Lay and Skilling Convicted: Ongoing Reaction

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05/25/2006

Lay and Skilling Convicted: Ongoing Reaction

From CNN:

Skilling was found guilty on 19 counts of conspiracy, fraud, false statements and insider trading. He was found not guilty on eight counts of insider trading.

Lay was found guilty on all six counts of conspiracy and fraud.

~~Quick~~ Many thoughts, updated periodically and in no particular order:

Another victory for prediction markets: As I wrote back in April: "The latest contract at Tradesports for Lay to be convicted on at least 4 counts was 65.5 and for Skilling to be convicted on a whopping 16 or more counts was 66. In other words, roughly 1-2 odds in favor of conviction."
The acquittal of Skilling on some of the insider trading counts suggests the jury approached the issues with an open mind, contrary to defense claims that they could not get a fair trial in Houston.
It's not the crime, it's the cover up. The real crimes at Enron mainly consisted of turncoat government witness Andrew Fastow's shady deals, but Skilling and, especially, Lay are going down for improperly misrepresenting Enron's fortunes.
Mega-coverage by the Houston Chronicle's multiple blogs. The Chron's Enron blogs have been a breakthrough in showing how the MSM can make highly effective use of the new media when it wants to.
Lay will not be required to wear one of those electronic positioning ankle bracelets, but will not be allowed to leave the courthouse until he surrenders his passport. Query: Does surrendering your passport really make it all that hard for a wealthy guy to leave the country? Do you have to clear customs/immigration before taking a private plane flight out of the country? How about by yacht? I assume that the real problem is that a person without a passport would find it difficult to live abroad. But Andrew Luster managed to skip bail despite having surrendered his passport and being required to wear an ankle bracelet. Not that I think Lay or Skilling will skip. Just curious. [No illegal immigrant comments, please!]
One of the curious things about this case is the documented evidence that "a number of people were contradicting Enron's own rosy view of itself long before the middle of 2001." At what point does a lie by top management cease to matter if the market doesn't believe it? Presumably the government convinced the jury that people believed the lies Skilling and Lay told, but did the market really do so?
The Powers Report is still your "go to" document for background on the Enron mess. Here's what the Report says about Skilling with respect to one of the many related party transactions the company used to disguise expenses and losses: "As the magnitude and significance of the related party transactions to Enron increased over time, it is difficult to understand why Skilling did not ensure that those controls were rigorously adhered to and enforced. Based upon his own description of events, Skilling does not appear to have given much attention to these duties. Skilling certainly knew or should have known of the magnitude and the risks associated with these transactions. Skilling, who prides himself on the controls he put in place in many areas at Enron, bears substantial responsibility for the failure of the system of internal controls to mitigate the risk inherent in the relationship between Enron and the LJM partnerships."
Blogger/law prof Christine Hurt observes that the verdict came "as a surprise after journalists assumed that the jury would not come to a decision until after the holiday weekend." Maybe the jury wanted to enjoy the holiday? Or start wearing white shoes?
Blogger/law prof Larry Ribstein asks an interesting question about the acquittal of Skilling on most of the insider trading counts: "Does this mean that the jury thought he didn't know enough about what was happening to bar him from trading, but that he did know enough to go to jail for fraud?"
After the jury verdict was announced, the judge found Lay guilty on bank fraud charges that had been tried to the bench.
Will losing the Skilling case seriously harm star trial lawyer Daniel Petrocelli's reputation? (You'll recall that Petrocelli famously won the wrongful death suit against OJ Simpson, as documented in his book Triumph of Justice). The WSJ has free video of Petrocelli's reaction to the jury verdict.
- According to news reports before the verdict: "Daniel Petrocelli and his law firm probably won't get fully compensated for their work defending Jeffrey Skilling, as the former Enron Corp. chief executive appears to have exhausted his defense fund. But the payoff down the road could be well worth it, even if Skilling is convicted. The decision to defend Skilling is seen as a calculated business move by Petrocelli and his Century City law firm, O'Melveny & Myers, to burnish their reputation and expertise in white-collar criminal defense."
- It's the "even if Skilling is convicted part" about which I have questions.
Peter Lattman's identified two critical points that I suspect will quickly become (and correctly so) part of the conventional wisdom (or received learning, if you prefer):
- "Credit the prosecutors for emphasizing narratives the jury could understand rather than focusing on complex tales of off-balance sheet partnerships and byzantine accounting." (Link)
- " Lay’s testimony proved fatal. Everyone expected a charming, avuncular presence on the witness stand; instead, what they got was an argumentative, challenging, embittered man who refused to accept any personal responsibility for Enron’s collapse." (Link)
Over at Air America's blog, the first comment in a thread on the verdict is a message for Ken Lay: "While spending your final years in a Federal prison, as you are anally-probed by the huge throbbing member of your cellmate, I hope you think about your Enron traders laughing at the way they screwed the little ol' ladies in California out of their money."
- It's not just the fringe, either. You'll recall that California Democratic attorney general attorney general Bill Lockyer said: "I would love to personally escort Lay to an 8-by-10 cell that he could share with a tattooed dude who says, 'Hi, my name is Spike, honey.'"
- So is prison rape now part of the left's penal philosophy? [Update: Yes, pun intended.]
- Apropos of which, see my TCS column Crime? And Punishment, which asked "Should Dennis Kozlowski spend the rest of his life worrying about prison rape?" More seriously, the column argues against criminalization as a solution to the agency cost problem in corporations.
Conservative (?) pundit's Tammy Bruce's reaction is more Old Testament than old school: "Let's hope some is left for the victims, while the Lay and Skilling families can reap what their men have sown on others - poverty and fear of the future." Cf. Deuteronomy 5:9-10 ("I, the LORD your God, am a jealous God, visiting the iniquity of the fathers on the children, and on the third and the fourth generations of those who hate Me, but showing lovingkindness to ... those who love Me and keep My commandments.")
- To be sure, according to some scholars, the Old Testament passages in question suggest God will punish the children only if the children themselves are morally blameworthy. But Ms Bruce apparently doesn't think moral blameworthiness is necessary when it comes to the families of white collar criminals.
James Joyner is not surprised: "Jurors are composed of ordinary people who hold corporate titans in very low esteem. Unlike pop culture figures like singers and athletes, who tend to get a break from jurors awed by their celebrity, people hate CEOs."

Posted at 06:43 PM in Securities Regulation | Permalink

Comments

From CNN:

Skilling was found guilty on 19 counts of conspiracy, fraud, false statements and insider trading. He was found not guilty on eight counts of insider trading.

Lay was found guilty on all six counts of conspiracy and fraud.

~~Quick~~ Many thoughts, updated periodically and in no particular order:

Another victory for prediction markets: As I wrote back in April: "The latest contract at Tradesports for Lay to be convicted on at least 4 counts was 65.5 and for Skilling to be convicted on a whopping 16 or more counts was 66. In other words, roughly 1-2 odds in favor of conviction."
The acquittal of Skilling on some of the insider trading counts suggests the jury approached the issues with an open mind, contrary to defense claims that they could not get a fair trial in Houston.
It's not the crime, it's the cover up. The real crimes at Enron mainly consisted of turncoat government witness Andrew Fastow's shady deals, but Skilling and, especially, Lay are going down for improperly misrepresenting Enron's fortunes.
Mega-coverage by the Houston Chronicle's multiple blogs. The Chron's Enron blogs have been a breakthrough in showing how the MSM can make highly effective use of the new media when it wants to.
Lay will not be required to wear one of those electronic positioning ankle bracelets, but will not be allowed to leave the courthouse until he surrenders his passport. Query: Does surrendering your passport really make it all that hard for a wealthy guy to leave the country? Do you have to clear customs/immigration before taking a private plane flight out of the country? How about by yacht? I assume that the real problem is that a person without a passport would find it difficult to live abroad. But Andrew Luster managed to skip bail despite having surrendered his passport and being required to wear an ankle bracelet. Not that I think Lay or Skilling will skip. Just curious. [No illegal immigrant comments, please!]
One of the curious things about this case is the documented evidence that "a number of people were contradicting Enron's own rosy view of itself long before the middle of 2001." At what point does a lie by top management cease to matter if the market doesn't believe it? Presumably the government convinced the jury that people believed the lies Skilling and Lay told, but did the market really do so?
The Powers Report is still your "go to" document for background on the Enron mess. Here's what the Report says about Skilling with respect to one of the many related party transactions the company used to disguise expenses and losses: "As the magnitude and significance of the related party transactions to Enron increased over time, it is difficult to understand why Skilling did not ensure that those controls were rigorously adhered to and enforced. Based upon his own description of events, Skilling does not appear to have given much attention to these duties. Skilling certainly knew or should have known of the magnitude and the risks associated with these transactions. Skilling, who prides himself on the controls he put in place in many areas at Enron, bears substantial responsibility for the failure of the system of internal controls to mitigate the risk inherent in the relationship between Enron and the LJM partnerships."
Blogger/law prof Christine Hurt observes that the verdict came "as a surprise after journalists assumed that the jury would not come to a decision until after the holiday weekend." Maybe the jury wanted to enjoy the holiday? Or start wearing white shoes?
Blogger/law prof Larry Ribstein asks an interesting question about the acquittal of Skilling on most of the insider trading counts: "Does this mean that the jury thought he didn't know enough about what was happening to bar him from trading, but that he did know enough to go to jail for fraud?"
After the jury verdict was announced, the judge found Lay guilty on bank fraud charges that had been tried to the bench.
Will losing the Skilling case seriously harm star trial lawyer Daniel Petrocelli's reputation? (You'll recall that Petrocelli famously won the wrongful death suit against OJ Simpson, as documented in his book Triumph of Justice). The WSJ has free video of Petrocelli's reaction to the jury verdict.
- According to news reports before the verdict: "Daniel Petrocelli and his law firm probably won't get fully compensated for their work defending Jeffrey Skilling, as the former Enron Corp. chief executive appears to have exhausted his defense fund. But the payoff down the road could be well worth it, even if Skilling is convicted. The decision to defend Skilling is seen as a calculated business move by Petrocelli and his Century City law firm, O'Melveny & Myers, to burnish their reputation and expertise in white-collar criminal defense."
- It's the "even if Skilling is convicted part" about which I have questions.
Peter Lattman's identified two critical points that I suspect will quickly become (and correctly so) part of the conventional wisdom (or received learning, if you prefer):
- "Credit the prosecutors for emphasizing narratives the jury could understand rather than focusing on complex tales of off-balance sheet partnerships and byzantine accounting." (Link)
- " Lay’s testimony proved fatal. Everyone expected a charming, avuncular presence on the witness stand; instead, what they got was an argumentative, challenging, embittered man who refused to accept any personal responsibility for Enron’s collapse." (Link)
Over at Air America's blog, the first comment in a thread on the verdict is a message for Ken Lay: "While spending your final years in a Federal prison, as you are anally-probed by the huge throbbing member of your cellmate, I hope you think about your Enron traders laughing at the way they screwed the little ol' ladies in California out of their money."
- It's not just the fringe, either. You'll recall that California Democratic attorney general attorney general Bill Lockyer said: "I would love to personally escort Lay to an 8-by-10 cell that he could share with a tattooed dude who says, 'Hi, my name is Spike, honey.'"
- So is prison rape now part of the left's penal philosophy? [Update: Yes, pun intended.]
- Apropos of which, see my TCS column Crime? And Punishment, which asked "Should Dennis Kozlowski spend the rest of his life worrying about prison rape?" More seriously, the column argues against criminalization as a solution to the agency cost problem in corporations.
Conservative (?) pundit's Tammy Bruce's reaction is more Old Testament than old school: "Let's hope some is left for the victims, while the Lay and Skilling families can reap what their men have sown on others - poverty and fear of the future." Cf. Deuteronomy 5:9-10 ("I, the LORD your God, am a jealous God, visiting the iniquity of the fathers on the children, and on the third and the fourth generations of those who hate Me, but showing lovingkindness to ... those who love Me and keep My commandments.")
- To be sure, according to some scholars, the Old Testament passages in question suggest God will punish the children only if the children themselves are morally blameworthy. But Ms Bruce apparently doesn't think moral blameworthiness is necessary when it comes to the families of white collar criminals.
James Joyner is not surprised: "Jurors are composed of ordinary people who hold corporate titans in very low esteem. Unlike pop culture figures like singers and athletes, who tend to get a break from jurors awed by their celebrity, people hate CEOs."