Monday, October 26, 2009

Imploding In A Wave of Scandals...

David Henderson takes note of a trend that has quietly made its way through the legal system; the convictions arising from the Enron scandal are quietly coming into question: Anderson On Enron
One of the views I had accepted uncritically is that all of the people at Enron charged with crimes really were guilty. But Bill Anderson's interesting article today questions some of that. Also, he points out that Fortune reporter Bethany McLean, who later wrote the book, The Smartest Guys in the Room, had a secret romantic relationship with the lead prosecutor in the case, Sean Berkowitz.
This is not to say that everyone at Enron was innocent. Andrew Fastow and his ilk were clearly guilty as charged. And, despite his protestations of innocence, Ken Lay was up to no good. But, Arthur Andersen's felony conviction was overturned (too late to save the jobs of 85,000 people who had nothing to do with the document shredding at Andersen's Houston office), and now Jeffrey Skilling's conviction looks vulnerable for, among other things: prosecutorial misconduct, misuse of the sentencing guidelines, and an unconstitutional ambiguity in the "honest services" statute: The Reeling Enron Prosecution:

the Fifth Circuit decision invited Skilling to file a motion for new trial based on issues of prosecutorial misconduct that Skilling raised in the appeal after discovering the evidence post-trial. Specifically, the Fifth Circuit was particularly concerned about the failure of the Enron Task Force to comply with federal rules requiring the disclosure of exculpatory evidence to the defense from the Task Force's pre-trial interviews with main Skilling accuser, former Enron CFO Andrew Fastow.

Fastow testified at trial that he told Skilling about the Global Galactic agreement, which purportedly documented a series of illegal "side deals" between Fastow and former Enron chief accountant Richard Causey that guaranteed Fastow would not lose money on certain special purpose entities that he was managing. Skilling denied any knowledge of the purported agreement.

After Skilling's conviction, the Skilling defense team discovered Fastow interview notes that the Enron Task Force had failed to disclose to the Skilling team prior to trial. Among other things, those notes revealed that Fastow had told the Task Force lawyers that he didn't think he had told Skilling about the Global Galactic agreement. The Fifth Circuit characterized the Task Force's non-disclosure as "troubling" in inviting Skilling to file a motion for new trial with the District Court.

Enron has now been dwarfed in size, not just by the near contemporaneous Worldcom bankruptcy, but also by the spectacular failures during the Crash of '08. But, for whatever reason, Enron retains its hold on the cultural and media imagination. Like Dien Bien Phu or Guernica, it was a dramatic event that presaged far greater destruction that would dwarf its actual significance. It's amazing to see how so much of what was considered "wrong" about Enron - the off-book accounting, the massive leveraging, the attempt to securitize Everything, and the ridiculous compensation structures - was multiplied exponentially during the Crash of '08. And the government has been making virtually the same mistakes in the wake of the Crash as it did after Enron, including but not limited to the hasty passage of poorly conceived statutes with painful unintended consequences being the primary result (Sarbanes-Oxley, anyone?). The only difference? When Ken Lay called his friends in the Bush White House looking for a bailout, he was quickly rebuffed. That many of the Enron convictions are being overturned does not leave one with the sense that there has been any worthwhile resolution. Instead, Enron simply became an excuse for the sort of media/prosecution frenzy (Duke Lacrosse, Scooter Libby, the 9/11 Commission, Ted Stevens) that has been one of the darker hallmarks of the early 21st Century.


  1. Can you elaborate on 'Ken Lay was up to no good.'?

  2. Ken Lay simply strikes me as a sinister figure who could go from avuncular grandpa to growling SOB at the drop of a hat. He sure acted like he was up to something!