This post from mid-May noted former Merrill Lynch executive Daniel Bayly‘s motion to the Fifth Circuit Court of Appeals requesting that he remain free during the appeal of his conviction and sentence in the Enron-related Nigerian Barge case. Subsequently, the Fifth Circuit summarily denied Mr. Bayly’s motion in a one page order.
However, the May 31st Anderson decision of the U.S. Supreme Court has prompted the Bayly appellate team to file this compelling motion requesting that the Fifth Circuit reconsider its denial of Mr. Bayly’s motion for release pending appeal. The money section:
The fundamental errors in this case begin with the government’s novel and unduly creative use of an “honest services” thoery in connection with the wire fraud statute. See 18 U.S.C. 1343, 1346. As Bayly’s motion for release shows, the honest services charge in this case permitted a criminal conviction for conduct — the accelerated booking of gain — that was undertaken primarily on behalf of the alleged victim (Enron), which knew every aspect of the transaction, and not for the self-interest of the alleged conspirators (see Bayly motion at 16-20). No court ever has sanctioned such a broad application of the honset services statute — especially where, as here, no bribe or gratuity was provided to, nor were there any undisclosed conflicts of interest as to, the employees of the purtative victim (Id. at 19-20). As in Andersen, the Enron Task Force in this case secured a conviction through application of an entirely unprecedented theory in a hotly-contested area of the law. . . The government does not dispute that, if our view of the limits of Section 1346 prevails, all three counts of conviction must be set aside. (footnote omitted).
The motion goes on to address other grounds for reversal of Mr. Bayly’s conviction, particularly the trial court’s granting of the Enron Task Force’s objection to a jury instruction that the defense proposed on a key defense theory in the case — i.e., that the Enron promise to Merrill Lynch to arrange a sale of the interest in the barges within six months to a third party — as opposed to an Enron promise to repurchase the interest within that time frame — did not undermine Enron’s accounting of the transaction and, thus, did not constitute the basis of a crime. Inasmuch as Enron ultimately arranged for such a sale to a third party as opposed to buying back the interest in the barges from Merrill itself, the lack of a jury instruction on that issue appears to be another solid basis for reversal of Mr. Bayly’s conviction.
But read the entire motion, which is only eight pages. It is a masterful example of appellate advocacy and brevity that persuasively outlines the major injustice of the convictions of the Merrill Lynch executives in the Nigerian Barge case. Mr. Bayly worked on this relatively small transaction for less than two hours in the ordinary course of one of his business days. He is now facing two and a half years away from his family during the autumn of his life because of the government’s broad application of criminal statutes to cover what is not even clearly questionable business conduct, much less clear criminal conduct.
The Fifth Circuit’s Anderson decision is not a highlight of that body’s judicial decision-making, as the U.S. Supreme Court’s decision in the case reflects. Here’s hoping that the Fifth Circuit sits up and takes notice before yet another grave injustice takes place in the case of Daniel Bayly.
More on corporate crime: the Nigerian barge case
Last Friday, commenting on the Sihpol decision, the WSJ compared the Spitzer shenanigans with federal prosecutions: The Justice Department has . . . built a record in business fraud cases that has held up in court on Enron, WorldCom and
This trial was nothing more than a glorified witch hunt…from hindering defense witnesses from testifying with the threat of procecution to tainting an already predisposed jury with 2nd, 3rd, and 4th hand heresay. Unfortunately, innocent businessmen are being punished for an ordinary, LEGAL business transaction because of the governments blood lust in their quest for “justice”. Thankfully, there are sites out there that are not under the thumb of the Enron Task Force and are interested in exposing an honest and fair representation of what transpired.
It is incomprehensible that Dan Bayly is not permitted to be out on bail pending his appeal. He will have served half of his sentence by the time the appeal is resolved. Why must he and his family bear this additional suffering? Should the conviction be set aside, those denying the appeal will, no doubt, feel no remorse. If the conviction is upheld, the consequences will still be there.
I have known and worked with Dan Bayly most of his working career as a client. I have been a client of most of the major investment banks over the last thirty five years, and I can say without a doubt, that Dan is one of the straightest shooters in the investment banking industry and would never think about doing anything that he thought might be illegal or even cross the line on a moral basis. It is inconcievable to me that our justice system would not give Dan the benefit of doubt and leave him out of jail on bail until his appeal can be heard. This is akin to punishing someone before his legal rights have been heard. Dan is no flight risk and there is no evidence which points in that direction. This should give all of us great concern if our government can hang someone of Dan’s character without full due process. I have lost confidence in our judicial process and am offended.
I sincerely hope that the Fifth Circuit will seriously reconsider this “knee-jerk” denial of bail. Thank you for the link to the motion which is very compelling and should convince the judges to allow Mr. Bayly to remain free pending his appeal.
Dan was following accepted business practice and, as is customary when working on client transactions, had the support of legal and accounting counsel. While it is unbelievable that a jury would find him guilty of a crime, it is even more amazing that he is being sent to prison while appealing the conviction. Dan is not a flight risk and is certainly not a danger to the community.
Bayly Seeks Reconsideration of the 5th Circuit’s Bail Denial
Former Merrill Lynch investment banker Daniel Bayly, convicted in the Enron Nigerian Barge Trial, has sought reconsideration by the Fifth Circuit of its earlier decision to deny him bail pending appeal of his conviction, for which he received a 30-month
Unfortunately for the friends and family of Dan Bayly, he will go to prison because this system relies on the government to begin with a strong case of guilt- guilt beyond a reasonable doubt- and once a conviction is gained, everything about the system gives extreme and even illogical deference to that verdict, again, because it presumes prosecutors and the jury did their sworn duty. We know that is not always the case and much less so in the recent rash of white collar conspiracy prosecutions. I hope that those who know in their hearts that this was so wrong recognize that this is happening to many other innocent people as prosecutors are gleefully jumping on this white collar prosecution bandwagon. Federal prosecutors have extreme power and congress continues to grant them even more power. Mr. Bayly had his full defense paid for by his company, so many others don’t because prosecutors can even take that away too. Please consider writing your congressperson- not just about Dan Bayly’s conviction as you will be ignored- but about curbing the extreme control of federal prosecutors in this system.
There is apparently little to no objective oversight or independent review of these prosecutions and coerced plea deals traded for testimony and the people in charge are obviously unable to take their own selfish egos or envy or extreme stupidity out of the equation when considering who and what to prosecute. I don’t have any answers but I know your anger and your voices need to go beyond this blog and since congress is still handing out bigger and bigger hammers to prosecutors, I say, make sure they hear you for everyones sake.
I am baffled by a court system that has allowed this case such publicity and unfair result. My confidence is shaken, however, Dan, I have every confidence your character will prove superior. This doesn’t make your ordeal any easier. Wish I could do something to make a difference.
I have known Dan for nearly thirty years. There is no one who possesses higher character or integrity than Dan. This transaction was vetted by scores of finance, legal and credit people at Merrill Lynch and deemed to be legitimate. Dan’s role was to make one phone call to Fastow after the tranaction had been approved. I understand that Fastow has even admitted to the Government that he never committed to repurchase the barges. The Government desperately wanted an investment banker’s scalp, and it is not at all concerned about Justice. Why can no current Merrill Lynch employee come to Dan’s defense? Why have scores of ex- Merrill Lynch colleagues and clients rallied to his defense? Why were 29 Merrill Lynch employees named as unindicted co-conspirators? Why is it that Merrill Lynch settled for $80 million over this small (and legitimate) transaction? Could it be that the Government threatened Merrill Lynch with an Arthur Anderson? Could it be that they used tactics to make Dan Bayly a scapegoat for their own political gains? This prosecution is a travesty of justice and frankly should scare the Hell out of all Americans. If people like Dan Bayly can go to jail, are any of us safe? This is a Goverment run amuk. This is McCarthyism of the 21st Century. Dan needs our support and while the appeal seems to have tremendous merit, out voices must also let all know the truth about this abuse of power by a Government prosecutor.
At a minimum Dan should be allowed to remain free until this Appeal is heard. He is not a flight risk, and if the appeal goes against him, he will have to serve his sentence. If he goes to jail and his appeal wins, who will compensate him and his family for the years of anguish he will have suffered?
The jury decision in Dan Bayly?s case was an incorrect decision. Even with this decision, his sentencing is too severe. Failure to hear his appeal before beginning his term is unfair. Dan is a person of the highest integrity and he deserves better treatment by our justice system.
Rod Dammeyer
It is incomprehensible that Dan, who is a person of the highest integrity, and not a flight risk is to be imprisoned while his appeal of the incorrect jury decision is taking place. This injustice is further magnified for Dan and his family by the fact that his appeal presents very substantial arguments for reversing the lower court decision. If, as we all pray for, justice prevails and the appeals court over turns his conviction, it will be impossible to compensate Dan and his family for the time he has spent, unjustly in jail.
I have known Dan Bayly since his early days as a member of Merrill Lynch’s Investment Banking Division. Among a group of professionals with high personal ethics, Dan stands out as a man of the highest principals. There is no aspect of justice that calls for Dan Bayly to be confined in a jail.
when people write saying that someone so dishonest is honest, the line “Houston, we have a problem, comes to mind.”
This really is a very simple case under the law on aiding and abetting. What Bayly did was no different than selling a load pistol to someone who walked into a gun store saying, “give me a load gun, I’m going across the street to rob a bank.”
Being honest means saying NO
Actually, John, your example is a better reflection of why the Nigerian Barge prosecution and conviction of Mr. Bayly is unjust.
In your case, the gun store owner presumably knows that the person buying the loaded gun is a bank robber and that he is going to use the gun to rob the bank across the street.
In the Nigerian Barge case, Mr. Bayly had no reason to believe that Enron intended to do anything illegal in selling an interest in the barges to Merrill Lynch.
In you case, it’s clear that robbing a bank is illegal.
In the Nigerian Barge case, it’s not clear that Enron did anything illegal. Muddled in the government’s zeal to convict Mr. Bayly and the other defendants is that Enron never repurchased the interest in the barges. Therefore, a good case can be made that Enron’s accounting for the transaction was correct.
Finally, in your case, in connection with finalizing the purchase of the gun, the bank robber never promised that he was not going to rob the bank.
In the Nigerian Barge case, assuming that an “oral side deal” was made to induce Merrill to enter into an agreement to buy the interest in the barges, the written agreements between Enron and Merrill specifically void any such oral agreements and render them unenforceable.
The bottom line — prosecuting agency costs as if they were a bank robbery is a slippery slope toward injustice.
Unfortunately John, it is exactly the attitude you express here, and your rush to judgement without knowing the facts of this case that has caused an innocent man to now face imprisionment. Do you know Mr. Bayly personally to make the bold statement that he is “so dishonest”? I would challenge you to find such a person. The thing is John, Houston does have a problem. Not only were they burned by a few greedy individuals at Enron, now they have unknowingly become accomplices in the governments wrongful and malicious procecution of innocent businessmen.
The apologists for “this honest man, this straight shooter” neglect to consider that the phony earnings which Mr. Bayly provided to Enron enabled the stock to meet its first call earnings projection and to subsequently more than DOUBLE in the period from January 2000 to the autumn, costing investors BILLIONS OF DOLLARS. Moreover, the “honest” Mr. Bayly was also responsible for the fraudulent research activities of Merrill Lynch (remember the Henry Blodgett emails and the $200 Million SEC/Spitzer settlement) as well as the fraudulent tax shelters which cost taxpayers billions of dollars in foregone tax revenues from corporations. So, what’s amazing to me, is how this crook got off so lightly….lock him up and throw away the key!
Al, I concede that it is debatable whether Enron’s earnings from the Nigerian Barge transaction were “phony,” as you put it. What is not reasonably debatable is that electing to have Merrill take the business risk of such a transaction is not criminal. If your theory is correct that such earnings were phony and that such phony earnings caused Enron’s stock price to double (highly doubtful under the Supreme Court’s Dura decision), then investors would be able to recover their economic losses from Merrill. But sending Mr. Bayly to jail over this transaction simply criminalizes risk-taking, which means that any banker who makes a risky loan to an illiquid business is potentially committing a criminal offense if it turns out that the borrower does not survive. I shudder to think of the implications for our society if the criminal justice system is used in that manner.
AL: I offer up a letter written by a structured financed expert, well versed on the NBT and Mr. Bayly’s role in it. “Yes, Mr. Bayly was the head of banking at the time Merrill Lynch purchased the Enron barges. In this capacity, his involvement with the deal was extremely limited. Indeed, contrary to what may have been implied by the DOJ or the press he did not approve the purchase by Merrill Lynch?he lacked that authority. The deal was approved by his boss, one of Merrill Lynch?s top five ranking officials at the time.
Also, despite his conviction, it is important to highlight the fact that Mr. Bayly did not structure, champion or even analyze the deal. In the case of the barge deal (that could put Merrill Lynch?s assets or reputation at risk), the job of analyzing the transaction was delegated to a committee of eight experts, consisting of lawyers, CPA?s and financial experts?all of whom unanimously blessed the deal and recommended approval. Mr. Bayly?s involvement consisted of determining that his division could afford the $7 million investment in the deal (this was not difficult–his division had revenue of $4 billion that year). Also, at the request of his boss, he called Andrew Fastow to obtain confirmation that, if Merrill Lynch bought the project, it would be completed and ready for resale within six months, a fact that Enron had represented throughout the review process.
It is not surprising that you may not have understood these facts as information about the extent of the review process and approval authority did not appear to come out at the trial.
References to this deal as ?phony? is misleading. The Enron barge deal was highly risky and innovative; it was not suited to conventional financing. There was nothing nefarious or inappropriate about bringing the deal to Merrill Lynch. Indeed, this is precisely the kind of high risk/high reward transaction that companies bring to their investment bankers.
Moreover, when, six months following Merrill?s purchase of the barges, Andrew Fastow?s partnership offered to purchase the completed barges from Merrill Lynch, the offer was thoroughly reviewed by several in-house and outside attorneys and subsequently approved (again, not by Mr. Bayly). It is noteworthy that the purchased barges were then combined with other barges held by Enron and sold to a third party buyer, AES, that actually paid more than Merrill had received (proving that the barges were intrinsically valuable).
Five men have been convicted and face prison time because of a transaction that occasioned NO loss to Enron or to its shareholders. The sole issue in the case appears to turn on when the gain was reported; Enron accountants reported the gain at the time of the Merrill Lynch purchase, rather than at the time of the AES purchase. In either case, there was undeniably a highly profitable transaction. Enron made money, its shareholders made money, the people of Nigeria obtained low price energy and, according to its financial reports, AES is making money (the barges are currently producing roughly $50mm/year). These are good results for a so-called ?phony? transaction.
While I strenuously disagree with your depiction of the deal and Mr. Bayly?s culpability, I do agree that this case is a frightening harbinger for the business community. A handful of Merrill Lynch bankers with stellar records thought that they were helping a respected client. They were merely doing what bankers regularly do. They followed every conceivable procedure and review protocol. Their individual roles in the transaction were tangential. And, yet, because of how Enron and its auditors chose to report a profitable transaction, these law-abiding, ?regular? men (who had no control over the reporting decision) are awaiting jail terms.
Companies continue to look to their investment banks to assist them in structuring difficult deals to achieve their financial objectives. If bankers having casual contact with a company can be convicted for its client?s actions and latent problems?regardless of how many lawyers and experts sign off–exactly how does a banker in Mr. Bayly?s position protect himself against this fate in the future? Bankers, beware, the answer is far from clear.”
Revisiting Enron
You wouldn’t know of it from the (lack of) media coverage, but the head prosecutor of the Enron task force…
The article in the 11/20/05 on Dan Bayly was quite illuminating about an investment banker who was involved in the Enron debacle. Dan Bayly was convicted of a crime and sentenced to prison. This affair proves one of the most salient rule of American buisness: know your customer!!!! Evidently, Dan truly did not know his customer (Enron) and now he has 30 months to reflect upon that fact. Very sad for a man of such obvious talents.