Blowing Smoke or Raging Fire?
There's an old adage among trial lawyers: "If the facts are on your side, argue the facts. If the law is on your side, argue the law. If you have neither, confuse the jury."
Attorneys for former Enron Chairman Kenneth Lay and former Chief Executive Jeffrey Skilling are clearly focused on the confusion strategy. And if their opening arguments are indicative of the strength of their defense, Lay and Skilling should cop a plea bargain.
Indeed, opening arguments by the defense hinted at the existence of nary a wart in Lay and Skilling's character--or even their management of Enron. Daniel Petrocelli, Skilling's attorney, characterized him as a "brilliant visionary" who changed the energy world and rose to the top of the corporate ladder. He focused on Enron's efforts to build its various energy businesses in the 1990s, when it appeared to be a successful company. Petrocelli insisted that Enron's accounting was legal, and that all transactions were vetted by top lawyers, accountants and investment bankers.
Petrocelli's pushy New Jersey-meets-Los Angeles style was not received well by the jury of Houstonians. One must only look to 1985, when a similarly brash attorney named Marty Lipton testified during the courtroom showdown between Texaco and Pennzoil over Getty Oil. Lipton's outsider, in-your-face demeanor surely contributed to the $11 billion awarded to Pennzoil.
Lay's attorney, Mike Ramsey, attempted to pull at heart strings, recounting his client's extensive charitable works and his efforts to build a stadium once known as "Enron Park." Ramsey showed pictures of Lay with such luminaries as the first President George Bush, Russian Premier Mikhail Gorbachev and Henry Kissinger. He even resorted to showing pictures of Lay with his family and grandchildren.
The message: Lay and Skilling are fine and decent men, incapable of doing all the bad things of which they are accused. All the defense needed was the violins.
The defense seemed strategically out of sync at times as well. On several occasions during proceedings, Judge Sim Lake soundly rejected the defense's highly technical objections. Bearing in mind that this is the same no-nonsense judge who, last Monday, picked a jury in one day for the most important corporate-fraud trial of all time, frequent interruptions are a mistake. Judge Lake also appeared to set jurists at ease with his paternal handling. If the defense continues to anger him, they may lose the jury more than they have already--Petrocelli's plans to wear cowboy boots notwithstanding.
John Hueston, the federal prosecutor, chose not to insult the intelligence of the Enron jurors. He presented a compelling and easily understood case that Lay and Skilling knowingly lied to the investing public about Enron's financial condition, when they were well aware the company's finances were crumbling.
The motive? Greed. Hueston charged that Lay and Skilling were trying to keep the stock price up, so they could sell out before the company collapsed. Greed is a toxic concept to plant in jurors' minds. It's an emotion that is familiar. And Hueston clearly plans to keep his case tightly focused to convince the Enron jury that Lay and Skilling knowingly lied.
That strategy played itself out on Wednesday, when Enron Vice President of Investor Relations Mark Koenig took the stand. Koenig testified humbly and remorsefully that he was "sick" that he had to--at Skilling's direction--lie to Wall Street and to investors that Enron had exceeded earnings expectations, when in fact they had not. He testified convincingly that he was uncomfortable giving out false information--especially because he knew the true state of affairs. But he still followed the "Enron program."
However, Koenig's humility and position at Enron may not even be the most damaging aspect of his testimony. Three words, "I was guilty," could prove most damning at the end of the day. This was Koenig's response when asked why he pled guilty and agreed to testify for the prosecution. The insinuation was that his motive (and that of future witnesses) is to avoid long-term jail time. This defense's strategy requires too much of a leap of faith on the part of the jury. Perhaps indicative of what's to come, the government's convictions in the Bernard Ebbers and Martha Stewart cases started with convincing testimony by investor relations witnesses.
A Look Ahead
Recent white-collar trials have shown that, even in an age of widespread corporate malfeasance, "reasonable doubt" can destroy a well-prosecuted case. Despite a very strong first week, the prosecution still has to ensure that the words, "Ken Lay and Jeff Skilling told me to lie," are uttered in the coming weeks. Whistleblower Sherron Watkins, who warned Lay that she feared Enron would "implode in a wave of accounting scandals," will likely provide that sound bite.
Due up this week for the prosecution is Ken Rice, the former head of Enron's broadband unit. Rice pled guilty to securities fraud. Rice's testimony will show jurors how Enron fraudulently boosted earnings. This is an area that will require the prosecution to discuss Enron's finances, which carries the risk of confusing the jury.
All in all, for Lay's and Skilling's sake, their attorneys better have something up their sleeves to spring on the Enron jurors as the trial unfolds. Even with all their attempts at creating smoke, jurors can still see a raging fire.
Jake Zamansky is principal of Zamansky & Associates, a New York securities-law firm representing individual investors.
Attorneys for former Enron Chairman Kenneth Lay and former Chief Executive Jeffrey Skilling are clearly focused on the confusion strategy. And if their opening arguments are indicative of the strength of their defense, Lay and Skilling should cop a plea bargain.
Indeed, opening arguments by the defense hinted at the existence of nary a wart in Lay and Skilling's character--or even their management of Enron. Daniel Petrocelli, Skilling's attorney, characterized him as a "brilliant visionary" who changed the energy world and rose to the top of the corporate ladder. He focused on Enron's efforts to build its various energy businesses in the 1990s, when it appeared to be a successful company. Petrocelli insisted that Enron's accounting was legal, and that all transactions were vetted by top lawyers, accountants and investment bankers.
Petrocelli's pushy New Jersey-meets-Los Angeles style was not received well by the jury of Houstonians. One must only look to 1985, when a similarly brash attorney named Marty Lipton testified during the courtroom showdown between Texaco and Pennzoil over Getty Oil. Lipton's outsider, in-your-face demeanor surely contributed to the $11 billion awarded to Pennzoil.
Lay's attorney, Mike Ramsey, attempted to pull at heart strings, recounting his client's extensive charitable works and his efforts to build a stadium once known as "Enron Park." Ramsey showed pictures of Lay with such luminaries as the first President George Bush, Russian Premier Mikhail Gorbachev and Henry Kissinger. He even resorted to showing pictures of Lay with his family and grandchildren.
The message: Lay and Skilling are fine and decent men, incapable of doing all the bad things of which they are accused. All the defense needed was the violins.
The defense seemed strategically out of sync at times as well. On several occasions during proceedings, Judge Sim Lake soundly rejected the defense's highly technical objections. Bearing in mind that this is the same no-nonsense judge who, last Monday, picked a jury in one day for the most important corporate-fraud trial of all time, frequent interruptions are a mistake. Judge Lake also appeared to set jurists at ease with his paternal handling. If the defense continues to anger him, they may lose the jury more than they have already--Petrocelli's plans to wear cowboy boots notwithstanding.
John Hueston, the federal prosecutor, chose not to insult the intelligence of the Enron jurors. He presented a compelling and easily understood case that Lay and Skilling knowingly lied to the investing public about Enron's financial condition, when they were well aware the company's finances were crumbling.
The motive? Greed. Hueston charged that Lay and Skilling were trying to keep the stock price up, so they could sell out before the company collapsed. Greed is a toxic concept to plant in jurors' minds. It's an emotion that is familiar. And Hueston clearly plans to keep his case tightly focused to convince the Enron jury that Lay and Skilling knowingly lied.
That strategy played itself out on Wednesday, when Enron Vice President of Investor Relations Mark Koenig took the stand. Koenig testified humbly and remorsefully that he was "sick" that he had to--at Skilling's direction--lie to Wall Street and to investors that Enron had exceeded earnings expectations, when in fact they had not. He testified convincingly that he was uncomfortable giving out false information--especially because he knew the true state of affairs. But he still followed the "Enron program."
However, Koenig's humility and position at Enron may not even be the most damaging aspect of his testimony. Three words, "I was guilty," could prove most damning at the end of the day. This was Koenig's response when asked why he pled guilty and agreed to testify for the prosecution. The insinuation was that his motive (and that of future witnesses) is to avoid long-term jail time. This defense's strategy requires too much of a leap of faith on the part of the jury. Perhaps indicative of what's to come, the government's convictions in the Bernard Ebbers and Martha Stewart cases started with convincing testimony by investor relations witnesses.
A Look Ahead
Recent white-collar trials have shown that, even in an age of widespread corporate malfeasance, "reasonable doubt" can destroy a well-prosecuted case. Despite a very strong first week, the prosecution still has to ensure that the words, "Ken Lay and Jeff Skilling told me to lie," are uttered in the coming weeks. Whistleblower Sherron Watkins, who warned Lay that she feared Enron would "implode in a wave of accounting scandals," will likely provide that sound bite.
Due up this week for the prosecution is Ken Rice, the former head of Enron's broadband unit. Rice pled guilty to securities fraud. Rice's testimony will show jurors how Enron fraudulently boosted earnings. This is an area that will require the prosecution to discuss Enron's finances, which carries the risk of confusing the jury.
All in all, for Lay's and Skilling's sake, their attorneys better have something up their sleeves to spring on the Enron jurors as the trial unfolds. Even with all their attempts at creating smoke, jurors can still see a raging fire.
Jake Zamansky is principal of Zamansky & Associates, a New York securities-law firm representing individual investors.
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