Posted 1:16 PM by Robert

Clueless In Houston

Perhaps distraught that it got one aspect of the Enron/Andersen mess in correct focus, the New York Times now says "the successful prosecution has gained government lawyers more than it cost them in their continued investigation of Enron — the company that, after all, is supposed to be at the center of their inquiry," where only yesterday the message was: "The trial was an opening act to the eventual prosecution of Enron executives. But it appears to have done little to aid that effort and, in some ways, may have hurt it. Moreover, the verdict does little to advance the cause of reform in the auditing industry."

What happened - other than the reporter, Kurt Eichenwald, maybe belatedly realizing that he had wandered from the Times party line? One surely can't fault Mr. Eichenwald's healthy sense of self-preservation at the new Howell Raines demented Times. What if Mr. Raines were to wake up one day and find he was no longer comfortable with Mr. Eichenwald? Andrew Sullivan knows. Remember, Kurt, this is class war!

Well, it seems that Mr. Eichenwald spoke to new experts who snapped him out if it. Some of these experts are actually named. There is Stephen L. Meagher (a former federal prosecutor), John J. Fahy, (a certified public accountant and former federal prosecutor), Robert A. Mintz (a former federal prosecutor), Lee Hamel (described as a "prominent Houston lawyer" with no other credentials - but other sources describe Mr. Hamel as a former prosecutor), and - O, dear me, there is nobody else named except current prosecutors involved in this case. So all of the named Times experts are former or current prosecutors. There is even a supporting quote from Leslie R. Caldwell, the head of the Enron task force at the Justice Department! Even allowing for the fact that good criminal defense attorneys are often former prosecutors, doesn't that selection seem, well, a little lacking in diversity. Couldn't Mr. Eichenwald have dug up a law school professor, or a single criminal defense attorney who was NOT a former prosecutor (there are quite a few)?

But the important thing is what the experts say - not some presumed bias they may have. Well what do they say?

Mr. Meagher says: "The fact that it was supposed to be a lay-down and turned out to be more complicated than expected doesn't diminish the fact that it was charged, it was tried and the firm was convicted. ... To future witnesses, the experience with Andersen will mean that cutting a deal with the government may be the way to go." So Mr. Meagher thinks that the jury's inability to agree that even Andersen Partner David Duncan had committed the crime to which he had already confessed "doesn't diminish" the government's win and will spur other witnesses to confess? Very interesting. If I ever need a criminal defense attorney, I will keep Mr. Meagher on my list - although perhaps not at the very top.

Then Mr. Fahy weighs in with: "A jury hearing about that conviction will know that Andersen did something wrong. ... From a legal perspective it gives more credibility that the books may have been cooked." Yes. true, all true. A conviction certainly beats an acquittal in the "credibility" department. But are we supposed to think that yesterday the Times didn't realize that a criminal conviction indicates that "Andersen did something wrong?" Did Mr. Fray bring that to their attention? And one wonders how many defendants have been sent straight to jail once the jury was told the defendant's accountants did something bad.

And what about the chances of a reversal? That aspect of the case is coyly mentioned but set aside throughout the Times article. Is there some reason why not a single one of these experts offers an opinion on whether Judge Harmon's key ruling that the jury didn't have to agree to an individual "corrupt persuader" was reversible error? Doesn't that have some bearing on the significance of the conviction - or whether it imparts "momentum" to the government's efforts? Probably this gap is just an oversight on the Times' part - or maybe the experts became unaccountably shy at that point in the interviews - or maybe they couldn't be heard through their apoplectic sputtering that erupted after the question was asked?

Mr. Hamel, the "prominent Houston lawyer" who appears to have forgot to include his credentials in the Times interview also seems to have forgot to include any supporting reasoning or justification for his conclusion: "A win is a sweet victory anytime, but here the implications are much greater because it is part of the fabric of the Enron investigation. ... This is obviously a huge leg up on gaining the moral high ground in the overall Enron-related matters, and it strengthens the prosecution's hand in dealing with the Enron issues." Absolutely, Mr. Hamel! Whatever you say! These are surely adequate grounds for the Times to have reversed its take on the significance of the conviction.

Doing detail work, Mr. Mintz only addresses whether the "government lawyers ... will face questions about whether the indictment amounted to prosecutorial overkill, and whether they wasted too much time and resources on what amounted to a sideshow to the Enron case. 'That issue will now soon be behind them,' said Mintz. 'And they can move ahead with the most significant part of this case.'" Mr. Mintz is absolutely correct - and also absolutely correct not to opine on where, exactly, "the most significant part of this case" will go following this "conviction."

Well, perhaps I missed it - but I couldn't exactly locate the force of the experts' opinions that "the Andersen conviction provides prosecutors with critical momentum as they turn their attention to other potential defendants in the Enron debacle," as the Times now puts it.

The Times also reports that “Strangely, the fact that the Andersen case is now seen as weaker than previously believed could bolster government efforts, because potential witnesses will now recognize that these prosecutors, unlike some, are willing to move fast and go to trial even in cases where victory is not assured.”

I also seem to have missed the support for this conclusion. The government began the Andersen prosecution as a misperceived “slam dunk.” So anyone who thinks this conviction shows these prosecutors will bring what they understand to be weak cases is not reading the fine print

With respect to the future fraud cases, there is the troubling fact for the government that Mr. Duncan, the government's star witness in this case, "repeatedly asserted that he never engaged in fraud, and, with few exceptions, attested to the propriety of Enron's accounting. That information is sure to be used by any future defendants accused of accounting fraud, as they essentially argue that they relied on the advice of Andersen in deciding that their financial machinations were proper. Under the law, defendants can be cleared of fraud charges if their actions were the result of their reliance on the advice of professionals, such as accountants and lawyers."

Are the prosecutors worried? No! "'[P]rosecutors dismissed that criticism, saying Mr. Duncan's testimony in this case will have little effect on their future course. 'To the extent that David Duncan testified that he believed his accounting advice to Enron was appropriate,' Ms. Caldwell said, 'it will really have no effect on our future actions and decisions in this case.'"

So it comes to this: Having failed to convince the jury that Mr. Duncan even corruptly destroyed documents even with the help of his own confession and in complete reliance on his credibility as a witness, the prosecutors are now going to show that he committed fraud, a crime which he adamantly denies.

The effort is not completely hopeless. Maybe the prosecutors can get Howell Raines to come down to Houston and order the future jury to convict. It may have worked on Mr. Eichenwald.

O, and by the way. Does anyone else think that a future jury will be struck by Mr. Duncan's refusal to admit to fraud notwithstanding prosecutorial pressure and the fact that any one of his co-agents could have turned state's evidence against him at any time and put him in jail? Perhaps the prosecutors will try not to highlight that aspect of the proceedings.