As predicted in this earlier post, this NY Times article reports on the guilty plea of Richard Napier — a senior vice president at General Re in 2000 and 2001 when the questionable transaction with American International Group occurred — to a single criminal conspiracy count in United States District Court in Alexandria, Va. on this past Friday. Here are the previous posts on the investigation into AIG and Berkshire Hathaway, Inc.’s General Re.
Meanwhile, General Re continued its attempt to hedge the risk of loss resulting from the criminal probes by negotiating with the government about settling a continuing criminal investigation that focuses on whether General Re conspired with AIG to distort its finances and mislead investors. The negotiations are complicated by the competing government investigations into AIG and General Re, which a Justice Department probe, an SEC investigation, and the New York attorney general office’s investigation.
A deal between General Re and the government would be based upon the Justice Department’s 2003 Thompson Memo, which contains guidelines that federal prosecutors are supposed use to charge companies in criminal cases. For example, prosecutors can offer lighter charges against companies that “identify culprits” within their organizations, make witnesses available to prosecutors, disclose results of their own internal investigations and waive attorney-client protection.
Berkshire’s Warren Buffet has been pushing General Re’s cooperation with authorities as a basis for leniency. Berkshire’s lawyers have instructed General Re executives to provide emails, notes and other documents to investigators in connection with the various investigations, and Berkshire has publicly stated several times that it is cooperating fully with all government investigations of its reinsurance businesses. AIG’s Board has adopted a similar approach with regard to the investigations.

The slumbering Enron Broadband trial was jolted Friday as Lawrence Ciscon — a former Enron Broadband systems engineer who the Enron Task Force has fingered as a target of its ongoing criminal investigation — dramatically testified that Enron Task Force prosecutors had repeatedly threatened him in attempting to dissuade him from testifying on behalf of the five Enron Broadband defendants.

The sparks began to fly when the prosecution attempted during cross-examination to impeach Mr. Ciscon’s favorable testimony for the defendants that had been elicited during his direct examination. On cross, the prosecution had Mr. Ciscon confirm that prosecutors had advised him that he was a target of the Task Force’s ongoing criminal investigation, thereby implying that Mr. Ciscon was testifying in favor of the Broadband defendants to save his own skin.

On re-direct examination, Mr. Ciscon confirmed that prosecutors had recently made three telephone calls to his attorney to “remind” Mr. Ciscon that he remained a target of the Task Force’s criminal investigation.

Defense counsel then asked Mr. Ciscon whether he considered those calls to his attorney as a “warning” not to testify? Mr. Ciscon replied that he did not consider the calls as merely a warning, but a “threat” by the Task Force prosecutors.

After that explosive testimony, the prosecution on re-cross-examination had Mr. Ciscon confirm that the prosecution’s calls had all been to his attorney and that he had not talked directly with the prosecutors. Then, in a questionable move that simply highlighted the prosecution’s thinly-veiled threat to Mr. Ciscon, the prosecution requested that Judge Gilmore strike Mr. Ciscon’s testimony about the calls as inadmissible hearsay testimony.

Judge Gilmore — who favored the prosecution during the early stages of the trial, but appears to be warming to the defense recently — quickly denied the prosecution’s request and pointed out that the government had waived any objection to Mr. Ciscon’s testimony on the subject. The jurors watched the entire episode with rapt attention.

As noted in this previous post, the Task Force used the same tactic effectively during the trial of the Nigerian Barge case to suppress the testimony of dozens of former Enron employees who would have likely contradicted the testimony of Ben Glisan, the prosecution’s main witness in that trial.

However, due to the fact that none of the “chilled” witnesses in the Nigerian Barge trial came forward to testify as Mr. Ciscon has courageously done in the Broadband trial, the jury in the Nigerian Barge trial never heard about the government’s tactic of fingering witnesses as targets of its criminal investigation to suppress favorable testimony for the Nigerian Barge defendants.

Thus, in a trial that looked like a tap-in for the prosecution at the beginning, a feisty defense team appears to have the Enron Task Force prosecutors on their heels. Earlier in the trial, the prosecution was in a similar position when it allowed its key witness to testify falsely regarding a video shown to the jury and then compounded that mistake by attempting to blame the error on a clearly intimidated woman who previously provided video services for Enron.

Moreover, as this Mary Flood/Chronicle article reports, the prosecution’s case appears to be so weak against two of the Enron Broadband defendants that they and their counsel are practically being ignored at this point in the trial.

Alas, one can only speculate as to the effect that any of this has on the jury. Three of the Enron Broadband defendants still have to overcome the “elephant in the courtroom” — that is, the huge amount of money that they made from Enron stock sales during the period in which they were making their allegedly false public statements. That is no easy task under even the best of circumstances.

But regardless of the outcome of this trial, the Enron Task Force’s ugly tactic of effectively suppressing important testimony of witnesses favorable to Enron defendants has now been fully exposed.

As a result — and particularly in view of the Task Force’s ongoing effort to suppress virtually all testimony favorable for the defendants in its case against former Enron CEO Jeff Skilling and former Enron chairman Ken Lay — it is becoming clearer by the day that our government’s “Justice” Department is not interested in justice at all when it comes to prosecuting unpopular business executives.

Citigroup Inc., the nation’s largest financial institution, announced this morning that it has agreed to pay $2 billion to settle class-action claims over its role in the sale of Enron Corp. stock and bonds prior to the company’s collapse into bankruptcy at the end of 2001. As this earlier post notes, Citigroup had set aside $6.7 billion to cover its litigation exposure relating primarily to claims against the bank in the Worldcom class action and the Enron class action.
As is typical in such deals, in announcing the settlement, Citigroup denied any wrongdoing and said it had agreed to settle solely to hedge the risk of a bigger claim being awarded in the litigation. The settlement must be approved by the Board of Regents of the University of California (the lead plaintiff in the case) and the Board of Directors of Citigroup. It is also subject to the approval of the U.S. District Court for the Southern District of Texas.
Citigroup is the first really large bank settlement in the Enron class action litigation. Other bank defendant include J.P. Morgan Chase & Co., Merrill Lynch & Co.; Credit Suisse First Boston, a unit of Credit Suisse Group; Deutsche Bank AG; Canadian Imperial Bank of Commerce; Barclays PLC (BCS); Toronto-Dominion Bank; and Royal Bank of Scotland PLC. My sense is that we will see a steady stream of settlements for the remainder of this year as the financial institutions strive to clean up the Enron liability on their financial statements before the end of the year and the plaintiffs’ lawyers attempt to exceed the total $6 billion in settlement proceeds from the defendants in the WorldCom class action.