So.

Trial all set to begin on the 30th, unless there is a last minute change of venue. I'll be trying to watch it closely, partly because I'm fascinated, and partly because this is the type of case I'll be looking to try in years to come (much water to flow under the bridge for that though, anyways).

Lay's defense is going to be especially fascinating, because he's being represented by Mike Ramsey, a star of the Houston defense bar, and widely regarded as one of the finest trial lawyers in the country.

Here's the kicker: Ramsey is famous for his philosophy on whether or not his client ought to testify, which is, never, never, never, never, unless there are absolutely and positively no other ways of providing a consistent and alternative theory to the prosecution.

ie. This guy is a fucking beast at cross-examination.

There's a lot riding on Andy Fastow's testimony, and he's not exactly the most even-minded guy.

This is going to rule.

*appoints Sailesh RM correspondent on the Lay/Skilling trial*

Complete coverage and background info can be found here.

I wonder if Lay and Skilling's lawyers are using Robert Hirschhorn as jury consultant for voir dire, shadow juries, focus groups and all the bells and whistles defendants with money to burn use.

It would take a very fair-mided jury to truly believe in their hearts that a defendant who doesn't testify is not necessarily hiding something in this case. Juries always want to hear from the defendant, but perhaps even more so in this case. If Skilling and/or Lay testify, prosecution will get plenty of time to help them dig a rather large "I didn't know" Ebbers hole, and it's clear from corporate crime cases around the world (whether that's OneTel/HIH in Aussie or WorldCom in the US) that juries are not buying the "I had no idea" defense.

Guys like Hirschhorn however are masters at ensuring that many prosecution friendly/biased against corporate crime defendants type jurors are excluded via cause challenges and peremptory strikes.

He for instance picked the Vioxx jury. The case was won before the trial had even started.

At the same time, I just cannot imagine how Lay (or Skilling) could get away with not testifying.

Dammit!! That was my joke!!

While we're all busy making Bush jokes that barely even make sense, The Economist has this to say:

The Enron drama goes to trial
Jan 27th 2006
From The Economist print edition

America's biggest-ever corporate trial is due to start on Monday, January 30th, when two former chiefs of Enron—Kenneth Lay and Jeffrey Skilling—appear in court in Houston. The two men are accused of a conspiracy to deceive investors before Enron's spectacular collapse in 2001



KENNETH LAY and Jeffrey Skilling, Enron’s former chiefs, this week failed—for the second time—to move their hearing from Houston. Subject to an appeal, the stage is set for the start of America’s biggest-ever corporate trial, on January 30th. The spectacular collapse of the energy-trading giant in December 2001, following allegations of a huge accounting fraud, led to a new set of rules governing American business. But the scandal has yet to result in the criminal conviction by a jury of anyone who was a top executive in the firm. If there was a giant fraud, it so far remains unproven in court.

Hence prosecutors have much riding on the case, the result of a four-year investigation. They face a daunting task: in white-collar cases it can be difficult to prove to a jury that defendants knew they were committing a crime, as the law requires. Broadly, their case is that Mr Skilling and, later, Mr Lay led a wide-ranging conspiracy to deceive investors about the true state of Enron’s businesses. The two men deny the charge, as well as the allegation that they were seeking to prop up Enron’s share price, which had risen from $20 in early 1998 to more than $80 by January 2001. According to prosecutors, Mr Skilling made more than $89m from stock options between 1998 and 2001 and Mr Lay more than $217m.

Mr Lay, Enron’s founder, was chairman and chief executive from 1986 until he stood down as chief executive in February 2001. Mr Skilling was Enron’s chief operating officer from 1997, reporting to Mr Lay, until he replaced Mr Lay as chief executive. But four months before Enron went bust, Mr Skilling resigned unexpectedly and Mr Lay returned as chief executive.

According to the prosecutors, Mr Skilling was much more active in the alleged conspiracy than Mr Lay. He faces up to 35 charges. These include insider trading and making false and misleading statements about Enron’s finances.

Part of the case against him hangs on the allegation that earnings and cashflows were fraudulently manipulated. For instance, prosecutors say, he was involved in manufacturing earnings and concealing debt through sham sales of poorly performing assets to an off-balance-sheet partnership run by Andrew Fastow, Enron’s former chief financial officer.

The case against Mr Lay is much narrower; he faces seven charges only. He is accused of taking over leadership of the conspiracy when Mr Skilling left. By mid-September, he had been briefed about Enron’s mounting financial and operational problems, but did not come clean about them, according to the indictment.

Instead, he allegedly made false and misleading statements in two employee meetings, during three conference calls with analysts, and to an analyst from a credit-rating agency. For instance, in October 2001 Mr Lay told analysts that a $1.2 billion reduction in Enron’s shareholders’ funds stemmed from unwinding a hedging deal; but prosecutors say he knew it resulted from an accounting error by Enron.

In a speech given in December last year, Mr Lay outlined the defence that he and Mr Skilling are expected to adopt: “The investigation is largely a case about normal business activities typically engaged in on a daily basis by... publicly held companies.” Enron’s accounting may have been creative or aggressive—but so, the argument goes, was many companies’ during the stockmarket boom: it was certainly not fraudulent.

Another line of defence is expected to rest on Mr Fastow’s self-enrichment from off-balance-sheet partnerships that dealt with Enron. “It was the stench of possible misconduct by Fastow... that provoked the loss of confidence causing the run on the company’s treasury,” Mr Lay claimed. In other words, Enron went bankrupt because Mr Fastow was a crook, not because it was a house of cards.

In building their case, prosecutors obtained guilty pleas from executives just below Mr Skilling. The latest was Richard Causey, Enron’s former chief accounting officer, who was to have gone on trial but instead pleaded guilty to one count of securities fraud. Rather than spending up to 40 years in prison (the term had he been convicted of all the charges against him), he will serve five to seven years, depending on how much he co-operates.

Likewise, Mr Fastow, the government’s star witness, accepted a ten-year jail sentence under a plea bargain. But defence lawyers may be able to undermine the credibility of witnesses who have an incentive to blame their former bosses, irrespective of the truth.

Finding the credible witness

As conspiracies are by their nature secret, prosecutors often rely on the testimony of co-operating conspirators. And with a conspiracy charge, the prosecution does not have to call a witness for that person’s evidence to be heard; under an exception to the inadmissibility of hearsay evidence, conspirators can be used to testify about what they heard another conspirator say. So the credibility (or lack of it) of the government’s co-operating witnesses will be an important issue at trial.

The prosecutor’s record in cases that have come to court is patchy. Last year the Supreme Court overturned Arthur Andersen’s conviction for obstructing the course of justice by shredding tons of documents relating to Enron. This was because the judge’s instructions to the jury, which were diluted to reflect the prosecutors’ (erroneous) interpretation of the relevant statute, failed to ask the jurors to decide whether Arthur Andersen knew it was doing something illegal. A three-month trial of several former senior executives from Enron’s broadband business on charges ranging from securities fraud to insider trading ended last year without a single conviction. Part of the case against Mr Skilling is that he made falsely optimistic statements about this business.

In another trial last year, five out of six defendants, including a former Enron executive, were found guilty of conspiracy to falsify Enron’s books through a sham sale to Merrill Lynch of an interest in three power-generating barges moored off Nigeria. A small part of the case against Mr Skilling is that he pushed through this transaction. The appeals of four former employees of Merrill Lynch against their convictions are due to be heard in March. But what happened in other Enron cases is not a reliable guide to the outcome in this case. That will be up to the jurors.

OK something I didn't pick up on, which is is going to be key, is that this trial is a Federal District Court trial.

This means, amongst other things that voir dire (jury selection) will be conducted mostly by the judge, and neither the prosecution or defense will get much opportunity to get a feel for what the potential jurors stand for before exercising their peremptory challenges (ie. eliminate potentially hostile jurors without having to give too much justification).

I'd regard this as a big negative for defense.

These guys should rot in jail till the day of their death. So many people were affected (retirment benefits etc...) and continue to be affected (Sarbanes-Oxley) because of these idiots.

It's not so clear, from what I've been reading, that these two were the ones who collapsed the company. I'd certainly say Skilling was aggressive and even reckless in his approach to accounting for assets, and endorsing a lot of the off-the-balance sheet manoevreing (all of which were approved by the board of directors by the way), but fraudulent? You might well have a case against every COO in the Fortune 500 on those grounds.

As for Lay, the case is remarkably narrow and it's not clear at all that he (or Skilling for that matter) persistently pursued their own financial gain at the expense of Enron like Fastow (and his cronies, Glisan, Kopper and co.) did. He is responsible as CEO and Chairman for the company's strategy and direction, but he cannot be solely held to account for the outright fraud and complete ineptitude (think Azurix and various other useless projects in South America).

But as far as the insider trading charges go-- I'm surprised they've both not sought pleas on this, because it is obvious and beggars belief that they didn't realize the stock was going to plummet in the final year (2000-2001), just as they themselves were offloading their shares. They knew, or ought to have known the company was going down at that point, and they appear to have wilfully misled the market in that period.

I'm not sure they will get convicted. This is going to be very hard for a lay person who is on the jury to understand. The different kinds of transactions that occured are pretty complicated and confusing. On top of this, they really didn't do anything illegal as far as accounting goes. Everything they did was signed off by lawyers and their auditors. So techincally speaking they did all they had to do to get approval for these transactions. The only thing they are guilty of is exploiting the loopholes in the accounting rules. The real snake in this scandal from what I've read is Fastow. His is pretty much the only person involved that profited on every one of Enron's transactions with the SPEs. My bet is that Lay and Skilling only get convicted on the insider trading charges.

Voir dire took all of one day. Holy Moses.

Defense attorneys putting on a brave face.

http://www.chron.com/disp/story.mpl/front/3624129.html


'You will be the judges of the facts,' jurors told
By MARY FLOOD and JOHN C. ROPER
Copyright 2006 Houston Chronicle

A likely four-month primer on the fall of Enron and the actions of Ken Lay and Jeff Skilling will begin for 16 jurors and alternates with opening statements this morning.


U.S. District Judge Sim Lake picked the jury from Houston and surrounding communities on Monday — in one day as he'd promised.

After individually questioning the first 50 or so members of a panel of nearly 100, he seated the group of 12 jurors and four alternates around 5 p.m. Monday.

The jury and alternates include 10 women and six men; two of them are Hispanics and one Asian-American. The first 12 — most likely to be the jury at the end — are eight women and four men. Seven jurors have college degrees.

"You will be the judges of the facts of this case," Lake told the jurors, admonishing them not to pay attention to any newspapers, radio, television or Internet discussion of the case. He said they are to judge the evidence they hear and should not listen to family or friends on the topic either.

The jurors' introduction to the conspiracy and fraud charges against the two ex-Enron leaders will begin with about six hours of opening statements today. Prosecutor John Hueston will argue for two hours summarizing what the government hopes to prove.

Skilling's and Lay's lawyers get two hours each to summarize what they expect the evidence to show and may also focus on the men's history, such as Lay's humble beginnings.

Earlier Monday the judge said he was looking for people to hear the evidence who can be fair.

"We are not looking for people who want to right a wrong or provide remedies for those who suffered because of the collapse of Enron," the judge said.

'Pleased' with selection
Even the formerly skeptical attorneys for Lay and Skilling, who had asked that the trial be moved or that they have the chance to interview jurors, seemed happy with the jury.

"We're pleased with the jury and we're raring to go tomorrow morning," said Daniel Petrocelli, lawyer for Skilling, the ex-CEO who faces 31 charges. "I think these people are going to listen and going to have an open mind. They know this is a court of law, not a court of public opinion."

Lay's lawyer Mike Ramsey said it's a well-educated jury. He said his preference would have been to take more time picking a panel and "it would probably be better if it were in another place, but we've got a very good jury."

"Picking the right jury is the single most important issue (to the trial), and I think we were happily surprised," Ramsey said.

Even Lay himself, the former Enron chairman who faces seven charges in this trial, seemed upbeat.

"We're very pleased with the outcome, we've got a good panel," he told reporters outside the courthouse. "Now my fate and Mr. Skilling's fate is in their hands and we're going to get on with making our case. We're certainly not guilty."

The Enron Task Force prosecutors, led in jury selection by Cliff Stricklin, made no comment.

The scene outside
The day began around 9 a.m., two hours after jurors were bustled in the back door to avoid nearly two dozen TV cameras and other journalists crowded at the main entrance to the downtown federal courthouse.

Out front, two followers of fringe Democratic activist Lyndon LaRouche set up a banner protesting Enron and the nomination of Samuel Alito to the U.S. Supreme Court.

They weren't the only ones drawn by the media coverage. David Tonsall, who worked at Enron for five years before he and more than 4,000 others were laid off when the company declared bankruptcy in December 2001, was handing reporters copies of his hip-hop CD, Corporate America.

A man who identified himself as Lee Perry held up a homemade sign proclaiming Lay's innocence. Perry said he did independent auditing of the company in its heyday and that everything was on the up and up.

Inside the courthouse the judge told the potential jurors, "We have some of the finest lawyers in the United States trying this case."

While assuring the prospective jurors that this trial will be one of the most interesting cases they could see, he also informed them that it could last four months.

Lay spent little time looking at the prospective jurors and instead spent most of the day taking copious notes, occasionally conferring with attorneys at his table.

Skilling took few notes and gazed at the jury pool, appearing to make eye contact with potential jurors.

Skilling was not a presence during breaks, but Lay was smiling and shaking hands in the hallway with reporters who were covering the trial. His wife, Linda, was seated in the front row, and the two would hold hands across the wooden bar that separates the spectators from the attorneys and defendants.

Setting the tone
During jury questioning, at least one would-be juror told Judge Lake he didn't think he was up to the task of deciding the fates of Skilling and Lay, who each face conspiracy and fraud charges.

That individual told the judge his grandmother and church taught him to "judge not lest ye be judged."

"Everybody in here at least at one point in time has been falsely accused of something," he told Lake, who reminded those in his courtroom that this case is about law, not morality.

That man did not make it to the jury. Neither did a woman on the panel who is a neighbor and friend of Lay's personal accountant.

The judge made several promises to those who were seated on the jury. "I can assure you this will be one of the most interesting and important cases ever tried," he said early in the day.

Later he promised them breakfast, noting that the banana nut muffins usually go fast and the medicinal-tasting cranberry ones never get eaten.

First witness
Opening statements are likely to take up all day today.

On Wednesday, the government is scheduled to begin presenting its case, and the first witness up is likely to be Mark Koenig, the former head of investor relations.

He pleaded guilty in 2004 to aiding and abetting securities fraud and is an unsentenced cooperating witness for the government. In his plea agreement he said he misrepresented Enron's value to analysts. But he recently recanted one part of his confession, saying a tape-recording he has since heard revealed that it was Skilling, not Koenig, who made a specific false statement to analysts.

Skilling and Lay are both featured in Koenig's charges, though Lay is less frequently mentioned.

In perhaps a harbinger of the mixed bag this trial is likely to be, after Lay left the building Monday evening, one spectator shouted: "I hope you rot in prison, Ken!"

Lay, who has always retained his composure in public, looked behind him and said "thank you," as he crossed the street.

The man, a former Enron employee named Ken Horton, said he immediately felt embarrassed.

"I can't believe I just said that," Horton said. "I really hope he gets a fair trial, because he deserves it. But I didn't think I'd get so emotional just seeing him walk by. I'm so embarrassed."

Chronicle reporters Mark Babineck and Tom Fowler also contributed to this story

mary.flood@chron.com john.roper@chron.com

This judge mus be all business. Good for him. We don't need another Lance Ito who got walked all over.

Fuck been on this Jury ,the case would be to complex and tedious with all the finacial and accounting BS.

Fascinating defense strategy.

It is clear that prosecution's strategy will be to keep their case as simple as possible. Point the finger, play upon the need for public accountability, and the devastating impact the collapse had on Houston, and people all across America (and the world).

The prosecution seem to have stuck to this line.

The defense was always going to be more nuanced, and I guess the question then was, how nuanced? We might have gotten the answer to that today.

Ramsey and Petrocelli seem to have decided that they won't try to put the blame of the collapse on the concoction of factors which included, highly aggressive accounting practices and revenue recognition, terrible auditing/consulting conflicts of Andersen, lax disclosure laws, over-exuberant financial markets (this cannot be stressed enough), at least some corruption at high levels (Fastow, Kopper and co), and ultimately , terrible business investments.

This at least appears to be the true tale of Enron's collapse from what's been written on it,(McLean, Eichenwald), and the cases/guilty pleas of all the other key players that have unravelled in the last 4 years.

But the defense seems to have decided that this is far too complex a story to tell. They must think that either the jury cannot be expected to digest it all, or that the defense cannot tell such a complex tale, or, perhaps, they're convinced this is not actually what happened.

It has been reported that Skilling, and Lay in particular never believed that Enron was ever in as bad a shape as what the financial press was making it out to be. Or put differently, that the Enron story was a beat up.

There might be an element of truth to this-- in that their inability to access liquidity in the end was what doomed them. That if the banks had gotten together and restructured their loan agreements, perhaps Enron could have ridden the storm, and formed a strategy to streamline their business again (ie. sell or write off their lousy investments and focus on what they were good at) to eventually increase cashflow.

But it's going to be very hard to argue that Enron was a great business with no significant underlying problems, and that it was only the Fastow problems that freaked the commercial paper market out and hung them out to dry.

I suppose this defense cuts across the insider trading charges too, in that if Skilling and Lay never, ever lost faith in the company, then they can't be said to have sold shares at any point in response to knowledge of the company's bad health-- but gosh, it's going to be one hard sell with the prosecution sure to cram every bit of red flag evidence down their throats.

Bringing this back ups from the dead since the trial is picking up pace again.

Fastow got on the stand yesterday, and I think faces cross-examination all day today. This should be interesting. He is famously hotheaded, and Petrocelli and/or Ramsey should have a field day with him, regardless of how well he's been prepped.

http://www.chron.com/disp/story.mpl/spe ... 08060.html

Incidentally, the word is that the prosecution's case is stuttering, and that they've become more and more desperate with their arguments and requests to the judge. If that's the case, look for defense to close quickly and go to arguments. But that's still at least a week away.

Yep, Federal District Court cases are s-l-o-w.

Fastow's not doing too badly. I don't think Petrocelli's being aggressive enough though with non-responsive answers. But that may be a tactic to get him to say something really dumb-- thus destroying his already flimsy credibility.

Thing is... prosecution have done a pretty good job of ensuring Fastow looks repentant, and constantly expressing remorse about having ruined his family. That always tugs at any jury's heart strings.

I'd give this cross another few hours at best, especially given the firey opening.

http://www.chron.com/disp/story.mpl/front/3709415.html

Are they in jail yet?

I watched "The Smartest Guys In The Room" last week. These guys are subhuman.

I wonder if the prosecution is using this documentary to help them explain in the most simple form to the jury what these guys were doing. It was very well done and I'd imagine some of the people in it are being used in some capacity with this case.

Pandora's box of hearsay problems.