As noted earlier here, the clear drift over the past several weeks of the Enron Task Force’s case against former key Enron executives Ken Lay and Jeff Skilling has been toward the charges relating to alleged misleading disclosure of material facts relating to Enron’s business and away from the more technical charges pertaining to alleged fraud in Enron’s accounting and structured finance transactions.
Well, this Mary Flood/Chronicle article provides even more confirmation that the Task Force has chosen to make the Lay-Skilling trial a material non-disclosure case. As Ms. Flood notes, the Task Force last week quietly arranged for Mark Koenig, the former head of Enron’s investor relations section, to alter the statement that he made in connection with an August 2004 cooperation agreement with the Task Force under which Koenig pled guilty to a single count of aiding and abetting securities fraud. Koenig faces a possible 10 year sentence on the charge, but he clearly expects to receive a lesser sentence through his cooperation with the Task Force. A copy of Koenig’s explanation of his revised statement is here, a copy of his revised statement is here and a copy of the transcript of the hearing in which Koenig agreed to his plea deal can be downloaded here.
The gist of Koenig’s revised plea bargain statement is that he misrepresented in his initial statement what occurred during a July 12 2001 conference call between Enron executives and securities analysts. In his initial statement, Koenig confessed to telling analysts during that call that Enron Energy Services was reorganized “to get some more efficiency” when the true purpose of the reorganization was simply to conceal losses. You may recall that EES also figured prominently in former Enron chief accountant Richard Causey’s statement in connection with his plea deal.
In his revised statement, Koenig now contends that — based on a recent review of an audiotape of the July 12 2001 conference call — it was Skilling who made the “get some more efficiency” representation to analysts and not Koenig, after all. Koenig’s revised plea statement clearly is intended to head off the type of impeachment that occurred with regard to the testimony of key prosecution witness Ken Rice during last year’s Enron Broadband trial.
Nevertheless, Koenig’s revised statement raises almost as many questions as it answers, not the least of which is why Koenig — who was under treatment and medication for depression at the time of his plea deal — agreed to a relatively harsh plea deal and admitted to making the key false statement in the charge against him in the first place when, in fact, he didn’t make the statement? Similarly, how did Koenig’s lawyer miss such a key error in the original plea deal?
Meanwhile, Ms. Flood also reports that the Lay-Skilling defense team filed a pleading yesterday that could certainly liven up the examination of witnesses during the upcoming trial. The pleading requests that U.S. District Judge Sim Lake allow the defense to attempt to impeach the credibility of certain government witnesses during the trial by allowing the defense to cross-exam those witnesses regarding such matters as their use of pornography, unlawful drug use, solicitation of prostitutes and/or extramarital affairs. This Carrie Johnson/Washington Post article reports that the defense motion is pointed particularly toward former Enron CFO, Andrew Fastow:

One unnamed witness, described by a source familiar with the case as former finance chief Andrew S. Fastow, had “pornography habits, which were so extensive that when his computer files were seized they were submitted to the FBI for criminal investigation,” defense lawyers claimed in court filings.

Looks as if at least the defense wants to avoid what occurred during a large portion of the trial of the Enron Broadband case last year.

The NY Times’ Landon Thomas, Jr. — whose interesting article on former Merrill Lynch executive Nigerian Barge defendant Daniel Bayly was highlighted in this previous post — scores again today with this fascinating article on Michael J. Kopper, the former Enron executive who orchestrated along with with former Enron CFO Andrew Fastow the effective embezzlement of millions from Enron through the company’s transactions with special purpose entities (“SPE’s”) that the two controlled.

Despite Kopper’s role in orchestrating the embezzlement and the resulting breach of market trust that ultimately led to Enron’s demise into bankruptcy, Mr. Thomas notes that Kopper’s plea bargain with the Enron Task Force is likely to result in a relatively light prison sentence, perhaps even probation.

One has to wonder how former Enron chief accountant Richard Causey — who didn’t receive a penny from the tens of millions that Fastow and Kopper embezzled from Enron — feels about that turn of events. Larry Ribstein comments along those same lines here.

Given the societal bias against all things related to Enron, it’s easy to overlook the key role that Kopper had in Enron’s collapse. A good case can be made that the true criminal acts at Enron were limited to Fastow, Kopper and a relatively small group of their underlings who also profited from the transactions between Enron and the SPE’s that Fastow and Kopper controlled.

The original concept of the SPE’s — before Fastow and Kopper hijacked them — was actually sound and creative.

With equity owned primarily by investment banks and other financial institutions, the SPE’s were initially intended to be private equity funds with completely separate management from Enron. The main attraction of the SPE’s for investors was the funds’ preferred right to invest in Enron assets, which benefited Enron by allowing the company to preserve liquidity and hedge risk.

Former Enron treasurer Jeff McMahon — who often clashed with Fastow over Fastow’s machinations with the SPE’s and ultimately lost his treasurer’s position because of those clashes — recruited a bright investment banker from Bankers Trust in London named Michael Jakubik in 1998 to run the SPE’s.

However, after Jakubik had moved to Houston to take the position of running the equity funds, Fastow engineered a last-minute coup in which he installed Kopper in the position with the SPE’s intended for Jakubik and directed McMahon to put Jakubik in another position with Enron.

That set the stage for Fastow and Kopper’s embezzlement from Enron using the SPE’s, the public disclosure of which triggered the the breach of trust that caused the markets to turn on Enron.

Mr. Thomas’ colleague at the Times, Kurt Eichenwald does a good job of describing the foregoing events on pp. 194-219 of his book on the Enron scandal, Conspiracy of Fools (Broadway 2005).

The Chronicle’s Mary Flood reports that former Enron chief accountant Richard Causey, who pled guilty to a single count of securities fraud last week under an plea deal in which he agreed to serve seven years in prison, is still not listed on the most recent witness list that the Enron Task Force was required to provide yesterday to the defense teams of Causey’s co-defendants, former key Enron executives Ken Lay and Jeff Skilling.

Ms. Flood reports that the Task Force also dropped several witnesses on three topics — Enron Broadband, the Coyote Springs deal and the valuation of an Enron asset dubbed “Mariner.”

The Task Force’s indecision on whether to use Causey as a witness is really not surprising despite much of the mainstream media’s expectation that he would transform into a key witness against his former co-defendants simply because he agreed to a plea deal.

Unlike discredited former Enron Broadband CEO Ken Rice, Mr. Causey’s plea deal with the Task Force is not a cooperation agreement, so he is under no obligation to assist the Task Force in its prosecution of Messrs. Lay and Skilling.

Moreover, as Ms. Flood notes, the Task Force may still elect to revise its witness list closer to trial to add Causey as a witness and may gain a small tactical advantage in doing so by delaying the delivery of his witness statements to the Lay-Skilling defense team.

However, the Task Force better not wait too long if they want to use Causey because U.S. District Judge Sim Lake probably would not look kindly upon such gamesmanship.

The lastest revelation is just more confirmation that the Task Force is dispensing with a substantial number of its allegations in its indictment against Lay and Skilling regarding alleged accounting fraud and focusing on developing a case that is based on alleged false or non-disclosure of material information to the investing public.

Given the Task Force’s experience in the Enron Broadband case, simplification of its case against Lay and Skilling is probably a prudent move, although it sure opens up legitimate questions that the defense can raise with the jury on why the Task Force alleged in the indictment dozens of other inflammatory allegations — particularly against Skilling — and then didn’t pursue them.

Finally, the Chronicle’s business columnist Loren Steffy wrote this interesting column in which he speculates that Causey’s plea deal was the result of a good man coming to terms with his wrongdoing.

Maybe so, but the circumstantial evidence indicates that my explanation is closer to the truth.