The Houston Chronicle reports (here) that U.S. District Judge Sim Lake has ordered former Enron CEO Jeffrey Skilling to report to the federal correctional institution in Waseca, Minnesota (link here), about 75 miles south of the Twin Cities. This is a low-security facility. Judge Lake had recommended that Skilling be placed in the FCI in Butner, North Carolina, but as seen in former Enron CFO Andrew Fastow’s assignment to the FCI in Oakdale, Louisiana, rather than the recommended facility outside Austin, the Bureau of Prisons makes its own decisions on prisoner assignments. Skilling has been ordered to surrender by December 12 at 2:00 p.m., although the Fifth Circuit could order release on bail pending his appeal, which is uncommon but certainly not impossible. If Skilling is not permitted by the Court of Appeals to remain free on bond, it would not surprise me if he reported before December 12 to avoid a media circus on that day. (ph — thanks to Tom K. for noticing an error in the date in an earlier version)
Category: Enron
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Former Enron chief accounting officer Richard Causey received a five and one-half year prison term from U.S. District Judge Sim Lake for his guilty plea to one count of securities fraud. Causey had been scheduled to be tried along with former CEOs Ken Lay and Jeffrey Skilling, but then entered into the plea agreement just a couple weeks before the scheduled start of trial. Neither side called Causey as a witness at the trial that resulted in the convictions of Lay and Skilling, and it remains unclear whether he would have been particularly helpful to either side. Causey’s sentence puts him just a bit below the prison term imposed on his direct boss, former CFO Andrew Fastow. Under Bureau of Prisons rules, Causey must serve 85% of his sentence, or a bit less than five years. An AP story (here) discusses the sentencing. (ph)
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The government’s effort to convict executives from Enron’s Broadband Unit on fraud charges suffered another blow when prosecutors conceded error in four of the five counts of conviction of Kevin Howard, the former CFO of the unit. After the first Broadband proceeding against five defendants ended in a mistrial after a mind-numbingly dull presentation, the government broke the prosecution into three parts and succeeded in convicting Howard in May on conspiracy, wire fraud, and false books-and-records charges. The unit’s former chief accounting officer was acquitted. Problems arose in August, however, when the Fifth Circuit reversed the fraud convictions of three defendants from the Enron Nigerian Barge trial that were based on a right of honest services theory, which the court found did not apply to corporate officers who believed they were acting in the company’s best interests (U.S. v. Brown, 459 F.3d 509 (5th Cir. 2006).
In a brief filed with U.S. District Judge Vanessa Gilmore (available below), prosecutors state that the same problem that infected the convictions in Brown are present in Howard’s case, so the court should vacate four convictions. The indictment alleged both money/property and right of honest services fraud, so prosecutors could retry him on the theory that his misstatements deprived Enron of property, although that may be a more difficult case to establish because the government must prove a loss to the victim. Prosecutors also argued that the fifth count should stand because it is not based on the right of honest services theory, which only applies to fraud charges and not false records. A key issue will be whether the court finds that there was prejudicial spillover from the conspiracy and fraud counts that taint the books-and-records conviction, which may result in a new trial on all the charges. If Judge Gilmore denies the motion to vacate the fifth count, it will certainly come up in an appeal to the Fifth Circuit. (ph)
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It started as three – Lay, Skilling, and Causey.
Lay is gone, Skilling is embarking on a 24+ sentence that awaits appeal, and Richard Causey, former Chief Accounting Officer at Enron, who dropped off the team middle of the road – that is, after indictment, but before trial –by entering a plea – now will be sentenced tomorrow.
His plea is pretty definitive and calls for 84 months incarceration with a possible reduction to not less than 60 months with a 5K1.1 motion recognizing cooperation. 5K1.1 motions can only be filed by the government, although courts now have some discretion in this post-Booker world. But this plea calls for the court to follow the federal sentencing guidelines, so reductions may only be in the hands of the prosecutor, and only if the government determines that they want a sentence reduction for cooperation.
Just weeks ago, we saw that Andy Fastow’s plea called for 10 years and he in fact received 6 years. Causey’s plea, however, clearly provides that the agreement is "null and void" if the court fails to follow its terms. But non-compliance with the terms of the agreement are irrelevant if the parties fail to object to the non-compliance.
And in an odd turn of events, it may be possible that Causey will receive a sentence in excess of Fastow’s sentence (see Houston Chronicle here) If this happens then the government would be saying that some cooperation is worth more than other cooperation. The government may advocate that the timing of the agreement to cooperate is what counts, or they may base it upon unknown factors that the public will never hear. But one has to continually ask whether the federal government should be the one with the power to hold this cooperation factor over the heads of the accused and what happens when our judiciary merely becomes a rubber stamp to prosecutorial power. (see here)
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Former Enron CFO Andrew Fastow has finally headed off to a prison in the federal correctional system after a delay of almost two months to allow him to give a deposition in the securities fraud class action against the company’s banks. Fastow is currently being held in the Federal Detention Center (website here) in Oakdale, Louisiana, which was not his first choice of facilities. U.S. District Judge Hoyt recommended when he sentenced Fastow that the Bureau of Prisons place him at Bastrop, Texas, a minimum security FCI near Austin, but judges have no control over what the BOP decides on assignments. The Oakdale complex includes a minimum security facility (the Oakdale FCI), where former WorldCom CEO Bernie Ebbers is serving his 25-year sentence, although Fastow is currently in the FDC there, which also includes a prison camp. They could end up together in the same facility, proving that it is a small world of white collar criminals.
Before being dispatched on the BOP bus to Oakdale, Fastow testified for eight and a half days in Houston, taking a daily trip with U.S. Marshals to a facility where seventy lawyers listened to him, along with live internet broadcasting. A New York Times story (here) estimates that at $450 per hour, all those lawyers billed about $2.1 million. That figure may be on the low side because it likely does not include the costs of support personnel and associates back in the firm offices and, of course, the all-important daily transcripts and duplication costs. If the securities fraud case goes to trial, then Fastow may well get another trip back to Houston to testify once again. The Enron litigation just keeps going, and going, and going . . . . (ph)
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Not surprisingly, the Fifth Circuit Court of Appeals reaffirmed the vacating of Ken Lay’s conviction, as a result of his death. (see Houston Chronicle here, Wall Street Jrl. Blog here). The Houston Chronicle reports that the court held, as the district court had, that "when a defendant who has been found guilty of a federal crime dies before exhaustion of his appeal, his prosecution must be abated, his conviction vacated and his indictment dismissed."
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Unlike some defendants who are immediately taken into custody upon conviction, Jeffrey Skilling has a little bit of remaining time in the semi-free world. He was ordered to report to prison once the Bureau of Prisons has assigned him to a facility. He was not given bond pending the appeal.
The Houston Chronicle here has an interesting story on Jeffrey Skilling’s choice of prison. And if given this placement, he will be in a place with at least one other mentioned on this blog (Former Rep. Randy "Duke" Cunningham). Wall Street Jrl blog reports here that he is going to the Federal Correctional Center in Butner, N.C. (see here)
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What are others in blogsphere saying about Jeff Skilling’s sentence:
Doug Berman – Sentencing Law & Policy here
NormPattis – Crime & Federalism here
Larry Ribstein – Ideoblog here
Tom Kirkendall -Houston’s Clear Thinkers here
Howard J. Bashman -How Appealing here
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Addendum – Carrie Johnson of the Washington Post reports here that the Enron Task Force was "closing its doors."
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Commentary on Jeffrey Skilling’s sentence of 24 + years (292 months) by Peter & Ellen –
Will we ever see sentences like these again?
Peter – The collapse of Enron, WorldCom, and Adelphia Communications due to large-scale accounting fraud was, in many ways, unprecedented, the "perfect storm" so to speak. Executives have never been sentenced to such substantial terms before, and I doubt we will see these types of sentences again. Not because corporate crime will cease, but because the ability to engage in these types of accounting tricks is now much more difficult. For one thing, the accountants and the lawyers are paying much more attention to the details, in part because of Sarbanes-Oxley but perhaps even more because the job of those professions is more directed toward policing management. Rogue executives can still engage in criminal conduct, but I would be very surprised if we saw the type of brazen accounting fraud perpetrated by WorldCom. There will be another cycle of corporate misconduct, and I don’t think anyone can predict where it will strike. But like the S&L crisis of the 1990s, it is unlikely to be spread across industries and involve conduct at major enterprises. I don’t think we’ll see another Bernie Ebbers or Jeffrey Skilling on trial for destroying a company, in effect, so corporate crime prosecutions will be for more isolated misconduct. Not that corporate executives should forget these sentences, but they are not at risk of suffering them because at least for the foreseeable future the types of crimes that Ebbers and Skilling engaged in are not going to take place.
Ellen – I also rather doubt we will see sentences like this again, but not because the Enron & Worldcom wave are over or because Sarbanes -Oxley is going to solve the problem. There have always been corporate fraud scandals and there will likely be scandals down the road. Just as we saw new frauds developed throughout our past history, most likely we will see new forms of fraud in the future. What they will be, and how extensive they will be, remains to be seen. And just as Congress reacted to the scandals of today with new legislation (Sarbanes-Oxley) so too will we find reactive legislation passed in the future to handle the new types of criminality that appears on the scene.
But I don’t think we will see sentences like this in the future because people will eventually realize the worthlessness of issuing such draconian sentences in non-violent white collar cases. The bottom line is that these sentences are not likely to deter future criminality, as many who engaged in the conduct just did not see themselves as committing crimes. Jeff Skilling’s claim of innocence, even at his sentencing, is a statement that in order to deter criminality we need to start teaching law in business schools so that those going into the business world are fully apprised of where the line is between acceptable business practices and criminal conduct.
Do these sentences match the harm in other white collar crime cases?
Peter -While Jeffrey Skilling receives 24 years for presiding over the collapse of Enron, former Congressman Randy (Duke) Cunningham sells his office to a string of defense contractors for a bit over $1 million and receives a sentence of 8 years. Soon-to-be former Congressman Bob Ney will likely be sentenced to less than 3 years in prison for selling out his office to lobbyists led by Jack Abramoff. How can there be such a disparity between the sentences for public corruption and the corporate frauds perpetrated by Ebbers and Skilling? The harm from public officials, especially those elected to office, who abuse their positions for personal gain is, in my opinion, nearly as great as that caused by corporate chieftains who preside over collapsing companies. While one might argue that it is wrong to "criminalize agency costs" by prosecuting corporate officers, we never hear that argument applied to public corruption. The sentences in those cases need to be increased significantly to send an even stronger message to public officials that selling their offices, and the public’s trust, is intolerable. Investors don’t lose pensions, but the harm is just as great, I believe.
Ellen – I agree that in recent cases we see lighter sentences in corruption cases than we see in the corporate sphere and that this disparity is not warranted. If anything, having the public’s trust should be considered a greater threat to society than criminal activity in the private sphere. But I do disagree that this warrants increasing the sentences in corruption cases. More appropriately, this sends the message that recent corporate sentences are not aligned with reality. Sending non-violent offenders to prison for life sentences serves no utilitarian purpose. Sending a person to prison for 25 years as opposed to 10 years for a corporate crime does not offer increased rehabilitation to the individual. After all this person will never be in this position again to commit a like crime. It also serves no deterrent if the individual has no recognition of what is legal and what is illegal. Further, a 10 year sentence would send an equally strong message to anyone entering the corporate world that they need to act properly. The only purpose here is retribution. And the shame of this conviction, a sentence of 10 years, and the collateral consequences faced by the white collar offender easily send that same message.
If we are so intent on punishing the wrongdoer with heavy prison time, then how can we accept Andrew Fastow being sentenced to 6 years, or Scott Sullivan receiving 1/5 of the sentence received by Bernie Ebbers. It becomes clear that what we are really doing here is punishing individuals who exercise their right to a jury trial. And permitting the government to continue this practice is not proper.
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Not surprisingly, Jeff Skilling received a sentence in excess of 24 years in prison (292 months). (see Wall Street Jrl here) Surprisingly, he will not be allowed to remain free on bail pending the appeal, although he can remain free until such time as the Bureau Prisons determines his new residence and he has to report there. (see Houston Chronicle here). If one were expecting remorse to mitigate the sentence, it did not happen as Skilling continued to maintain his innocence. More to come….
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MattBray.net 