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.