Joel Androphy's Enron blog

ABC13 Eyewitness News legal analyst Joel Androphy is keeping a blog for us on the Enron trial. Check back regularly for his insight as the federal trial for Enron founder Ken Lay and former CEO Jeff Skilling unfolds in a Houston courtroom.

March 18, 2006

HOW GOOD WAS SHERRON WATKINS?

No Plea Deal; Only a Book Deal

Sherron Watkins did not have a plea deal. Although she admitted selling stock based on her own investigation of problems, it is debatable whether it was technically insider trading? Remember, Martha Stewart? At least Watkins admitted to the obvious, which is probably one of the reasons why this issue was not pursued. Also, I doubt there would be any jury in the United States that would convict her of anything.

Who Was Hurt More?

If the jury believes Watkins' testimony, both defendants will be convicted. She accomplished in several hours what is took some government witnesses days to attempt to say. Her testimony especially targeted Lay, and his alleged failure to take corrective action when she approached him with numerous financial problems.

Unanswered Questions About Her Testimony

• Why did she take so long to come forward?
• From Lay's point of view, her suggestions would take months to review. Remember, we should view Enron as a battleship and not a row boat. It takes a battleship time to turn around.
• If Lay announced to the public without an investigation that an internal accountant had serious complaints about the financial operation of the company, would he have been acting in the best interests of the shareholders?

Treatment of Whistleblowers

Sherron Watkins testified that it is difficult to obtain employment after her disclosures. I have heard many people shocked at that answer. Why should a qualified and ethically conscious woman have a difficult time obtaining a job in a corporation? The answer is simple. Corporations dislike whistleblowers. They are viewed as corporate spies, disloyal, and untrustworthy.

I have represented many whistleblowers, and they all tell the same story:

• They tried to rectify the problems while employed.
• They spoke to executives and supervisors.
• They wrote emails to executives and supervisors.
• They were initially cordial in their messages, and not looking for any extra compensation.
• They enjoyed their work.
• They enjoyed their careers.
• The first decision of the company was to find excuses to terminate them.
• Sometimes, they were accused of immoral and illegal acts.
• Only after they were terminated, did they go to the government.
• Many sued and recovered substantial sums of money.
• Most will never again find employment in their chosen profession.

Sounds like Watkins, except she has no Enron to sue. Watkins deserves the money for her speaking engagements. I would bet, however, that she would be happier working at a healthy Enron.

Discuss the Enron trial with Joel Androphy March 15, 2006

PUTTING THE TRIAL IN PERSPECTIVE

Was the Plea Deal with Fastow Fair?

The trial is far from over. Although the government is clearly ahead of the game, let's remember it is a lot more difficult to defend these cases than prosecute them. Remember, the defense cannot arrange deals with the witnesses for "truthful" testimony. This is like an auction with only one bidder -- the government. Although the government will tell us that the deals involve honesty, how was the government able to accurately evaluate Fastow's testimony without enough supporting documentation? The answer: other witnesses but these other witnesses also have deals.

Is a Joint Trial Hurting the Defendants?

I promise you that Lay does not like being tried with Skilling. Lay's attorney was forced to examine Fastow with one hand tied behind his back. That hand would have been used to examine Fastow on Skilling's agenda. Question: Mr. Fastow, when there were issues pertaining to the operation of Enron you went to see Skilling who was running the show, and not Lay. Wasn't Skilling in charge of operations, and Lay merely the public liason being provided with false fasts? He could not ask these questions because Skilling would have been in focus, and could have retaliated with his own questions about Lay. Skilling's attorney could have then asked the jury whether Fastow was ultimately taking direction from Lay, and that Lay, and not Skilling, was knowingly and falsely representing Enron's financial viability to the public. This scenario prevents lawyers from asking all sorts of questions.

Are Skilling and Lay that friendly?

Skilling and Lay seem friendly to each other, but behind the scenes what is really happening? In my experience in joint defense cases, active clients have a difficult time being tried with others. When I say active I mean clients who are involved in decisions about strategy, examinations, legal arguments, etc... Although they may appear to have a similar agenda, there will be differences. We may start noticing them more with future witnesses - Sherron Watkins- and as the case continues.

What Will the Jury be Instructed on the Law

The Jury WILL be told that a defendant acts "knowingly" if he does an act voluntarily and intentionally, and not because of mistake or accident.

The Jury WILL PROBABLY be told that you may find that a defendant had knowledge of a fact if you find that the defendant deliberately closed his eyes to what would otherwise have been obvious to him. While knowledge on the part of the defendant cannot be established merely by demonstrating that the defendant was negligent, careless, or foolish, knowledge can be inferred if the defendant deliberately blinded himself to the existence of a fact.

If the defense can avoid the "deliberate blindness" instruction they could win. There are plenty of courts that say that this instruction is more for civil cases.

It appears that the defense is trying the case anticipating only the first instruction and the prosecution anticipating both.

Gender Issues

Remember my comments about Paula Rieker the first female executive who testified!

Early on I commented that gender would play an important role in this case. Think about it. Lea Fastow's situation compelled Andy Fastow to plead guilty. Paula Rieker testified that Skilling changed earnings reports (a couple of pennies) to keep investors buying stock. She also testified that Skilling told her to misrepresent the source of revenue from the broadband unit. She also testified that Lay hid from investor's poor cash flow in the retail energy unit and misrepresented Enron's financial status while selling stock. And now we have Sherron Watkins.

SCORECARD TO DATE

Discuss the Enron trial with Joel Androphy March 14, 2006

Walking the Prosecution or Defense Line

The theme of the defense was the viability of Enron, and the fraudulent actions of a few. Much has been written about Fastow and the repeated questions about his truth and veracity. No one, however, seriously asked Fastow about his vision for Enron and the positive aspects of the company. That would have assisted the defense, and given Fastow some constructive moments of reflection. I imagine the government was hoping that the defense would "walk the prosecution line," and stick with the inquiries about lying, and stay away from optimistic aspects of Enron. To prevail, the defense must alter their direction, put a positive spin on the company, and let the witnesses admit their own crimes.

Discuss the Enron trial with Joel Androphy March 13, 2006

What is the Objective of the Fastow Examination?

Fastow has already admitted that he lied to analysts, investors and the general public. The defense and prosecution both agree. The defense, however, keeps questioning him about his lies continuing to demoralize him about his misconduct. Why? Unless you were out of the country for the past week, it is accepted knowledge that his credibility is irreparably tarnished. I assume that the defense will want to use that to show that his current comments about Skilling and Lay are also lies.

The defense wants to portray him as a current and former liar. He is currently lying to the jury about Skilling and Lay, and formerly lied to Skilling and Lay about his business activities.

On the other hand, the government may like the continuous questioning about lies since it logically tarnishes everyone at Enron. After a while, can you really differentiate between the alleged lies of Fastow or the allege lies of the defendants. If Fastow was the only government witness, then there would be no conviction. There is reasonable doubt about his current testimony. Did the government honestly believe that he would provide the knock out punch? I doubt it. The only benefit to this testimony is that he corroborates the other witnesses.

Does that mean that he confirms that the other witnesses were telling the truth, or maybe confirms that they were lying? He was only called to the stand, because the defense indicated they were going to call him. The government did not want the jury to believe that it was hiding Fastow, and afraid of his testimony. That would have provided the defense with some good sound bites about the government's case.

On the other hand, unless Skilling and Lay locked themselves in their offices until Enron's collapse, why are they the only Enron executives who were not privy to the fraud or some knowledge about it? The prosecution is saying that there was one conspiracy: everyone at Enron lied to analysts, investors and the public. The defense also seems to be saying yes with one exception: everyone at Enron also lied to Skilling and Lay.

Discuss the Enron trial with Joel Androphy March 7, 2006

FASTOW TESTIFIES

This morning, Skilling approached me in the courthouse, cordially told me that he enjoyed reading the BLOG, but disagreed with my numerical scoreboard. I responded that the trial was far from over, and he agreed.

Contrary to popular belief, I thought this was a good day for the defense. Even though Fastow testified repeatedly about Skilling's involvement in the financial fraud, his testimony seemed too orchestrated. He appeared desperate to accuse the defendants, and especially Skilling, of perpetuating a fraud on investors. Assuming that there is some truth to his testimony, he appeared too nervous and anxious to incriminate his former co-workers.

Testifying under a plea deal that only guarantees him 10 years if he cooperates, the plea deal seems irrelevant. What would motivate Fastow to implicate Skilling and Lay for 10 years in jail and $30 million in forfeited funds? The answer is simple. Under the plea deal, Fastow could be sentenced to 20 plus years if he protects Skilling and Lay. Although the deal is not as generous as the other arrangements with the other co-defendants, we must remember that Fastow had less bargaining power, and more to lose. It is an excellent bargain for him considering the financial losses and potential prison exposure.

Although I initially thought that his testimony could be devastating for the defense, several answers changed my mind. First, he spoke of misleading his wife about tax issues. That could not ingratiate him with the woman jurors. Then, he answered a simple question about whether Skilling discussed financial issues, by elaborating that Skilling directed the wrongdoing, that caused false reporting, that caused increased stock prices, and that caused higher bonuses. A simple question, but Fastow was eager to provide a "pipeline" full of negative information as quickly as possible to appease the government. One question and he was able to provide all the canned answers. The direct examination helped the defense.

On the other hand, one would expect the cross-examination to be better. Beware however, the longer he stays on the stand, the more credible he could become. The anxiousness may disappear, and he may be more comfortable with his situation. This may be a situation where less cross is better.

Discuss the Enron trial with Joel Androphy

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