Enron judge eases way to guilty ruling
Judge Sim Lake said that the act of ignoring red flags can be criminal, stunning the legal community.
The case against the two top Enron executives goes to the jury Wednesday after 15 weeks of testimony, and it may have just become easier for the jury to convict them.
US District Judge Sim Lake, who has been lauded for running an evenhanded and efficient trial so far, stunned the legal community here when he told the jury it may find Enron founder Kenneth Lay and its CEO Jeffrey Skilling guilty of simply ignoring red flags about criminal conduct at the company - of being "deliberately ignorant" - instead of being actually involved in the wrongdoing.
"It's an extremely severe instruction, and one that's a very, very hot topic in the federal circuit right now," says Gerald Treece, assistant dean of the South Texas College of Law in Houston.
Several high-profile, white-collar convictions have recently been reversed on this issue at the circuit court level, including that of Frank Quattrone, a former investment banker at Credit Suisse First Boston. WorldCom CEO Bernard Ebbers' conviction is also on appeal related to this particular jury instruction.
While the "deliberately ignorant" instruction has been common in corporate trials, it is becoming more controversial as a growing number of convictions are overturned on this issue.
The US Supreme Court addressed it tangentially when it found that a judge's instructions allowed the jury to convict Enron's accounting firm, Arthur Andersen, without proving that the firm knew it broke the law.
In the case of the Enron executives, "this jury instruction will be the most fruitful area for reversal; it's a ticking time bomb for the prosecution," says David Berg, a Houston defense lawyer and author of "The Trial Lawyer: What It Takes to Win." "In every circuit in this country," he adds, "judges are emphasizing the need to prove that a defendant intended to commit criminal acts, not simply ignore them."
While Mr. Lay and Mr. Skilling may not like the jury instruction if it results in convictions, they will certainly like it on appeal, says Mr. Berg.
In its closing arguments earlier this week, the government emphasized the deliberately ignorant instruction for the jury.
When The Wall Street Journal began to ask hard questions in September 2001 about the company's chief financial officer, Andrew Fastow, and the off-balance-sheet partnerships he created, Lay intentionally did not confront him, said prosecutor Kathryn Ruemmler.
"Over and over again, Lay chose not to ask hard questions. He did so trying to stick his head in the sand, and the law says you cannot do that," she said.
Lay is charged with six counts of conspiracy and fraud and Skilling with 28 charges of conspiracy, fraud, and insider trading.
But even with the broad jury instruction, the hardest convictions to get will most likely be on the conspiracy charges, say legal experts.
"Conspiracy is always a difficult charge to prove because those involved don't sit around a smoke-filled room planning what they are going to do and taking notes," says Jacob Zamansky, a securities fraud lawyer in New York who attended much of the Enron trial.
Jurors will most likely begin with the other counts first, says Christopher Bebel, a former federal prosecutor and economic-crimes expert in Houston.
That's because the conspiracy counts rise and fall on finding guilt in individual acts committed to further the aims of the alleged conspiracy, he says.
Both Lay and Skilling say there was no conspiracy. In fact, they say that there was no crime at Enron - save for a greedy few.
But even if they are convicted of just one count each, their sentences are sure to be stiff. Judge Lake, for one, has already shown that he takes corporate fraud seriously.
He sentenced Jamie Olis, a former vice president of finance at Dynegy Inc., to 24 years in prison for his role in a $300 million accounting scam at the Houston energy firm.
Last year, the Fifth US Circuit Court of Appeals in New Orleans threw out the sentence, but upheld the fraud conviction. Lake has not yet resentenced Mr. Olis.
"These men [Lay and Skilling] are going to be in jail for decades if convicted," says Mr. Zamansky. "We are beginning to take this type of crime much more seriously than we did 10 to 15 years ago."