{"id":54530,"date":"2016-09-30T11:27:00","date_gmt":"2016-09-30T16:27:00","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/supreme\/legal-commentary\/why-congressional-hearings-regarding-enron-may-actually-hurt-not-help-in-finding-out-the-truth-about-the-company-and-its-auditors.html"},"modified":"2016-09-30T11:27:00","modified_gmt":"2016-09-30T16:27:00","slug":"why-congressional-hearings-regarding-enron-may-actually-hurt-not-help-in-finding-out-the-truth-about-the-company-and-its-auditors","status":"publish","type":"supreme","link":"https:\/\/supreme.findlaw.com\/legal-commentary\/why-congressional-hearings-regarding-enron-may-actually-hurt-not-help-in-finding-out-the-truth-about-the-company-and-its-auditors.html","title":{"rendered":"Why Congressional Hearings Regarding Enron May Actually Hurt, Not Help, In Finding Out The Truth About The Company And Its Auditors"},"content":{"rendered":"\n
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WHY CONGRESSIONAL HEARINGS REGARDING ENRON MAY ACTUALLY HURT, NOT HELP, IN FINDING OUT THE TRUTH ABOUT THE COMPANY AND ITS AUDITORS<\/h1><\/td>\n <\/tr>\n

By EDWARD LAZARUS<\/h2><\/a><\/td>\n <\/tr>\n

Tuesday, Feb. 05, 2002<\/td>\n\n <\/tr>\n <\/table>\n

Given the consequences of Enron’s implosion, it is no surprise that Congress has embarked on multiple investigations of the now bankrupt company and its see-no-evil auditor Arthur Andersen. Yet if (as it should be) our goals are to learn the truth about how Enron ran off the rails, to improve the regulation of corporations and accountants, and to bring those responsible to justice, the ongoing Congressional hearings pose as much a threat as an opportunity.<\/p>

Finding out what really happened at Enron, to the extent that is even possible, will require long and careful probing. Ultimately, investigators will have to force people to tell the truth using the threat of criminal prosecution to coerce cooperation. The trick, of course, is finding the right people to pressure and building a sufficient case against them to compel truthful and complete<\/i> testimony that may be used both to enhance public understanding and to put the most culpable individuals behind bars. <\/p>

Hastily called, highly publicized hearings, are antithetical to this investigatory process. In such circumstances, public officials, lured by the prospect of dramatic revelations that play into the press cycle, face inevitable pressure to sacrifice long range goals to obtain short-term results. <\/p>

Congress’ Choice When Enron Witnesses Take the Fifth: Immunity or Silence<\/b><\/p>

In the Enron hearings, the potential that Congress will make such a damaging trade-off has already emerged. The first major witness, David Duncan — the former Arthur Andersen partner accused of shredding documents — immediately invoked his Fifth Amendment right not to incriminate himself.<\/p>

Mr. Duncan will not be the last witness to refuse to testify. Indeed, a number of the most important potential witnesses will likely keep silent, for fear of exposing themselves to criminal prosecution.<\/p>

In the face of such resistance, Congress faces a stark choice. Congress’ first option is to grant key witnesses one of two forms of immunity — either “use” immunity (which means that the witness’ testimony cannot be used in any future prosecution) or “transactional” immunity (a much broader immunity that precludes prosecution for acts connected with the subject of the witness’ testimony). Because few important witnesses connected to the Enron scandal are likely to testify without some form of immunity, the second option for Congress is to simply give up on the idea of producing headline-grabbing revelations about how Enron went south and who was responsible — at least in the short run. <\/p>

Which path is Congress likely to take? If history is any guide, Congressional committees often choose grants of immunity over the risk of failure. And those grants of immunity are frequently a huge mistake.<\/p>

The Problem with Congressional Grants of Immunity<\/b><\/p>

\n\nThe problem is one of timing. Grants of immunity are a crucial tool for learning the truth. But they only serve that function after<\/i> investigators have so hemmed in the person seeking immunity that, to avoid prosecution, the target has little choice but to testify both honestly and fully. <\/p>

Moreover, grants of immunity ought to go to the least culpable participants in a crime, but it is often initially impossible to sort out the more and the less culpable participants. Who knew what, and when did they know it? Who issued the critical orders and who was just following commands from above? Without answers to such basic questions, it is impossible to decide who deserves immunity and who does not. <\/p>

Too often, Congressional grants of immunity are premature. Congressional investigations seek short-term success. Thus, decisions about whether to grant immunity are made both before a prospective witness’ full culpability is known, and before anyone can effectively evaluate the truthfulness of the story the witness is peddling. <\/p>

That leads to two types of disastrous mistakes: first, grants of immunity that result in prosecutors using more culpable witnesses (testifying under a grant of immunity) to prosecute less culpable defendants; and, second, grants of immunity based on stories that turn out not to hold water, but also are not so dramatically false as to allow the immunity grant to be revoked. <\/p>

Savvy defense lawyers — and the key players always have them — know the score, and when their clients are highly culpable, hope that Congress will make this kind of mistake. They push for immunity, the faster the better — understanding that Congressional committee members are under tremendous political pressure to obtain their clients’ testimony, yet are in no position to effectively evaluate its completeness or credibility. In other words, defense lawyers know that, with the right amount of sweet-talking of committee staffers, they can safeguard their clients even as they offer up only a minimalist and self-serving version of events.<\/p>

How Immunized Testimony Can Infect and Undermine Future Criminal Proceedings<\/b><\/p>

Moreover, even if Congress can obtain complete and truthful testimony, taking testimony from immunized witnesses at this early stage will still seriously undermine future prosecutions. Prosecutors are prohibited from relying in any way on immunized testimony in future prosecutions. Indeed, they cannot even use witnesses whose memories may have been refreshed by seeing news clips of immunized testimony. <\/p>

Oliver North escaped conviction because of this very problem. Prosecutors carefully sequestered themselves from seeing or using North’s immunized testimony during the Iran-Contra hearings. Nevertheless, a federal appeals court overturned North’s felony convictions because the government could not prove that North’s Congressional testimony had not affected the testimony of witnesses at North’s trial. <\/p>

North’s story provides a cautionary tale for anyone who believes that sufficient precautions during Congressional hearings can leave space for later prosecutions of witnesses whose testimony there was immunized. <\/p>

If Hearings Must Happen, Careful Precautions Must Be Taken<\/b><\/p>

Still, with Enron hearings begun, and a public and media clamor to know more underway, there is little chance the hearings will be shut down now — or that they will not employ the immunized testimony that leads to at least partially candid accounts. <\/p>

That is not an entirely bad thing, for Congressional hearings, of course, can serve important functions. They can bring public attention to significant issues. They can provide the basis for much needed legal reform. At the right time, they can even be an effective tool for unearthing information important to the public interest. <\/p>

Certainly the Congressional investigations into Enron can and should serve as the basis for a hard look at corporate accountability, ways to tighten accepted norms in the accounting field, and campaign finance reform. Eventually, they may also be a useful tool for assessing whether the Bush Administration’s energy policy was unduly, even illegally, influenced by Enron executives or other campaign contributors. <\/p>

But those following this laudable present agenda should proceed with the utmost caution, for fear of destroying the equally, if not more important future agenda of holding Enron wrongdoers accountable for what they have done. Congressional investigators and federal prosecutors must be allowed to work as long as necessary behind the scenes to piece the puzzle together, before the door to immunized Congressional testimony is opened. <\/p>

Otherwise, Congress’ much-needed policy making will be guided by half-truths and the true villains of the Enron story may too easily slip away. The many thousands who lost their jobs or retirement dreams to the malfeasance of a powerful few deserve much better than that.<\/p>\n\n\n\n\n<\/span>\n\n\n

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\n\n\n<\/a>\nEdward Lazarus writes about, practices, and teaches law in Los Angeles. A former federal prosecutor, he is the author of two books — most recently, Closed Chambers: The Rise, Fall, and Future of the Modern Supreme Court<\/u>.\n\n\n

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