A Crushing Defeat for the Enron Task Force in the Enron Broadband Case

In yet another stunning blow in a series of setbacks to the Enron Task Force, the jury in the Enron Broadband trial returned late this afternoon and advised U.S. District Judge Vanessa Gilmore that they had acquitted three of the five defendants on certain of the 164 counts and were hopelessly hung on the remainder of the counts against all five defendants. Here is Mary Flood’s Chronicle article on the outcome.

Scott Yeager, the former Enron Broadband strategic planning executive, was acquitted on the wire fraud and conspiracy charges, former Enron Broadband co-CEO Joe Hirko was acquitted on insider trading and money laundering charges, and former engineering executive Rex Shelby was also acquitted on the insider trading charges.

The jury could not reach an agreement on any of the counts against former Enron Broadband finance executives Kevin Howard and Michael Krautz. Judge Gilmore declared a mistrial on all of the counts — some of which related to each defendant — on which the jury could not reach a decision.

On one hand, it’s not surprising that the jury would be in disarray over their deliberations on the charges. To reach a decision, the jury had to leaf though 60 pages of jury instructions and answer more than 190 special issues about the guilt or innocence of five former Enron Broadband executives. Consequently, no wonder the poor jurors bailed out after three days of deliberations and three months of an often mind-numbing trial.

On the other hand, it’s hard to recall a white collar trial that turned out as badly as this one did for a prosecution team that thought getting convictions in this case would be a tap-in.

How did this trial veer so far out of control for the prosecution?

Well, to begin, the Task Force’s decision to throw 164 charges of mud at the five defendants to see what would stick turned out to be an unmitigated disaster. The jurors could not reconcile the voluminous allegations of wrongdoing with what they heard over three months of often idiosyncratic testimony.

Then, when the trial actually began, the over-confident Task Force prosecutors were placed on the defensive almost from the outset.

The first blunder of the Task Force during the trial occurred when prosecutors elicited false testimony from the government’s key witness, former Enron Broadband co-CEO Ken Rice.

Then, after Rice’s testimony was impeached dramatically during cross-examination, the prosecution compounded its error by calling a witness (Beth Stier) who testified that, based on discussions with the Task Force prosecutors before her testimony, she felt threatened by the Task Force prosecutors.

Later in the trial, another witness — Lawrence Ciscon — testified that he was threatened shortly before his testimony by prosecutors with a possible indictment if he proceeded to testify on behalf of the Broadband defendants. T

o make matters worse, toward the close of the trial, U.S. District Judge Vanessa Gilmore sharply rebuked an Enron Task Force prosecutor for asking a question on cross-examination of Broadband defendant Kevin Howard that at least violated the judge’s prior instructions to the Task Force prosecutors.

Finally, earlier this week, Task Force director Andrew Weissman took the unusual step of resigning as head of the Task Force while the Broadband jury was still deliberating amidst rumblings of prosecutorial misconduct within the Task Force.

Accordingly, at the end of the day, the case that the Enron Task Force thought was their strongest against former Enron executives turned into an absolute debacle. Although the Task Force’s mishanding of the trial certainly had something to do with that result, there are two more important dynamics that are actually more revealing of why the prosecution’s case went awry.

First, the Enron Task Force is facing what is often called among lawyers involved in high profile cases the “curse of the correct result.” The Task Force has always been better at demonizing Enron in the media and bludgeoning former Enron executives into highly-publicized plea bargains than actually proving its charges in court.

The scorecard after the Enron Broadband trial is that the Enron Task Force — in over three and a half years on the job — has prosecuted to trial seven former Enron executives and obtained precisely one conviction of a mid-level Enron manager.

Despite that rather unimpressive batting average, the Task Force’s far better public relations machine has effectively pounded into the public’s mind that the “correct” verdict should be a conviction in any Enron-related criminal case even before the case is tried. That was certainly the case in the Enron Broadband trial.

However, the public’s fixed opinions were not based on the testimony as it was presented in court. The general public did not see the witnesses testify, and the public had no way to assess the credibility of those witnesses. The public’s fixed opinions were based largely on propaganda about Enron, much of which the Task Force willingly facilitates.

We now know the story of the trial. The Task Force’s case was far less clear cut than the prosecutors suggested to the jury during opening arguments. The Task Force had to deal with the effect of its blunders described above, and the lawyers for the Broadband defendants put up a well-organized and effective defense. As is often the case, the prosecution was forced to rely on the testimony of witnesses who admitted committing crimes and benefiting from those crimes, and some had personal issues that reasonably called their credibility into question.

Thus, the jurors who actually heard the evidence in this case concluded that the Broadband defendants were not guilty or that the government had failed to carry its burden of persuading all the jurors that the crimes alleged had occurred.

This result is contrary to the “correct” verdict that the general public has about anything having to do with Enron, but blame that on the “curse of the correct result,” not the jurors. In my view, this jury that actually reviewed the evidence and heard the witnesses testify came back with a result that — although not perfect — is the correct one based on the evidence that was actually presented in court.

Finally, as has been noted many times on this blog, the result in the Enron Broadband trial stands for the dubious nature of the government’s policy of criminalizing merely questionable business practices.

As much as the government protests that true business crimes are deterred by vigorous prosecution of such transactions, the fact of the matter is that any reasonable interpretation of justice is strained in attempting to square the result in the Enron Broadband trial with the results in the Richard Scrushy case, the case of Arthur Andersen, the case of Martha Stewart, the sad case of Jamie Olis, the case of Dan Bayly, the case of William Fuhs, the DOJ’s handling of the Global Crossing case, the Tyco case, the Bernie Ebbers case and many others.

These highly disparate results are not the product of a rational deployment of our criminal justice system, and the carnage to the families of the businesspeople who are caught in this troubling cauldron simply cannot be reasonably dismissed as a “trade-off” of an imperfect system.

Meanwhile, respect for justice and the rule of law upon which the success of American society is largely based is continually eroded by the roulette nature of such prosecutions.

If we lose the public’s respect for justice and the rule of law, then, as Sir Thomas More asked Will Roper in A Man for All Seasons, “do you really think you could stand upright in the winds [of abusive state power] that would blow then?”

Words to ponder as the Task Force now turns to using admitted felon Andy Fastow as its key witness in the upcoming trial of Messrs. Lay, Skilling and Causey. That trial could well make the hard-fought Broadband trial look like a picnic.

28 thoughts on “A Crushing Defeat for the Enron Task Force in the Enron Broadband Case

  1. First, thank you for taking a stance that chooses to accept the complexities of this trial. Surely, Enron made some bad deals, and many Houstonians lost their retirement and bonus money in Enron’s collapse. Yet, “Enron” is not the same as Kraus, Howard, et al., – they were employees, not the company per se, and I appreciate the point of view which chooses to look at the evidence which was actually presented in court and the motivations behind the prosecution as opposed to inflamed public resentment
    Next, I’d like to post my thoughts on the verdict and point out where they coincide with your opinions. The first point is that the Enron Task Force’s tactic has primarily been based on the public sentiment that Enron is bad news, and on the opinion of a few federal prosecutors (John Kroger) who are convinced that the sideways ‘E’ is the mark of the beast. The only legitimate obeservations they have is that Shelby, Hirko, and Yeager all “made” millions of dollars on stock sales. What they fail to mention – as does the Chronicle, which has recently been, legitimately, under attack from this Blog – is that these were stock options. To exercise an option you have to buy and sell on the same day. Did the defendents sell stock for millions? Yes. But those sales were about half of the gross from the transaction. If you sold 70 million, you had to buy 35 million first. And then you paid taxes on it – 50%, to be exact (to the government, to pay for things like the Enron Task Force). So, did Hirko make $70 million? Yes and no. He ended up with about seventeen to nineteen in his pocket. Is this a lot of money? Certainly. But $17 million isn’t $70 million. The task force wants to win the case before it goes to trial.
    The next point is, though corporate greed is surely detrimental to American society, greed is not nearly as easily recognizable as a crime as the justice department would hope. It may sound unbelievable, but not everyone who made money at Enron was a crook. The evidence in court showed that the EBS employees believed in what they were doing. They thought the company was committed to improving the internet experience. Whether Skilling had a different idea is another question. He is not on trial. The only important part is the men actually on trial, and from the evidence I’ve seen, there is no reason to suspect they did anything wrong.
    Finally, I am intrigued and impressed by the reference to Robert Bolt’s “A Man For All Seasons.” I finished reading it the day Scott Yeager testified. I agree with the parallel between Roper’s thoughts and the Enron Task Force’s tactics. Canales, in his closing arguments, accused the government of being on “hunt” and “crossing fences” to get their kill. More, in that play, admonishes Roper for wanting to cut down all the laws in England to get to the Devil. I see these as essentially the same thing. The prosecution wants a conviction at all costs. They are as convinced that Enron employees are guilty as uber-evangelical Roper is convinced that the Devil deserves condemning.
    Even more applicable, in my opinion, however, is the exchange between Cromwell and More during his examination before the jury. More says of Cromwell:
    More: You threaten like a dockside bully.
    Cromwell: how should I threaten?
    More: Like a Minister of State, with justice?
    Cromwell: Oh, justice is what you’re threatened with.
    More: Then I’m not threatened.
    Why is this exchange more applicable? Because for those present in the courtroom, the defendants possessed the same kind of heroic defiance and trust in justice that More had at that point when they testified. Perhaps they had no reason to trust in justice. Perhaps they were jaded by three years of unjust prosecution without being able to just say “listen we did NOTHING wrong.” But, more likely, they believed in America. No matter how long they had to wait for vindication, they knew that our forefathers had established a system in which justice was a slave to reason – and not to the passion of revenge and hatred, both of which are the ally of the Task Force. I am sorry to be so clearly biased, but if you would have been there for the defendents’ testimonies, you would have seen a candor and belief in justice uncommon for men under such pressure of accusation. Dare I say, it was heroic – heroic like the eternally edified St. Thomas More, whose casual confidence under fire, which ultimately resulted in his head being removed from his body, ended in a temporal defeat but an eternal victory. I apologize for being so clearly one-sided, but I have never seen such courage as I saw from Kraus and Yeager and Hirko and the rest, and it was a demeanor which so sharply contrasted the attitudes of Meyer and Rice that I could not help but to ask: are these men really guilty?
    In conclusion, I am encouraged by Mr. Kirkendall’s bold statements pointing out what I perceive as the double standard by the Houston Chronicle and the hypocritical stance by the Enron Task Force.

  2. Tom – your fine reporting and analysis of the injustices perpetrated by the Enron Task Force in Houston is inspiring. Even as mainstream media outlets continue wilfully to ignore the overwhelming evidence that the Enron prosecution has gone horribly wrong, you continue to draw our attention to the obvious but unspoken and taboo facts of the matter. No-one can truly know what motivates another human to act. But we can observe the effects of those actions. Andrew Weissmann’s reign of terror in Houston has spread lies, destroyed lives and perverted justice. If there was any accountability in our justice system, both Weissmann and the government would themselves prosecuted for this egregious misconduct. Instead, the Feds quietly axe Weissmann, and the prosecution rumbles on. Why, in chasing our demons, are we so careless to disregard the proper rule of law? Have we forgotten that the law embodies centuries of heroic struggle to tame the tyranny of those who rule us?

  3. No convictions in Enron Broadband trials

    Holy crap. I did not expect this. Three months after the Enron Internet fraud trial began, prosecutors failed Wednesday to…

  4. Excellent commentary Tom.
    But do the mistrials you referred to mean a retrial will take place? If so, which defendants will face this?

  5. Rich, one would hope that the Task Force would elect not to retry the Broadband case. They are still facing a difficult prosecution in regard to their legacy case (i.e., the Lay-Skilling-Causey case) and that certainly mitigates against deploying resources for a Broadband retrial. However, there remain strong political pressure for the Task Force to retry the case.
    One factor that may influence the decision on whether to retry the case is the change at the top of the Enron Task Force. By all accounts from folks who have had dealings with the Task Force, Mr. Berkowitz takes a more measured view toward Enron than Mr. Weissman, who was trained as a mob prosecutor and could never get beyond treating the Enron case as a mob case.
    Based on what I have heard about Mr. Berkowitz, if the decision is left to him to make, my sense is that the case will either not be retried or any retrial would be a sustantially scaled back basis.

  6. Another post-Enron criminal trial self-destructs

    Tom Kirkendall reports:In yet another stunning blow in a series of setbacks to the Enron Task Force, the jury in the Enron Broadband trial returned late this afternoon and advised U.S. District Judge Vanessa Gilmore that they had acquitted three

  7. Kirkendall reflects on Enron broadband trial

    By now, Houstonians are surely aware of the outcome in the Enron broadband trial, which resulted in no convictions. The Chronicle’s Mary Flood reports:
    Three months after the Enron Internet fraud…

  8. No convictions in Enron Broadband trial

    Tom Kirkendall has the definitive post on the failure of the U.S. Attorney’s office to criminalize complex corporate finance transactions for being conducted by employees of an entity that was a subsidiary of another entity…

  9. Unfortunately I can’t say that I’m surprised by the tactics of the Task Force. I have found through my own personal experience with the justice system that errors or misteps by the prosecution are more often than not calculated moves or risks on their part. What do they have to lose? In the last trial it was shown that the prosecution threatend witness’s. They have the power to do so so from their standpoint, it’s a good move. It didn’t work this time around but it may the next time. Win at all costs? Damn near. I have heard nothing of any sanctions or charges of prosecutorial misconduct. If it was the defense team trying to pull those stunts there would be hell to pay and it would be front page news for a week. I have heard the Task Force describe some of the defendants as Amoral yet they feel their own tactics to be above board. You best fear folks like that. They have the power and the means and an incredibly twisted sense of their own motivations. I don’t see the job that they have done to be “for the people”. They merely want to win. Win at all costs. I really wish their actions would be highlighted and the prosecution team made to answer for their conduct. It’s been glossed over and that should frighten all of us. If they do decide to re-try the defendants I fear what the prosecutors will do next. I make no judgements toward the defendants. That’s the job for a jury that is privy to all the pertinant information as I am not. It is our job however to make sure that the prosecution does it’s job well, with due dilligence and according to the law. I believe they failed miserably. I believe they stepped beyond what is fair and reasonable. I believe there should be an investigation into the tactics of the Task Force or our legal system is jeopardy.

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