interpretations. As Mr. Spears pointed out, based on that evidentiary record, the prosecution cannot sustain its burden of proof that Mr. Fuhs was involved in any type of conspiracy with Enron or that he was involved in fraud on Enron’s investors.
Finally, in a devastating cross-examination of Glisan, Lawrence J. Zweifach, Merrill defendant James Brown’s attorney, elicited that Fastow’s supposed promise to buy back the barges from Merrill made no economic sense and, thus, is of dubious credibility. Inasmuch as such a buy back would have required Enron to restate earnings and endure the market’s bad reaction to such a restatement, Glisan admitted that it would have been far less damaging to Enron in terms of the investor market not to sell the barges to Merrill and simply to take the one penny-per-share earnings hit in the fourth quarter of 1999. In short, reasoned Mr. Zweifach, why would Fastow risk the much worse market effect of a restatement by making the oral side deal when simply holding the barges would not result in much of a market effect in the first place? Glisan had no answer to that question.
Of course, as noted in my earlier post, no one really knows how all of this plays out with either Judge Werlein or the jury. But one thing is crystal clear — the Justice Department believes that it is shooting fish in a barrel even when it puts on as flimsy a case as this because it figures that most jurors will be biased against any defendant having anything to do with the cultural pariah Enron.
Beyond the effect on the individual lives involved in this case, that’s the real societal significance of this case. For if the government can use its power to obtain convictions and long jail sentences in a case as weak as this one, then business executives everywhere should be concerned that the risk of doing business in the United States will have just risen to an entirely new level.