David E. Rovella
Enron's Lay Faces Big Hurdle in Poisoned Jury Pool
Thu Jul 8, 2004 03:42
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Enron's Lay Faces Big Hurdle in Poisoned Jury Pool, Lawyer Says
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July 8 (Bloomberg) -- Ex-Enron Corp. Chairman Kenneth Lay, who was indicted yesterday on accounting fraud charges, will have difficulty finding 12 Texas jurors to acquit him, former federal prosecutor Christopher Caldwell said.

Caldwell is one of five former federal prosecutors who said that the Lay's defense begins with the disadvantage of a jury pool poisoned by the collapse of Houston-based Enron, many of whose shareholders lived in Texas. The company dropped $68 billion in market value from its share-price high in August 2000 to its filing for bankruptcy protection in December 2001. Its collapse, triggered by misstatements, forced it to fire 5,600.

``Houston is a terrible place to be with anyone who has to do with Enron,'' said Caldwell, a white-collar criminal defense lawyer in Los Angeles. ``Everyone was touched and will likely know someone who was touched.'' Lay's lawyer Mike Ramsey is likely to request a change of trial location, Caldwell said.

Lay's indictment, to be announced today, includes charges of fraud and insider trading, according to a person familiar with the matter. Prosecutors have had the cooperation of Lay's Chief Financial Officer Andrew Fastow, 42, who pleaded guilty in January to orchestrating an accounting fraud that included hiding Enron debt in off-the-books partnerships.

``I have been advised that I have been indicted,'' Lay said in a statement yesterday evening. ``I will surrender in the morning. I have done nothing wrong, and the indictment is not justified.'' Ramsey did not return calls for comment.

About two dozen former Enron executives, including former Chief Executive Officer Jeffrey Skilling, 50, and former Chief Accounting Officer Richard Causey have been charged in a 2 1/2 year investigation led by the U.S. Justice Department's Enron Task Force, which took over the probe after local prosecutors recused themselves because of conflicts of interest.

Nationally Known

Enron has become synonymous nationally as well as locally with accusations of accounting fraud because of the number of indictments of former executives and the fact that the company was the first of several in the new millennium to admit its financial misstatements.

``Jury pools in other parts of the country may be marginally better, but the difference will not be substantive,'' former federal prosecutor Christopher Bebel of Houston said.

Investors claim in a lawsuit filed in Houston that they lost about $30 billion because of fraud by Lay and others during the market-value drop from 2000 to 2001. Enron employees who were forced to keep company stock in their pension plans claim they lost an additional $3 billion.

Prosecutors' Focus

Prosecutors have been focusing on Lay's role as chief executive after Skilling left the company in 2001, another person familiar with the investigation said. The government has re- interviewed witnesses in an examination of what Lay knew about Enron's condition when he told investors it was sound, the person said.

``Convincing 12 jurors that he presided over the most dramatic implosion in recent corporate history without having any knowledge of any criminal wrongdoing will be an almost impossible task,'' Robert Mintz, a New Jersey lawyer and former federal prosecutor, said. ``The atmosphere is so poisoned for these types of complex financial frauds that it's going to be difficult if not impossible to find people will approach him with an open mind.''

Charles Prestwood, a former Enron employee who said he lost $1.3 million on Enron stock in his pension fund, holds such implacable views. ``It would be easier to convince the Jews that Hitler had nothing to do with the Holocaust than it would be to convince me Ken Lay is innocent,'' he said in an interview.

Seth Farber, a New York attorney with the firm of Dewey Ballantine and a former federal prosecutor, said a change of trial location to avoid such juror candidates is unlikely to help the defense case very much.

Synonymous With Misconduct

``Even if they succeed in moving the case from Houston, they are still going to try it in the United States,'' Farber said. ``Enron has become synonymous with corporate misconduct, and they wont be able to get beyond that.''

A lot of time has passed since the initial Enron revelations of misstatements in the fall of 2001, said Neil Getnick, a New York lawyer and former fraud prosecutor. Still, he said, ``the case is at this point generally well known.''

Caldwell and other former federal prosecutors said it is unlikely that a request by Lay to switch trial locations will be granted. That will especially be true if the government amends the Skilling and Causey indictment to include charges against Lay, which would signal an intent to try the three men together.

Skilling and Causey's case is presided over by U.S. District Judge Sim Lake, whose reputation as a pro-prosecution judge makes it unlikely he would grant a motion to change locations, said Bebel.

Friend of Bush

Lay, a friend of President George W. Bush and a contributor to his political campaigns, ``has done a fairly effective job of getting across his message, that on the one hand he was relying on advisers and accountants and underlings at the company and that he was a believer in this company,'' Farber said.

Ramsey blamed Enron's collapse on Skilling and Fastow, the government's star witness. While Skilling was running the company, Lay was overseas, Ramsey said during a June 21 press conference. ``Andy Fastow essentially has said he was running a gang of thieves inside Enron,'' Ramsey said.

Ramsey has attempted to introduce Lay to the possible jury pool by having the former CEO submit to several media interviews in the past several weeks while positioning his client's defense as David versus Goliath, Bebel said. In this case, Goliath is the Bush administration's desire to seem tough on white-collar crime during a presidential campaign, he said.

The Bush Theme - ENRON INFO:
http://www.apfn.org/apfn/enron-info.htm

``The theme of `this is George W. Bush trying to be tough on crime' is a theme that will be tough to present in the court room,'' said Caldwell, of the firm of Caldwell Leslie Newcombe & Pettit. ``Most judges won't allow it, but Ken Lay is going to try and convince the jury pool through the media because that is what is going to be his only option.''

Battling a charge of insider trading will be easier than a count of securities fraud, Bebel said. Lay has claimed that he held onto the majority of his Enron shares instead of selling them as the company collapsed, he said, except for shares he was forced to sell to satisfy margin calls.

``If the evidence tends to suggest that he didn't personally profit, that he sold Enron stock because he was forced to do so by outside forces, such as margin calls, he could be able to assert a captain-going-down-with-the-ship defense,'' Mintz said.

Shareholders suing former company officers for securities fraud said Enron executives benefited from not fully disclosing the company's financial position, citing insider sales of $73 million in shares ahead of a 26 percent drop in the company's stock in February and March 2001.

Lay Sold Stock

The executives included Lay, who sold stock worth $11.2 million, and Skilling, who sold stock for $6.41 million.

The securities charges will be more difficult to defend, former prosecutors said, and will rely on the defense team's ability to paint Fastow and others underneath Lay as guilty. Additionally, in the millions of pages of documents held by the government, evidence of communications to Lay of Enron's true condition would be especially damning.

Unlike any white-collar defendant of the past three years, Lay has an especially negative reputation, Mintz said.

``The name Ken Lay has almost become synonymous with corporate fraud,'' Mintz said. ``That is something that is going to make a fair trial for him very, very difficult.''

The case is U.S. v. Lay, U.S. District Court for the Southern District of Texas (Houston).

To contact the reporter on this story:
David E. Rovella in New York at drovella@bloomberg.net .

To contact the editor of this story:
Patrick Oster at poster@bloomberg.net

Last Updated: July 8, 2004 00:43 EDT