sE searched 

Charted Crime & Enron

   last witness on the stand *  

   Taking the FBI to task  
Skilling with his attorney

"At the Enron trial, the severe imbalance in witness access was obvious".

< What's going on in the Skilling appeal?

On irreparable prejudice:   *  compare 'Enwrong Cold Case' under The Very Complexxon

From the Los Angeles Times

Why Credit Crisis Spread

Other Priorities Sapped Resources

WASHINGTON — - Long before the mortgage crisis began rocking Main Street and Wall Street, a top FBI official made a chilling if little-noticed prediction: The mortgage business, fueled by low interest rates and soaring home values, was starting to attract shady operators, and billions in losses were possible.

"It has the potential to be an epidemic," Chris Swecker, the FBI official in charge of criminal investigations, told reporters in September 2004. But, he added reassuringly, the FBI was on the case. "We think we can prevent a problem that could have as much impact as the S&L crisis," he said.

Today, the damage from the global mortgage meltdown has more than matched that of the savings-and-loan bailouts of the 1980s and early 1990s. By some estimates, it has made that debacle look like chump change. But what is also clear is that the FBI failed to avert a problem it had forecast accurately.

Banks and brokerages have written down more than $300 billion of mortgage-backed securities and other risky investments in the past year or so. Most observers have declared the mess a gross failure of regulation. To be sure, in the run-up to the crisis, market-oriented federal regulators bragged about their hands-off treatment of banks and savings institutions and their executives.

But it wasn't just regulators who were looking the other way. The FBI and the Justice Department, which are supposed to police potentially illegal activities by bankers and others, were so focused on national security and other priorities that they paid little attention to white-collar crimes that might have contributed to the lending and securities debacle.

And now that the problems are out in the open, the government's response strikes some regulators as too little, too late.

Swecker, who retired from the FBI in 2006, declined to comment. But sources familiar with the FBI budget process, who were not authorized to speak publicly about the growing fraud problem, say that he and other FBI criminal investigators sought additional assistance.

They ended up with fewer resources, however.

In 2007, the number of agents pursuing mortgage fraud sank to around 100. By comparison, the FBI had about 1,000 agents deployed on banking fraud during the S&L bust of the 1980s and '90s, said Anthony Adamski, who at the time oversaw financial crimes investigations at the FBI. The FBI says it now has about 200 agents working on mortgage fraud, but critics say the agency might have averted much of the problem had it heeded its own warning.

"The FBI correctly diagnosed that mortgage fraud was epidemic, but it did not come close to meeting its announced goal," said William K. Black, who was a federal regulator during the S&L crisis and now teaches economics and law at the University of Missouri-Kansas City.

"It used everyday procedures and woefully inadequate resources to deal with an epidemic," he said. "The approach was certain to bring symbolic prosecutions and strategic defeat."

FBI officials contend that as home prices were rising several years ago, losses in the mortgage market — and the potential crimes behind them — were not immediately apparent.

Officials said they began approaching mortgage companies and others in an attempt to raise awareness about the growing fraud problem. But the lenders had little incentive to cooperate because they were continuing to make money and, in some cases, were part of the fraud.

"Nobody wanted to listen," said Sharon Ormsby, the chief of the FBI's financial crimes section. "We were dealing with the issue as best we could back then."

Over the past three years, the FBI and other agencies have brought dozens of mortgage-fraud cases. The bureau has rooted out foreclosure rescue schemes in which homeowners are tricked into signing over home deeds only to see the value drained by con artists. Agents have disrupted cases of identity theft in which criminals open — and exhaust — home equity lines of credit and leaving homeowners stuck with the bill.

Many cases have been relatively small, however, with about half the investigations involving dollar losses of less than $1 million — the size of two or three loans.

But the tepid response also reflects a broad realignment of law-enforcement priorities at the Justice Department, in which mortgage fraud and other white-collar crimes have been subjugated to other Bush administration priorities.

Part of that has reflected the ramp-up in national security and terrorism investigations after the Sept. 11, 2001, attacks. But the administration also has put more support behind efforts against illegal immigration and child pornography.

Absent a major shift in priorities and resources, the Justice Department and the FBI figure to continue on their current path of focusing on simple cases "that don't go to the heart of the problem," said John C. Hueston, a Los Angeles lawyer who was a lead federal prosecutor in the trials of Enron executives Kenneth L. Lay and Jeffrey K. Skilling.

The FBI says it has 21 open investigations into possible large-scale fraud related to the subprime meltdown. It might be hard to jump-start such probes, though, because delving into the complex financial processes of the mortgage problem could take years.

Could the crisis have been averted, or at least mitigated, if the FBI had intervened more forcefully?

"Until there is a catastrophic loss, there is no incentive to investigate criminal conduct," said Cynthia Monaco, a former federal prosecutor in New York. "Nor are there people coming forward with evidence," such as disgruntled investors, she said.

Houston's Clear Thinkers

Longtime Houston attorney Tom Kirkendall's observations on developments in law, business, medicine, culture, sports, and other matters of general interest to the Houston business, professional, and academic communities.


Calling expert witnesses

The article "Dueling experts in U.S. courts," (Aug. 12) highlighted the differences between American law and the laws of other countries regarding expert witness testimony. As the article correctly points out, juries in the U.S. often have difficulty evaluating the testimony of dueling experts and frequently make decisions based on factors such as the expert's demeanor, credentials and ability to condense complex information into easily digestible bite-sized chunks.

Unfortunately, an expert's appearance and language facility have nothing to do with whether her testimony is scientifically supported.

The nature of the American process unwittingly demeans science and reinforces the skepticism with which many juries and judges treat expert testimony. Because experts are called by one side or the other, the experts are often denounced as hired guns. Jurors expect that experts will say anything the side that is paying them wants them to say.

Paid experts called by one side or the other are often forced into either stating conclusions more forcefully than may be scientifically warranted or appearing wishy-washy and unconvincing to a jury.

One solution to the expert witness credibility problem is to follow the course prescribed in many countries and insist that only judges call and examine expert witnesses. Judges would be signaling to jurors that the court finds the expert witnesses impartial and credible.

When there are legitimate discrepancies in the scientific community, U.S. courts could embrace a practice used in Australia that was alluded to in the article. In that procedure, which is known as concurrent evidence, experts testify together at trial and clarify issues, looking to find common ground.

Adopting a less adversarial approach to the introduction of expert testimony in American courts would strengthen the jury system.

Patrick Mattimore, Gex, France Former California prosecutor

| Main

September 10, 2007

The Skilling Appeal Brief

Jeff%20Skilling091007.jpgAs Ashby Jones and Peter Henning noted on Friday, lawyers for Jeff Skilling filed his appellant's brief this past Friday along with a motion requesting that the Fifth Circuit Court of Appeals waive length-of-brief rules under the special circumstances of Skilling's appeal. Inasmuch as the brief is a 240-page tome, my sense is that it will probably be modified slightly to include tables of contents and authorities when the final version is filed after the Fifth Circuit rules on the the length-of-brief motion (Update: I've since updated the link above to include the final version filed with the Fifth Circuit).

I read the entire brief while watching football over the weekend and it is brilliant. The brief is extremely well-written and organized, and eschews much of the technical legal jargon that often makes appellate briefs a chore to read. It would be extremely difficult to read this brief objectively and come to the conclusion that Jeff Skilling has not been the victim of a gross miscarriage of justice (see earlier posts on that subject here, here and here).

The first statement of the brief -- the usually mundane statement advising the appellate court whether the appellant believes that oral argument would be helpful to the court -- Skilling's appellate team crafted the best such statement that I've ever read:

Defendant-appellant Jeffrey Skilling requests oral argument. This case is perhaps the most prominent and publicized white-collar case ever prosecuted. But with certainty, it is the most misunderstood case, enveloped from the outset by perceptions and myths that bear little resemblance to the actual facts. Almost everyone believes, for instance, that Skilling was indicted, tried, and convicted for causing the 2001 bankruptcy of Enron Corporation and its devastating effects on thousands of Enron employees and shareholders. As the government itself conceded, however, the case against Skilling had nothing to do with Enron’s collapse.

Profound, inherent weaknesses in the government’s case—not just gaps in its evidentiary proof, but doubts about its basic theories of criminality—motivated the government to resort to novel and incorrect legal theories, demand truncated and unfair trial procedures, and use coercive and abusive tactics. Skilling submits that oral argument is essential to assist the Court’s understanding of the remarkable record in this case, including the multiplicity of substantial legal and procedural errors that have put Skilling in prison for 24 years not only for crimes that he did not commit, but for acts of business judgment that are not crimes at all.

Following that statement is an 11-page introduction, which -- if you don't have time to read the entire brief -- is an excellent overview of the arguments presented. My favorite parts of the brief are as follows:

The Statement of the Case (pp. 15-59). This is a marvelously clear description of Enron's business and the superficiality of the evidence that the Enron Task Force presented at trial against Skilling. In discussing Enron with hundreds of folks over the past several years, I understand how few people really understood that Enron was an innovative and successful business before its demise. Fewer still understood the shallowness of the Task Force's case against Skilling. This section of the brief takes on those widely-held misconceptions and dispenses with them cogently.

The Change of Venue Section (pp. 122-175). Given the venomous environment in Houston regarding all things related to Enron, U.S. District Judge Sim Lake's refusal to grant Skilling's motion to change the venue of the trial has always struck me as odd. Skilling's brief provides truly shocking information (heretofore not public) about the enormous bias against Skilling expressed in the answers to the juror questionairres of the jurors who ended up on Skilling's jury! Also provided in this section is heretofore non-public information on Judge Lake's questionable refusal to grant Skilling's proposed multiple strikes for cause on a large number of the jurors who who had expressed clear bias against Skilling and Lay. As the brief notes, if there was ever a trial that called for a change of venue, Lay-Skilling was the one.

The Prosecutorial Misconduct Section (pp. 175-206). The subject of this section has been a common topic on this blog, but this section provides additional unknown evidence of the Task Force's abusive tactics in prosecuting Skilling and other Enron executives. Moreover, the brief sums up brilliantly the prejudicial impact of the Task Force's threats against witnesses who would have provided exculpatory testimony for Skilling (all record citations contained in the brief are excluded here):

At trial, the severe imbalance in witness access was obvious. The Task Force’s case consisted mostly of cooperators from Enron’s senior management—people who worked with Skilling at Enron and who were his friends, including some of his closest friends. With plea or non-prosecution agreements with the Task Force, these witnesses were under the Task Force’s complete domination and control. They were obligated to testify, contractually bound to admit guilt and support the allegations against Skilling, and their ultimate fate rested in the “sole and exclusive discretion” of the Task Force. None of them would meet with Skilling or his counsel. At least two (Rice and Belden)—and probably all of them—were clearly ordered not to.

In contrast, most of Skilling’s key defense witnesses never took the stand. Specifically, Skilling sought to call David Duncan of Arthur Andersen and seven Enron executives: Greg Whalley, Rick Buy, Lou Pai, Jeff McMahon, Georgeanne Hodges, Janet Dietrich, and Joe Hirko. Each possessed critical exculpatory evidence, and would have directly refuted testimony given by Task Force cooperators. Yet all eight invoked the Fifth Amendment, fearing Task Force reprisals. Hoping to overcome this, Skilling asked the Task Force to immunize them, as it did for Ben Glisan (its own witness). The Task Force declined, thereby ensuring that vital exculpatory testimony never saw the light of day.

Without these (and many other) key witnesses, the defendants were forced to rely primarily on their own testimony. Roughly two-thirds of the defense case consisted of Skilling and Lay’s testimony; the remainder was a patchwork of character witnesses, experts, and others—anyone courageous enough to testify. Most could offer relatively narrow testimony on limited issues. Besides Skilling and Lay, only two senior executives testified for the defense, and neither was deeply involved in many transactions at issue.

Compounding the prejudice, the Task Force argued in closing that Skilling’s defense was not credible because it did not square with the testimony of many witnesses. By intimidating witnesses into silence and then refusing to immunize them—knowing they would give testimony favorable to the defense—it was the Task Force that prevented witnesses from corroborating Skilling. U.S. v. Golding, 168 F.3d 700, 702-05 (4th Cir. 1999) (“The government did not stop with the threat. Instead, the prosecutor further abused her power by using the very situation she had created against the defendant in closing argument.”). Skilling, meanwhile, could not explain to the jury why his best witnesses were missing, because the district court explicitly prohibited him from introducing any evidence of the Task Force’s threats and other misconduct.

The prejudice was irreparable. It obstructed Skilling’s preparations before trial, distorted the presentation of evidence at trial, and affected the outcome. Gregory, 369 F.2d at 188-89 (“A criminal trial … is a quest for truth. That quest will more often be successful if both sides have an equal opportunity to interview the persons who have the information from which the truth may be determined.”).

As if on cue, even before the ink on the Skilling brief was dry, some of the more vitriolic members of the mob that lynched Skilling were already dismissing it without so much as a smidgen of analysis. But my bet is that a fair review of this brief will leave most readers shocked over the weakness of the case against Skilling and the government's ruthless tactics in pursuing a conviction despite that weakness.

The popular myth of the mob is that Enron was a house of cards that was propped up by a conspiracy of greedy executives who told lies to trusting but unknowing investors. The truth is that Enron was simply a highly-leveraged, trust-based business with a relatively low credit rating and a booming trading operation that got caught in a liquidity crunch. That liquidity crisis occurred when the credit and equity markets became spooked by a variety of factors in late October, 2001, including revelations about Fastow's embezzlement of millions and the volatility in markets after the September 11, 2001 attacks on New York and Washington, D.C.

As I've noted many times over the years, Fastow's embezzlement from Enron is a crime, but Enron's unfortunate demise is not, nor should it be. Beyond the shattered lives and families, the real tragedy here is that an angry mob convicted Jeff Skilling, trampling the rule of law and the administration of justice along the way. In truth, none of us would be able to survive, as Thomas More reminds us, "in the winds that blow" from the exercise of the government's overwhelming prosecutorial power in response to the demands of the mob. I continue to hope that Jeff Skilling's unjust conviction and sentence are reversed on appeal. Not only for his and his family's benefit, but also for ours.

Posted by Tom at September 10, 2007 12:15 AM


The alleged crimes were slightly different, but there isn't a whole lot of difference between the Skilling case and the Duke Lacrosse case.

I watched this trial from far away but have studied the matter very carefully. Since I didn't lose much, if any, money on Enron, I am not part of the 'angry mob'.

The power of prosecutors to wreck innocent lives is the great untold story of our time. These prosecutors - the Enron Task Force - took their unbridled power to the next level. Shame on them and shame on incompetent judges such as Sim Lake who permit them to do so.

I would like to read the transcript. Is it posted anywhere?


Mike Greenleaf

Posted by: Mike Greenleaf [TypeKey Profile Page] at September 10, 2007 5:55 AM


Before stumbling on your postings about a year ago, I believed all the newspaper accounts about how Skilling and Lay were bad guys, crooks, liars, and thieves. But, as I have followed your postings, I have concluded that this was merely a public lynching (and one of many).

I am convinced that there has been serious prosecution misconduct and at a tremendous cost to the system and the defendants. Unfortunately, in the end, even if Skilling (and by extension, Lay) is vindicated, the stain and costs will remain. Additionally, I do not expect a Nifong like punishment for the prosecution. But, if these prosecutions are ever to be gotten back under control, we will need that kind of punishment. Simple reversals by the Appellate courts is not enough. This has been more about power and prestige than any concept of justice. It is one thing to have an adversarial system. It is quite another to concentrate all the power in the hands of one of the adversaries.


Posted by: RickC [TypeKey Profile Page] at September 10, 2007 7:44 AM

Great update.
A question - what is the difference between "a highly-leveraged, trust-based business with a relatively low credit rating…" that at its core is an exotic risk-based business with an online trading platform wherein a depth of market information can be captured, whose most senior managers and board members allow the CFO and Treasury staff to structure more and more aggressive financial transactions with some involving employees taking unreported upfront cash payments, and whose public statements are consistently lacking key information and often misleading, and whose business is financed via greatly incentivized investment banks that line up to structure off-balance sheet deals that they can market to investors that happened to be rich and greedy from a dot-com driven market environment that simultaneously help to develop many Enron-wannabe business models ….and "a house of cards"?

Seems like the popular myth is pretty well right on target. It's too bad the government can't outsource its prosecution.

Also, to compare Enron to the Duke lacrosse indictment is completely amiss - in Durham, I do not recall anyone on the team going to jail for a criminal activity, but if a couple of the players had been found guilty, it seems a mob mentality would (and most would agree should) be created that help make sure the coaching staff bear some responsibility. The better similarity is the Miami football team last season.

Posted by: eutawal [TypeKey Profile Page] at September 10, 2007 10:13 AM

As an ex-Texan living in Northern CA, I doubt there is any venue for the Skilling trial that stands out as a locale where our business leaders can actually receive justice from overzealous prosecutors.

I just watched the Reyes backdating trial here- and bear in mind that stock options are the lifeblood here and this was a case regarding employee rank and file options plans- and historically N California is a liberal enclave.... nonetheless, I am convinced an innocent man was convicted on a lukewarm case teeming with reasonable doubt and no benefit to the accused. The prosecutorial misstatements in the Reyes case border on Nifong-isms, with DOJ lying to jurors in the closing arguments about who knew what when, nonetheless, they got their lynching.

If this can happen here, Skilling doesn't have a chance anywhere. I don't know what it will take for sanity to prevail. These recent convictions including Black, Reyes, Naccio have left me deeply troubled about the state of our justice system.

Posted by: DMH1 [TypeKey Profile Page] at September 12, 2007 3:05 PM

Post a comment











Page mailing to a friend temporary disabled