March 16, 2005
Bernie and Kenny Boy

Well, now that the vaunted honest idiot defense has failed and Bernie Ebbers faces a stretch in the Big House, the question becomes How will this affect Kenny Boy?

"The Ebbers trial is a bellwether for Lay," said David Berg, a Houston trial lawyer who has watched both cases. "Both are huge financial frauds at the heart of the businesses, both involve billions of hidden losses ... and both men claim to have been removed from the day-to-day business."

Because the jury convicted Ebbers on all charges, they must have searched hard for evidence against him on each charge, highlighting the difficulty of getting jurors to believe the "What's a poor boy to do?" defense, he said.


"It's the most difficult defense imaginable," Berg said, especially for someone who made great wealth off the company and had been with it since its inception like Ebbers and Lay.

Berg said it's not only Lay who will have a tough time convincing a jury he didn't know about the fraud at Enron. So will his co-defendant Jeff Skilling, the former CEO.

"This was the (banker Frank) Quattrone defense, the Ebbers defense, the Lay defense and what Skilling told Congress. We can go down the list, saying they didn't know is often the only thing a defendant like this has left," Berg said. "It may even be true, but it's still the most difficult defense possible."


Though it may be too early to predict how the facts of the case will bear out, it may be easier to convince a jury Lay was less involved in the day-to-day business of his company than Ebbers, said Troy Paredes, a law professor at Washington University in St. Louis.

"At least as I understand it, Lay's saying 'I wasn't involved in the misdoings, I wasn't involved in the financial manipulations, and I wasn't involved in cooking the books. I wasn't aware of it,' " Paredes said. "My sense, at least at this point, is that there's at least some indication that Lay as a general matter may have been a little more hands-off than Ebbers."

Mike Ramsey, Lay's defense lawyer, distinguished his client's case from Ebbers' in an interview before Tuesday's conviction of Ebbers.

"At Enron we had a trusted employee who was stealing and hiding his theft from the people above him," Ramsey said of ex-CFO Andrew Fastow. "But Sullivan at WorldCom appears to be just a cheat, and not a cheat and a thief."

Ramsey said the falls of the companies were different, too.

"Enron's failure was a failure of liquidity, not of solvency," Ramsey said. "And the liquidity froze because of Andrew Fastow's double-crossing."

Tom Kirkendall agrees that Lay can lay more blame on Fastow than Ebbers could on Sullivan, but he notes that Lay still has a tougher road ahead of him.

[B]oth Lay and Skilling supported Fastow's involvement in the off-balance sheet partnerships and their co-defendant -- former Enron chief accountant Richard Causey -- approved the dubious accounting relating to the partnerships. It is going to be risky for Messrs. Lay and Skilling to criticize Mr. Causey's accounting for Fastow's machinations with off-balance sheet entities during a trial in which all three are defendants.


Messrs. Lay and Skilling are contending that Mr. Fastow's greed to generate huge income from Enron's off-balance sheet partnerships incentivized him to lie to Lay and Skilling regarding the true nature of Enron's off-balance sheet partnerships. Of course, a complicating fact in Messrs. Lay and Skilling's defense is that they engineered the Enron board's dubious approval of Fastow's management of the partnerships, but that's another issue.

One factor that will work in Kenny Boy's favor regardless of the Ebbers outcome is that his lawyers have gotten a chance to see what worked and what didn't. They have a chance to learn from what has already happened. On the other hand, the same is presumably true for the prosecutors as well.

On a side issue, Kenny Boy has decided that he wants two different juries for the two different trials he faces.

In a court filing Monday, lawyers for Lay said having one jury hear both the conspiracy charges he faces with two other defendants and the bank fraud charges he faces alone could deny him his Sixth Amendment right to an impartial jury.

While the two sets of charges are unrelated, a jury that sits through the first trial could consciously or subconsciously "infer a propensity on the part of the defendant to commit the other offenses ... ," his attorneys said.

In February, Judge Sim Lake told Lay and government prosecutors he was considering hearing the bank fraud case immediately after the first case scheduled to begin Jan. 17 either with the same jury or with no jury at all.

Lay's attorneys said they could be ready for the second trial within 60 days of the end of the first. They also withdrew their previous waiver of a jury trial, saying it was originally intended as a way to get the case moving quickly.

Seems reasonable to me, and I must say I agree with his lawyers' logic. I'd expect Judge Lake to grant this request.

UPDATE: You know, I was just thinking that what I needed for some closure on the Ebbers trial was a haiku that summed it all up. Thanks to Julia, who no doubt will feel safer walking the streets of New York now that Bernie has gone to the hoosegow, for the tip.

UPDATE: Jeralyn examines the Ebbers/Kenny Boy differences as well.

UPDATE: Mac reminds us that there are other "honest idiots" besides Kenny Boy out there.

Posted by Charles Kuffner on March 16, 2005 to Enronarama | TrackBack

Ebbers said that he's
Too dumb to defraud WorldCom
Jury disagreed.

Bernie faces long time
In prison for his big fraud
Just don't drop the soap!

Posted by: William Hughes on March 16, 2005 9:42 AM

I'm very sorry
That the last haiku was one
syllable too long.


Posted by: William Hughes on March 16, 2005 9:59 AM