March 25, 2003
Time for an Enron update

Two sizeable articles in the Chron today about the state of the Enron criminal and forensic accounting investigations. This first one asks the question why the feds have mostly bagged small fry instead of the big fish, Fastow excepted:

There are several reasons top executives like Skilling and Lay may not have been charged, say observers of the case.

The most obvious one is that they are not guilty of any criminal wrongdoing and prosecutors have simply not found evidence against them, even though they may still be looking.

Or, it could be prosecutors have enough to make a case but are seeking more evidence for a broad charge against several people and possibly the company itself.

The public likely won't know until charges are filed or the task force disbands.

Hard to argue with that, I guess.

The story mentions this NYT article which had suggested that Kenny Boy has a good "clueless, not criminal" argument against insider trading charges. That doesn't mean that there couldn't be other charges related to fraud or other SEC violations:

Prosecutors have not abandoned looking at Lay, however, and as recently as this month have questioned people about Lay's loans. The government lawyers could also be looking at other fraud-related charges against Lay or Skilling -- relating to anything from presentations to the Enron board to public statements about asset values.

Several lawyers involved in the case believe that is what prosecutors are doing but also note that a built-in defense might come if Lay or Skilling had credible legal advice backing up their actions.

The investigation into Enron Broadband Services has been seen as a pathway to charges against Skilling. For months a task force prosecutor has threatened, not cajoled, people involved in Enron Broadband, asking about the reliability of the technology behind the business and how executives, including Skilling, represented the business to investors and analysts.

Meanwhile, bankruptcy examiner Neal Batson has issued a 2100-page report about how Enron kept its books, and there's sure to be some grist for the legal mills in there:

The report, the most in-depth look at Enron's books to date, saves some of the harshest language for how Enron disclosed information in filings with the Securities and Exchange Commission.

The report says the company went to great lengths to meet the letter of accounting law while failing to conform to the spirit by providing a complete picture of the company's finances.

Batson has no legal standing beyond the bankruptcy court, but his statement that Enron's filings " ... diverged materially from Enron's actual economic condition and performance," is similar to the phrasing prosecutors would use when filing charges of civil and criminal securities fraud.

The company repeatedly denied its financials were lacking when it came to relevant data. And former Chief Executive Officer Jeff Skilling even argued before Congress last year that the relevant information was all there in the filings. But details from the Batson report, combined with a growing list of details from charges against former executives, challenge those claims.

Batson himself has been somewhat controversial in terms of how much he's billed for his services so far, but if he brings Skilling or Lay into the prosecutors' crosshairs, I'll call it money well spent.

Posted by Charles Kuffner on March 25, 2003 to Enronarama | TrackBack