Man Without Qualities

Wednesday, June 01, 2005

The Madness Of The Enron Dance

New York Times reporter Kurt Eichenwald scribes his "analysis" of yesterday's Supreme Court decision overturning the Arthur Andersen conviction:

[I]n truth the Supreme Court's judgment simply underscores the significance of a rule in white-collar cases: a jury cannot properly convict without first being required to conclude that a defendant had intended to engage in wrongdoing. ... In her instructions to the jury, Judge Harmon "failed to convey the requisite consciousness of wrongdoing," Chief Justice William Rehnquist wrote in the unanimous opinion. "Indeed, it is striking how little culpability the instructions required." ...

[I]n white-collar cases, defense lawyers often admit their client's involvement in particular acts, while arguing that no crime ever occurred. That is because a potential fraud or obstruction of justice is only illegal if the defendant acted with the knowledge and intent to commit a crime. Of course, this does not mean that a potential defendant must know the particulars of a 10b-5 securities law violation or the dictates of the obstruction laws; the government merely has to prove that actions were undertaken with the intent to deceive or with knowledge they were dishonest acts. In truth, it is hard to argue with the law's logic: no one should be locked away in prison as punishment for making a business misjudgment. ....

Legal experts said that the reversal in the Andersen case might well result in more careful wording of jury instructions in future white-collar cases involving Enron and other high-profile defendants. But while that may raise the hurdle a bit for the government, these experts said, it is far from a crippling blow.

"It is certainly less likely that there will be a permissive jury instruction in Enron cases because of this ruling," Mr. Meagher said. "But the likelihood of conviction depends on the quality of the evidence, not the instruction. And the evidence of intent in the Enron cases looks a lot stronger than Andersen's ever did."

The article - especially the last sentence quoted above - makes one question whether Mr. Eichenwald has actually read his own book on the Enron disaster. The Economist magazine read that book, CONSPIRACY OF FOOLS - A True Story. As I have noted previously (here and here), the Economist (along with the New York Times ) reviewed and construed that book as absolving Messrs. Lay and Skilling of exactly the kind of criminal knowledge and intent that the Supreme Court now points out is necessary for a conviction - although not of gross negligence and incompetence - as in this passage:

If Mr. Eichenwald is broadly correct, it will make depressing reading for the prosecutors who have accused Enron's former top bosses, Kenneth Lay and Jeffrey Skilling, of being the brains behind this massive fraud. Mr. Eichenwald's criminal mastermind is Andrew Fastow, Enron's chief financial officer, who has already admitted numerous offences and is likely to be the main witness against Messrs Lay and Skilling. Mr. Eichenwald describes how Mr. Fastow and his henchmen, principally Michael Kopper, created a series of investment vehicles - such as LJM, the Raptors and Chewco - that bought assets from Enron, supposedly to reduce the firm's risk but in reality to generate huge fees and profits for Mr. Fastow and his chums. Mr. Eichenwald leaves the reader with the strong impression that Mr. Fastow lacked even a basic understanding of the risks involved in this off-balance-sheet strategy. As for Mr. Lay, he seems to have known presidents George Bush senior and junior far better than he knew what was going on within Enron. Right to the end, he is described as failing to grasp the severity of the problems facing the company he built. Mr. Skilling, too, seems entirely unaware of the crimes being orchestrated just below him in the corporate hierarchy - drinking too much, and swinging manically between jovial over-optimism and deep depression. His decision to quit suddenly as Enron's chief executive soon after taking the job (and just weeks before the company's problems started to become clear) comes across as entirely in character and unrelated to the fraud.

If Mr. Eichenwald book (as construed by the Economist and his employer, the Times) is correct, successful prosecution of Messrs. Lay and Skilling has now been rendered all but impossible by the Supreme Court decision in Andersen. Yet Mr. Eichenwald, and much of the rest of the crowd of anti-Enron medieval dancing maniacs, just don't seem to understand that.

They just seem to be refusing to understand.

My guess is that relations between the Enron prosecutors and the legal teams defending Messrs. Lay and Skilling took a very different turn yesterday. And I'll bet they turned a lot more than necessary to accommodate a bit of a "raised hurdle" for the government.

But I have little doubt the media dancers, at least, will just keep flailing no matter what, as their predecessors did:

A group of people were seen to dance uncontrollably in the streets, foaming at the mouth and screaming of wild visions. They kept on dancing until they collapsed from exhaustion, but even then they flailed about in agony until forcefully restrained. The dancing caught on, and spread rapidly ...

Mr. Eichenwald's article today suggests a kind of agony - notwithstanding the forcible restraint imposed on Enron "analysts" yesterday by the Supreme Court and (in Mr. Eichenwald's case, for example) the conclusions of their own logic. What's mere logic and Supreme Court precedent where there's a dance to be danced!?


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