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.

The Sihpol acquittal from last week has generated much needed criticism of the demagogic ways of New York AG Eliot Spitzer, including this Wall Street Journal ($) editorial the day after the acquittal. While the WSJ editorial rightly criticizes Mr. Spitzer’s questionable tactic of criminalizing merely questionable business practices, the editorial concludes with the following observation:

One lesson here is that juries, forced to make a decision about a defendant’s fate, want to make sure that the alleged behavior is in fact criminal. Prosecution by press release won’t do in court.
The Justice Department has understood this, and has built a record in business fraud cases that has held up in court on Enron, WorldCom and Adelphia. Mr. Spitzer, by contrast, has used New York’s overbroad Martin Act to prosecute financial cases of dubious legal merit. Business fraud deserves to be prosecuted, but the criminalization of widely accepted business practices ex post facto is both unjust and offensive to the rule of law.

Well, that dubious compliment of the Justice Department’s equally egregious conduct toward criminalizing business practices did not sit well with Harvey Silvergate, a Boston civil rights attorney and author who is working on a book on abusive federal prosecutions. In this WSJ letter to the editor, Mr. Silvergate notes the following:

The reason for the Justice Department’s success is that the federal courts have aided and abetted in contorting the law by affirming dubious convictions for dubious crimes. The Supreme Court’s welcome reversal of the Arthur Andersen conviction, one hopes, signals a counter-revolution rather than a mere blip in the continuing degradation of the federal criminal code.

However, in my book, a more insightful criticism of the WSJ’s misguided compliment of the Justice Department comes from Ben Edwards, former American business editor for The Economist magazine, who wrote the following letter to the WSJ editors, which the WSJ has chosen not to publish, at least as of yet:

Sirs,
Your otherwise commendable editorial calling New York Attorney General Eliot Spitzer to account for his abusive disregard of the rule of law falls once again into what has become a most unfortunate and unthinking habit of mind regarding the rights and wrongs of the Justice Department’s wider war on white-collar “crime”.
While damning Mr Spitzer, you lavish praise on those wise folk at Justice for building “a record of business fraud cases that has held up in court”. Two thoughts spring to mind.
First, just as with Mr Spitzer, most of the actions the Justice Department takes against white-collar defendants never end up in front of a jury of peers. Federal prosecutors use the threat of ultra-long jail sentences to bludgeon plea-bargain agreements from their victims instead. Who, in this climate, fancies their chances of acquittal in court, no matter how persuasive their defense?
Second, some of the cases that have reached the courts seem notable for reasons other than fine prosecutorial legal work. So far, we have had willful and abusive misinterpretation of the law (Arthur Andersen), absurd and dangerous criminalization of civil disputes (the Enron broadband trial) and stunning abuse of hearsay and other evidentiary rules to damn defendants with whispers and slurs (the Enron-related “Nigerian Barge” trial). No doubt, as the nation’s temperature cools, more of these convictions will be overturned on appeal.
Of course, federal judges share some of the blame for failing to restrain this appalling government behaviour. But surely the thundering editorialists at the Wall Street Journal can muster the courage to stand up to the howling lynch mob and call this for what it quite nakedly is: a witch hunt.
Ben Edwards
Stamford, CT

Amen!

I speculated facetiously awhile back that some NY Times editors are reading this blog. Now, I’m really starting to wonder.
First, over the weekend, the NY Times ran this less than flattering article on the Lord of Regulation’s recent defeat in the Sihpol case, which dovetails with much of the criticism that this blog has leveled toward Mr. Spitzer over the past year.
Now, Joseph Grundfest pens this Times op-ed in which he addresses an issue that this blog has been hammering on for a long time: that is, the tactic of prosecutors damaging or — in the case of Arthur Andersen — effectively terminating a business entity before the nature or scope of alleged criminal activity is proven:

Andersen’s demise did serve as a stern reminder to corporate America that prosecutors can bring down or cripple many of America’s leading corporations simply by indicting them on sufficiently serious charges. No trial is necessary. …

The current situation of the insurer American International Group is a case in point. Would you buy an insurance policy from a company that might be crippled by a criminal indictment that the New York attorney general, Eliot Spitzer, decides to file tomorrow morning? Neither would I. If the government insists that A.I.G.’s chief executive be fired as part of the price of not indicting the firm, the chief executive is gone. It doesn’t matter that he ranks among the most powerful executives in America. A.I.G. has no realistic choice but to cooperate fully with the government, even if evidence might later demonstrate that the government’s theories were legally infirm or that factual allegations couldn’t withstand cross-examination. Who, after all, wants to be put out of business when indicted, only to be vindicated years later by a jury verdict or appellate ruling? . . .
. . . The prosecutor’s decision to indict is largely immune from judicial review. The prosecutor acts as judge and jury. Traditional due process safeguards, like the right to confront witnesses, can’t protect the potential corporate defendant. The innocent can therefore be punished as though they are guilty, and penalties imposed in settlements need not bear a rational relationship to penalties that would result at a trial that will never happen.

Hat tip to Professor Bainbridge for the link to the Mr. Grundfest’s op-ed.

On the heels of the dramatic testimony that occurred late last week, this Chronicle article reports that Rex Shelby, former senior vice president of engineering and operations for Enron Broadband, yesterday became the first of the five defendants in the ongoing trial to take the stand in his own defense.
All of the five Enron Broadband defendants are expected to testify during the trial, which is a significantly different tactic than the defense team used in the previous Enron-related Nigerian Barge trial, the only other trial that has taken place involving former Enron executives. In that trial, only three of the six defendants testified and one of those — former Enron in house accountant Sheila Kahanek — was acquitted. All of the other five defendants in that case — including the only other Enron defendant (Dan Boyle) — were convicted.
Although not without risk, the defense move of having the defendants testify is sound. Juries in white collar cases almost always expect to hear what the defendants have to say and generally hold it against the defendants if they do not testify (even though they are instructed not to do so). The biggest obstacle that the defendants in the Broadband case have is attempting to explain the elephant in the courtroom — that is, the huge amount of money on Enron stock sales that Mr. Shelby and two of the other defendants made — and attempting to humanize the defendants by having them testify is an essential component of that explanation.