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Friday, Aug. 16, 2002

Congress and the news media want federal prosecutors to start taking scalps of the former Enron officials, the men who've been in the headlines - and the quicker, the better. There's been a steady stream of news stories, as well as Congressional pressure, almost non-stop since Worldcom and Adelphia executives were shown in handcuffs.

Everyone wants to know the answer to a key question: Why haven't President Bush's one-time pal "Kenny Boy" Lay and his associates been publicly humiliated with a perp walk, too? Why haven't they been taking away in cuffs?

Yet after talking with an experienced former federal prosecutor (now a white collar defense counsel), I've had second thoughts about this pressure to bring Enron prosecutions.

The Palpable Frustration with the Absence of Enron Prosecutions So Far

CNN's Moneyline is among those pounding the drum, by running a daily Enron tally sheet. Host Lou Dobbs described it as the "Enron corporate America criminal charges scoreboard" and explained that "it's our way of allowing all of us at the same time to maintain the records on the charges filed since the Enron case, the company's collapse back on December 2 of last year."

As of Thursday, August15, little progress had been made: Dobbs noted, "So far, as our scoreboard shows, not a single Enron executive has been charged with anything. Charges, obviously, have been filed in other cases: 18 of them to this point. The only number we change tonight: the number of days since Enron broke: 254."

Capitol Hill is frustrated, too. Consider the recent complaint of Senator Dick Durbin (D-Ill.): "I think it is odd that a shoplifting actress [Winona Ryder] in Hollywood is facing more time in jail than any officer in Enron." (Ms. Ryder is accused of lifting about $5,000 worth of designer goods from Neiman Marcus in Beverly Hills and could face more than three years in prison; she has pleaded not guilty.)

While John Ashcroft's Department of Justice has had little trouble corralling middle-Eastern men, it's not so easy with former heavy hitting campaign contributors. Indeed, Ashcroft had to recuse himself from the Enron investigation as a former beneficiary of Enron's largesse. As a result, the investigation is being handled by eight career prosecutors, assisted by 30 FBI agents, in a special task force.

Politically speaking, the Bush White House no doubt would like indictments by the end of October 2002, or earlier, so that the failure to bring Enron officials to justice is not an issue in the mid-term elections this Fall. Haste is plainly politically expedient, because Enron's misdeeds raise, and symbolize, issues that has drawn widespread concern. These issues affect everyone who works for a company, invests in one, or does both - in short, almost everyone in the country.

Still, while haste may be savvy, it may not be wise. As I noted above, a talk with a former federal prosecutor has convinced me hasty Enron prosecutions may not be what is really needed.

Enron Officers' Bad Actions May Nevertheless Be Hard to Prove Criminal

Early reports - news accounts, testimony before Congress and the limited investigation by Dean William C. Powers - suggest highly dubious accounting and insider profiting, but not necessarily blatant fraud and insider trading. They also suggest high-level political influence purchasing - but not outright bribery. In short, this publicly available information, however damning it may be, still does not seem to evidence glaring criminal violations.

Consider the testimony of David Duncan, the former Arthur Andersen partner in charge of Enron's accounting who is cooperating with the government. Even he testified in the Andersen obstruction of justice case that he is not aware of any accounting fraud - when he had every incentive to make prosecutors happy and contend otherwise, and could likely have procured broad immunity for such testimony.

Moreover, Enron's attorneys at Vinson & Elkins apparently blessed many of the aggressive funding and revenue producing schemes responsible for Enron's financial collapse. And that makes a huge difference, legally: Criminal defendants who can claim they relied on the professional advice of their accountants and lawyers have a powerful defense.

These prosecutions, in short, are not going to be easy.

Thoughts Of A White Collar Crime Expert: The Likely Charges In the Indictments

When the opportunity arose to discuss prosecuting Enron's officials with Alan Baron, the partner in charge of the Washington, DC offices of the international powerhouse law firm of Dorsey & Whitney, I took it. I'd first met Alan when we both worked as on-air consultants to MSNBC during the Clinton impeachment proceedings. Frankly, I was surprised (but delighted) to find he'd not yet been retained in connection with the Enron prosecutions, so I could pick his brain.

Alan's a Harvard trained attorney with thirty years of white collar criminal law experience, first as a federal prosecutor, then as a defense lawyer. He also served as a special investigative counsel for the impeachment of a federal judge. Among his high-profile assignments were an inquiry into the financial collapse of Rhode Island's privately-insured credit unions, a probe of allegations of sexual misconduct in a Maryland high school, and analysis of federal campaign finance abuses for the United States Senate.

I asked Alan to think like a federal prosecutor again, and to consider -based on the little we do know, and the pressure that is on the prosecutors to make cases - what kind of prosecution might likely result against Enron officials. He had no doubt about what violations he (or most any prosecutor) would be likely to invoke in Enron indictments. He cited the tried-and-true trinity of federal offenses: conspiracy, mail fraud and wire fraud.

I had no doubt that mail fraud and wire fraud would be part of any case - they are relatively simple offenses to prove - requiring, in essence, proof of a false statement, a bad state of mind, and a mailing or wire transmission (which can be a phone call or bank deposit) to establish federal jurisdiction. But frankly, I'd not been thinking about the federal conspiracy statute. But then, I don't think like a prosecutor. As soon as Alan mentioned it, I realized he was correct.

But the federal conspiracy law is relatively simple, and one of the most potent weapons in the federal crime fighting arsenal. And conspiring together seems to be just what Enron officials did when they apparently (and allegedly) approved of shifty accounting procedures, and decided together to engage in dubious transactions, all with the purpose of concealing the company's disastrous finances.

Why Conspiracy May Be the Best Charge To Bring Against Enron Officials

As Alan and I talked about it, I could visualize the Department of Justice Enron Task Force hauling all the key former Enron's officials into a federal courtroom to face conspiracy charges. In fact, conspiracy is the clearest offense to emerge from the subtext of the public reports and Congressional testimony about Enron's activities.

From a prosecutor's point of view, the beauty of the conspiracy law is that each co-conspirator is held responsible for acts of the other conspirators, even if he or she was totally unaware of these activities in furtherance of the conspiracy. Even more difficult for the conspiracy defendant is the fact that hearsay evidence, relating to the conspiracy, is admissible.

Simply stated, a criminal conspiracy is an agreement by two or more persons to commit a crime. For a federal conspiracy, the crime must be federal. Under the federal conspiracy statute, the offense occurs when any party to such an illicit agreement does "any act to effect the object of the conspiracy." Violations of the federal conspiracy statute are punishable by five years in prison plus a fine; multiple violations, in turn, can result in greater jail time.

And once the agreement is made, willful blindness will not save co-conspirators from being responsible for other conspirators' acts. Suppose (to take a hypothetical example) top Enron managers knew Andrew Fastow ginned up his now infamous off shore partnerships to inflate Enron's revenues, but decided to look the other way. Suppose also that they were not privy to the precise details of what he was doing. They may nevertheless be criminally liable under the conspiracy law.

The classic law school example of the way the conspiracy law works is the example of A and B agreeing to rob a bank. A will do the dirty work inside the bank; B will drive the getaway car. Then A and B go to C, a mechanic they know, to ask him to service the getaway car. That counts as an overt act in furtherance of the conspiracy - and the conspiracy crime of A and B is already complete.

A and B tell C what they're doing, and ask him to tune up the getaway car to make sure they don't get caught. He agrees to do so. Now C, too, has joined the conspiracy.

The heist goes bad, and all three are caught. Now C finds that even though he was not going to get any of the proceeds, he's deemed, under conspiracy law, to be as guilty as A and B. If C knew it was an armed robbery, and someone in the bank was killed, he may be guilty of conspiracy to murder as well.

In sum, I will be very surprised if the former officials at Enron are not charged with conspiracy.

Prosecutions Should Not Be Driven By Politics

At one point I asked Alan Baron the following question: Given the little we know about the activities of the ex-officials, would you rather prosecute or defend an Enron case - putting aside, of course, the remuneration difference? He only said that both sides face real challenges. Given Alan's public service nature, it was clear I had given him an impossible question.

Nothing can invigorate a prosecutor more than a high profile case that calls out for justice. But, as Alan explained, regardless of which side of the case one is on, these are real people's lives that are on the line. Prosecutors can't totally ignore public clamor for charges. Yet a professional prosecutor does not indict in order to respond to the clamor. He does so only because he's found real violations of the law - and, in the case of a federal prosecutor, of federal law.

As I listened to Alan think aloud about both sides of the Enron case, I was struck by his empathy not with criminals, but with the highly successful, intelligent, even law abiding individuals, who sometimes find themselves in criminal jeopardy. Wearing his defense counsel's hat, he explained that such defendants place their freedom and future in the hands of a defense attorney and the responsibility for the attorney is tremendous. Alan added, with a smile, that he has a friend who does white collar defense work, who says he won't represent innocent defendants anymore, because the responsibility is too great!

Before visiting with Alan, I'd planned to write a piece joining the chorus calling for action against the Enron officials who seem highly culpable, but so far have not been charged. Every concerned citizen must appreciate these efforts to keep the pressure on the prosecutors (I certainly do).

Yet having spoken with Alan, I'm also hopeful that the prosecutors are ignoring the pressure. While it might be possible to quickly assemble a conspiracy case against the ex-Enron officials, politically driven prosecutions are not far from lynch mobs, which are never justified.

In fact, given the obvious complexity of any Enron prosecution, the Justice Department should wait until after the election this fall before taking any action, even if they are ready. That will make sure their actions - to the extent possible - are not tainted by politics, and that the reason for indictments, rather than public clamor, is careful examination of the facts and law.

John Dean, a FindLaw columnist, is a former Counsel to the President of the United States.

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