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US: Enron Prosecutors, After Plea Bargain, Can Reduce Technical Jargon in Trial


by John R. EmshwillerThe Wall Street Journal
January 4th, 2006

The climactic courtroom battle in the Enron Corp. criminal war just got simpler -- and more complicated.

The plea bargain last week by former Enron Chief Accounting Officer Richard Causey gives federal prosecutors the chance to present a shorter and less technical case against Mr. Causey's two co-defendants, former company Chairman Kenneth Lay and former President Jeffrey Skilling. The pair's trial on conspiracy, fraud and other charges is scheduled to start in Houston on Jan. 30.

If Mr. Causey had remained in the case, lawyers for the Justice Department's special Enron Task Force faced the challenge of getting deep into complex accounting transactions that prosecutors contend were used to hide the energy titan's financial problems.

At the same time, however, Mr. Causey's securities-fraud plea presents both sides with tricky new tactical questions, ranging from whether to call the former accounting chief as a witness to how he should be portrayed to the jury.

Prosecutors long have worried about jurors getting lost in complex accounting issues, such as how to account for special-purpose entities, say people familiar with the matter. Such special-purpose entities were allegedly used by Enron to create bogus profits and hide investment losses.

When public attention began to focus on some of these suspect dealings in late 2001, investor confidence plummeted, and the company was forced to seek bankruptcy-law protection within weeks.

With the trial now involving just the two men who were the public faces of Enron -- each did a stint as chief executive -- the government's case can shift emphasis. Prosecutors can focus more on whether the consistently optimistic public statements made about Enron's financial condition by the men qualified as lies and, thus, a fraud upon investors.

Prosecutors contend that Mr. Skilling, as president and chief architect of Enron's spectacular rise in the 1990s, was the lead deceiver until his surprise resignation in August 2001. After that, Mr. Lay took over the task of putting out false information to the public about Enron's financial condition and business prospects, prosecutors contend.

Such a prosecutorial approach would put less emphasis on proving that a particular accounting treatment was fraudulent and more on proving that Messrs. Lay and Skilling knew Enron had financial problems and lied about them to prolong a scheme that was making them wealthy.

The indictment estimates that Mr. Lay received more than $200 million in compensation and stock profits in 1998 to 2001, while Mr. Skilling received more than $100 million.

The concept of a highly paid executive lying to protect himself is a concept that a juror can understand without having to sit through an introductory accounting course. Mr. Causey's departure "absolutely will simplify the case the government has to present," says Jacob Frenkel, a former Securities and Exchange Commission lawyer now in private practice in Rockville, Md.

Ironically, a major setback in the government's four-year-old Enron probe might have helped push prosecutors to the Causey plea deal, says Christopher Bebel, a former federal prosecutor now in private practice in Houston.

Last year, the Enron Task Force prosecuted several former executives of Enron's telecommunications unit, and the trial degenerated into an often mind-numbing exercise in technical jargon. The jury acquitted defendants on numerous counts and deadlocked on the rest.

That experience helped the government realize that it "must redouble its efforts to simplify the evidence" in the coming trial, says Mr. Bebel.

There's one small potential upside for Mr. Skilling and Mr. Lay that results from Mr. Causey no longer being at the defense table, observers say. If the government does provide persuasive evidence of accounting-related misdeeds, lawyers for the two remaining defendants could more easily argue that Mr. Causey hid the wrongdoing from them.

As defense counsel, "I wouldn't hesitate to paint Causey as someone...who didn't report violations," says Jonathan Halpern, a former federal prosecutor who is now in private practice in New York.

The Skilling and Lay camps haven't taken that course, so far.

Following Mr. Causey's plea to one count of securities fraud last week, lawyers for the two former top Enron executives painted him as an innocent man bludgeoned into a guilty plea by the pressure of the giant federal investigation and the threat of decades in prison.

Under his plea deal, Mr. Causey faces seven years in prison, which could be reduced to five if prosecutors feel he is particularly helpful in the continuing Enron investigation.

Before his plea deal, Mr. Causey had been working on a joint defense team with Messrs. Skilling and Lay. Their lawyers say that Mr. Causey repeatedly told them that he knew of no wrongdoing by his two former bosses. "He will not incriminate Jeff Skilling or Ken Lay," says Daniel Petrocelli, Mr. Skilling's lead defense lawyer.

Lawyers for Mr. Lay and Mr. Skilling say that crimes weren't committed at Enron, save for a few relatively small ones by the company's former chief financial officer, Andrew Fastow, who hid them from his fellow executives. Defense lawyers regularly attack the credibility of Mr. Fastow, who has a plea bargain with prosecutors and is expected to testify at the coming trial.

The most obvious form of help that Mr. Causey could provide the government would be to testify. But prosecutors often spend months or years questioning and requestioning a major witness, looking for holes in the testimony.

Mr. Fastow, for example, reached his plea deal nearly two years ago. Prosecutors will have only a matter of weeks to debrief Mr. Causey. That could make putting him on the stand a riskier proposition for the government.

Many observers think the government will take that risk, since even relatively tepid testimony by Mr. Causey could be helpful. Given the positive public statements uttered by Mr. Skilling and Mr. Lay about Enron, "it would be enough for Causey to take the witness stand and testify that there were many uncertainties attached" to Enron's internal financial analyses, says Mr. Bebel, the former prosecutor.



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