Last week, former Enron chief accountant Richard Causey pled guilty to a single count of securities fraud and agreed to a seven-year prison term after vigorously defending himself from multiple charges of business crimes for over two years. Had he elected to defend himself at trial against the charges and lost, he would have faced an effective life sentence.

A friend of Causey’s commented that, despite the plea, Causey does not think he committed crimes at Enron and that he pled guilty to spare his family the emotional trauma of the trial and a possibly longer prison sentence.

Earlier this year, former Enron Broadband CEO Ken Rice testified falsely in the Enron Broadband trial after cutting a plea bargain with prosecutors in the face of an almost certain conviction on insider-trading charges (Rice had sold Enron stock in August, 2001 immediately after a meeting with Jeff Skilling in which Skilling informed Rice that he was resigning as Enron’s CEO).

The Enron Broadband trial ended in a mess of acquittals and a mistrial, and all five defendants in that case face re-trials later this year. Rice remains free on bond and has not yet been sentenced.

Meanwhile, throughout the over four-year criminal investigation relating to the demise of Enron, the Enron Task Force has engaged in widespread intimidation of potential witnesses in Enron criminal cases by threatening those witnesses with indictment if they provide exculpatory testimony on behalf of any defendant in an Enron-related criminal trial.

Lawrence Ciscon and Beth Stier testified dramatically about those prosecution threats during the Enron Broadband trial, and dozens of key witnesses with exculpatory testimony declined to testify on behalf of four Merrill Lynch executives in the Nigerian Barge trial after the prosecution had fingered the witnesses as unindicted co-conspirators. The Merrill Lynch executives were all convicted in that trial and are now serving jail sentences.

Amidst that backdrop, U.S. District Judge Sim Lake yesterday sentenced the plea-bargaining defendants in the sad case of Jamie Olis (Chronicle article here) — former Dynegy executive and Olis boss Gene Foster, and Dynegy employee Helen Sharkey — to 15-month and one-month sentences respectively for their involvement in the Project Alpha transaction that ensnared Olis (Doug Berman comments on the sentences here as does Peter Henning here).

The government previously obtained a gruesome 24 year sentence against Olis for having the temerity of asserting his innocence in regard to the Project Alpha-related charges at trial. The Fifth Circuit later overturned that sentence and Olis is awaiting re-sentencing.

Yale Law Professor John Langbien, who has written extensively on prosecutorial abuse in the American criminal justice system, observes as follows:

Plea bargaining concentrates effective control of criminal procedure in the hands of a single officer. Our formal law of trial envisages a division of responsibility. We expect the prosecutor to make the charging decision, the judge and especially the jury to adjudicate, and the judge to set the sentence. Plea bargaining merges these accusatory, determinative, and sanctional phases of procedure in the hands of the prosecutor.

Students of the history of the law of torture are reminded that the great psychological fallacy of the European inquisitorial procedure of that time was that it concentrated in the investigating magistrate the powers of accusation, investigation, torture and condemnation. The single inquisitor who wielded those powers needed to have what one recent historian has called ‘superhuman capabilities [in order to] . . . keep himself in his decisional function free from the predisposing influences of his own instigating and investigating activity.'”

I cannot emphasize too strongly how dangerous this concentration of prosecutorial power can be. The modern prosecutor commands the vast resources of the state for gathering and generating accusing evidence. We allowed him this power in large part because the criminal trial interpose the safeguard of adjudication against the danger that he might bring those resources to bear against an innocent citizen — whether on account of honest error, arbitrariness, or worse.

So, what really is the bigger problem for American society and the rule of law? Criminal business executives or out-of-control prosecutors who bludgeon defendants into plea bargains and use the threat of indictment to prevent juries from hearing exculpatory testimony about defendants charged with crimes?

The disparity in sentences between Olis, on one hand, and Foster and Sharkey, on the other, is a stark reminder of the high price that a business executive must pay these days for asserting innocence in the American criminal justice system. Similarly, the difference between Causey’s seven year sentence and whatever Rice eventually gets is largely attributable to Causey’s assertion of his innocence until the eve of his trial. Ellen Podgor previously commented on the troubling implications of this trend in connection with the sentences emanating from the WorldCom prosecutions.

In a scene set just after World War II from the movie The Aviator (hat tip to Larry Ribstein), Howard Hughes asks Senator Brewster if he really wants to go to war with him. Brewster responds:

“It’s not me, Howard. It’s the United States government. We just beat Germany and Japan. Who the hell are you?”

What the government is doing in punishing Jamie Olis for asserting his innocence is wrong. Likewise, regardless of what one thinks about the propriety of the government’s Lay-Skilling and Nigerian Barge prosecutions, the government is wrong in preventing the defendants in those cases from presenting to their juries exculpatory testimony from dozens of relevent witnesses.

It’s easy to delude ourselves that the cost of doing nothing in response to such wrongs is “merely” the lives of a few unpopular businessmen. But in reality, erosion of justice and respect for the rule of law is the far higher price that we pay for turning our collective cheeks in the face of such abusive tactics. For, as Sir Thomas More reminds us, if that abusive state power is not controlled and is then turned on us, “do you really think you could stand upright in the winds [of abusive state power] that would blow then?”

As KPMG’s settlement of the class action lawsuit against the firm over its promotion of tax shelters lurches toward final approval, this NY Times article reports that the number of class members opting-out of the proposed settlement is unusually high (almost 30% of all class members) and speculates that KPMG may elect to exercise its right under the settlement agreement to opt-out of the settlement itself if too many class members opt-out.
Although it was nice of the Times to deliver that message by KPMG to class members, there is little chance that the firm will terminate the settlement. Even if 30% of the class members opt out, that means that KPMG has still liquidated its liability to over 190 former tax shelter clients at an aggregate amount of the $180 million or so that KPMG will contribute to the $225 million settlement. That’s under a million per individual claim, which is the equivalent of a payout on a “slip and fall ” case for KPMG these days. No way KPMG rolls the dice that it can do better than that by defending the class action and even more opt-out individual claims at trial.

The long-awaited resentencing hearing in the sad case of Jamie Olis that was scheduled to take place today has been postponed indefinitely to give U.S. District Judge Sim Lake time to review recently-filed materials in the case relating to the key issue of market loss causation and to conduct another hearing on the market loss issue. You can download a copy of Olis’ lengthy memorandum on the market loss and related sentencing issues — which includes copies of letters from Olis and his wife to Judge Lake — here.
Although the delay in the resentencing is unfortunate, it is understandable. There is no harder working judge in the country right now than Judge Lake, who is literally snowed under with both the prodigious materials relating to the Olis resentencing and dozens of pre-trial motions in the run-up to the complex trial of former key Enron executives Ken Lay and Jeff Skilling that is scheduled to begin on January 30 in Houston. Given Judge Lake’s nature, I suspect that he will attempt to schedule the market loss hearing in the Olis case before the commencement of the Lay-Skilling trial.
Meanwhile, Doug Berman — who has provided the flat-out best analysis in the blogosphere of the Olis case from a sentencing perspective — added this informative post earlier in the week and this post today on the key issues to be addressed in the Olis resentencing hearing. As this earlier post notes, the prosecution misled Judge Lake in the previous sentencing hearing on the key market-loss issue, and I’m optimistic that Judge Lake will come to understand this time around the folly of attributing any meaningful market loss to Olis’ participation in the ill-fated Project Alpha, a point that is amply buttressed in Olis’ memorandum on resentencing by the expert reports of Rice University business professor Bala Dharan, former SEC economist Craig McCann, and well-known Houston energy securities analyst John Olson. In contrast, the Justice Department’s strikingly superficial response to the Olis memorandum and expert reports comes across as mean-spirited and baseless. If Judge Lake properly concludes that the reasons for market loss are simply too diffuse to attribute to Olis’ actions, then my sense is that he will reduce Olis’ sentence to considerably less than the 5-7 years that Professor Berman is predicting.
Update: Professor Berman comments on the postponement, as well as the resentencing hearing of Olis’ co-defendants (both copped pleas), which will proceed as scheduled today.