Early last week, oral arguments were heard in the Fifth Circuit Court of Appeals on the appeal of the four Merrill Lynch executives who were convicted of wire fraud and conspiracy charges in November 2004 in the trial of the Enron-related case known as the Nigerian Barge case.
Reports from those who attended the oral argument indicate that it went well for the appellants, but it may have gone even better had counsel for the Merrill Four known about former Enron CFO Andy Fastow’s testimony from this past Thursday afternoon in the ongoing criminal trial of former key Enron executives Ken Lay and Jeff Skilling.
The Enron Task Force contended in the Nigerian Barge case that the Merrill Four were guilty of conspiring with Enron executives to mislead Enron investors in connection with Merrill’s purchase of a dividend stream attributable to an ownership interest in some power-generating barges moored off the coast of Nigeria. On a threshold basis, the Task Force’s case against the Merrill Four was bizarre because it was Enron, not Merrill, that may have improperly accounted for the transaction, although even that issue was never proven at trial. For its part, Merrill was simply buying a relatively small asset that Enron wanted to sell in Merrill’s ongoing effort to ingratiate itself to a potentially good customer of Merrill’s investment banking services.
The prosecution’s case against the Merrill Four rested almost entirely on the testimony of former Fastow henchmen, Michael Kopper and Ben Glisan, both of whom were deeply involved with Fastow in effectively embezzling money from Enron in connection with Fastow’s management of certain special purpose entities. Kopper and Glisan both testified on the key issue in the trial — i.e., that Fastow made during a December 1999 telephone call a legally unenforceable oral inducement to Bayly that Enron would either buy Merrill’s interest in the barges back or broker the interest to a third party, such as LJM2, an Enron SPE — despite the fact that neither Kopper nor Glisan participated in the telephone call. Inasmuch as Fastow’s oral inducement allegedly constituted a “hidden side deal” for Enron to “buy-back the barges,” the Task Force argued that Enron’s accounting of the transaction as a “true sale” was fraudulent and that the Merrill Four should have known that, so they were guilty of conspiracy.
Remarkably, the prosecution did not call either Fastow or anyone else who actually participated in the key December 1999 telephone call to testify during the trial of the Nigerian Barge case. Nevertheless, the Task Force represented to defense counsel for the Merrill Four that Fastow’s testimony in regard to the transaction was consistent with that of Kopper and Glisan. Based on that representation and the weakness of the prosecution’s case at trial generally, the defense team of the Merrill Four elected not to call Fastow as a witness during the trial. The jury convicted the Merrill Four, anyway.
With that backdrop, imagine the surprise of counsel for the Merrill Four when they heard about Fastow’s following testimony on cross-examination this past Thursday afternoon in the Lay-Skilling trial. After reading a portion of Kopper and Glisan’s testimony from the barge trial, Fastow testified as follows:
Q. Now, after having read through those pages [of Glisan and Kopper’s testimony], does that refresh your recollection at all about the events that transpired in December of ’99 concerning LJM[2] having been approached and what it did in response to that approach about these barges?
A. No, sir. They’re largely contradictory to my recollection of events.
Fastow went on to testify at some length on the barge transaction and contradicted key portions of both Kopper and Glisan’s testimony from the barge trial, such as the reason why LJM2 elected not to buy the interest in the barges at the time that Merrill bought the interest.
As noted earlier here (see also the thread here), this is not the first example of key testimony from prosecution witnesses in the Nigerian Barge trial being contradicted by testimony of prosecution witnesses in the Lay-Skilling trial. Meanwhile, four former Merrill Lynch executives sit in prison with their lives turned upside down based largely on testimony of prosecution witnesses that the Enron Task Force knew contradicted that of another key prosecution witness who the Task Force elected not to call.
The Department of Coercion, indeed.
TK
This post takes spin to unheard of heights.
Fastow did not contradict Gilsan or Kopper on the key point–that the was an oral promise, such that ML was never at risk
Moe, your suggestion that conflicts between key witnesses’ testimony on important facts is inconsequential reflects your bias with regard to the case.
Kopper in the barge trial says Fastow really wanted LJM2 to do the deal in December 1999, but Kopper thought it was too risky. Fastow in Lay-Skilling says that he told Skilling that he did not want to do the deal at all in December 1999 and admits that Kopper’s testimony contradicts his recollection. Glisan testifies in barges that Fastow promised that Enron would buy the barges back (the origination of the “buy back” mantra in the prosecution’s closing argument). Fastow in Lay-Skilling says that nothing of the kind occurred.
That the three witnesses lined up with the prosecution’s theory on why the sale to Merrill was not a “true sale” does not mean that the undisclosed factual differences between the witnesses’ testimony would not have made a difference to the jurors. Indeed, as you know as a trial lawyer, those are the type of differences that undermine the credibility of testimony.
The Nigerian Barge Case
Somehow or another Nigerian barges ended up being central to the Enron case. In his continuing coverage of the Enron trial, Tom Kirkendall offers up an extensive analysis of the Nigerian barge case and its relationship to the trial of
TK not only did “Glisan testifies in barges that Fastow promised that Enron would buy the barges back” but no witness has ever denied that such happened–no, not a single witness has ever testifed in any court that it did not happen.
Prosecutors ar the trial also showed e-mails sent to Fuhs, one of two defendants who testified, that indicated Enron intended to buy back the barges within six months, although Fuhs said he did not believe those accurately portrayed the deal.
As a matter of fact, the ML defendants did not deny that such happened and they could have, but did not call Fastow as a witness (ie., that had every opportunity to bring before the jury the contradiction you claim was so critical). Trials happen to be the event, as Rehnquist was so fond of saying.
Cases are tried in courtrooms, not on tv sets or court house steps.
The ML defendants had no reason to deny that Fastow had orally promised that ML would be taken out of its investment in six months. There was nothing illegal about that oral promise.
What was arguably illegal was that Fastow did not disclose to Andersen that he had made that promise, which may have affected Andersen’s accounting for the transaction, but even that is not clear because LJM2 ended up buying the interest, anyway.
No question that — with the benefit of 20-20 hindsight — the ML defendants should have called Fastow as a witness. On the other hand, it was certainly not an unreasonable assessment that the government had put on a poor case in which nothing that the ML defendants did came close to being a crime.
That the government knew of the conflicts between Fastow, Glisan and Kopper’s testimony and covered them up is similar to the Task Force depriving the ML defendants of over a dozen witnesses who would have provided exculpatory testimony (but for having been fingered as unindicted co-conspirators). Those strategies in the barge prosecution prevented the jury from being able to evaluate all relevent evidence while it went about the sometimes messy process of determining the truth. That is not a rational implementation of the criminal justice system in a republic such as ours.
TK observes: That the government knew of the conflicts between Fastow, Glisan and Kopper’s testimony and covered them up is . . .
I took time yesterday to round up all the Bayly Brown, etc. briefs that I could find to get some idea about where the case really stood. Someone may win based on the briefs, but I must say that they are horrible–they spend too much time “framing” (read spinning) which is also the problem with your approach and website, and not enough time on the fundamentals. They were better written for a TV set than an appeal.
Of everything I have read about the Barge case, if there is an issue it arises under Brady and Kyles v Whitley–the latter case is the more important one–it holds that it is a bona fide defense to show that the government was negligent in its investigation. The case is never mentioned in any brief.
Given that what was said is probative (although I believe the gov’t made the case on circumstantial evidence, alone), the defendants should have made a two prong attack. They should have spent a lot more time on their right to show inconsistent recollections of the conversations—which is generally just assumed–and they should have focused on the steps necessary for the gov’t to conduct an investigation of what was said in a manner free from the spin of the witnesses.
No mention is made in the brief that, in addition to 302s, per the FBI manual, the agents still must have their hand written notes of their interviews.
In sum, the Brady/Kyles issues might be significant, but one has to wade through a lot of bs to get there