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Feds may miss nailing scandal CEOs

As memory of America’s most stunning bankruptcies and corporate mismanagement slip from the national stage, so too can the possibility for CEO convictions.
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The law-enforcement dragnet flung across the constellation of infamous business personalities tied to high-profile corporate scandals has largely failed to net any “stars.” As time wears on, the big fish may wriggle off the hook, legal experts say.

AS GOVERNMENT LAWYERS grind through tens of thousands of evidentiary documents, the public’s memory of gut-wrenching greed and financial manipulation fades, potentially hurting the chances that top executives of once-high flying, now bankrupt companies will ever be made to suffer any consequences of their actions.

“It’s much easier to gain a conviction when the criminal activity is relatively fresh,” said Christopher Bebel, a former federal prosecutor and former Securities and Exchange Commission lawyer now with the Houston based firm of Shepherd, Smith & Bebel.

That urgency to bring the case to trial while the outrage is fresh in the minds of the public is made all the more difficult in cases like Enron and WorldCom where there “the underlying fact pattern includes countless individuals” that have all created or touched an equally countless number of documents over a several-year time period, Bebel said. “That makes for a Herculean task,” he said.

Defense lawyers laughingly call repeated delays “the old wine defense… because you want the [facts of the case] to age like a fine wine,” said Al Pennington, a criminal defense attorney in Mobile, Alabama.

Time takes the public sting out of the case, Pennington said, what he called the “water cooler factor.”

It’s been a month or more since Enron or WorldCom were big news, Pennington said. “Well, in six months, eight months, while it will still be news to the [media], it won’t be news to the general public,” he said. “And when you’re facing the possibility of having to try it to the jury, you want it as far away from their minds, as far away from their immediate recollection as you can possibly get it.”


But defense lawyers acknowledge that delaying a trial, especially ones like Enron or WorldCom where there are massive paper trails, can be a double-edged sword.

“The longer the government has to develop its case the tighter they can make it,” Pennington said.

That kind of meticulous preparation seems, in part, to be responsible for the apparent sluggishness of these high-profile corporate scandal cases to come to trial.

“When you look at the criminal complaint that was brought against Fastow it’s very impressive the way they have matched up all the [paper] evidence with written statements,” Bebel said. “The government has poured thousands and thousands of hours into building this case” creating a case that has “so much strength that odds of conviction are dramatically enhanced,” Bebel said.

Bebel also cautioned not to get too caught in the timeline; it’s only been a little more than a year since Enron’s public acknowledgement of its earnings restatement, a move that sent the stock into a death spiral. And it hasn’t even been a year since the company fingered its former Chief Financial Officer Andrew Fastow as one of the key bad actors responsible for the company’s financial troubles.

That the government has come so far, so fast on the Fastow case — it appears likely he will be formally indicted Thursday — that Bebel says investigators have “moved with lightening speed.”


There is also a lot of political currency being banked as result of the investigations into America’s current corporate scandal climate.

“People get a bit nervous having invested so much time and resources on cases like Enron and WorldCom then watching the urgency of those cases slip off the national stage,” says a Justice Department investigator familiar with the cases. “There’s a political angle that underlies high-profile cases,” said the investigator, who requested anonymity. “Nobody likes to admit that, but it’s always there, always swirling around the work.”

Often it’s just a balancing act. Prosecutors naturally want to bullet-proof their case, to nail down the proverbial “smoking gun” documents to bring before a jury. But that desire has to be weighed against the fact that cases can and do get stale. And mostly that’s because of the human factor.

Behind every memo, every signature on a shady side deal, there is a human being, somewhere, at some time.

And for defense lawyers like Pennington, the more time and distance he can put between the so-called smoking gun and the person responsible for it, the better.

“You ask the person responsible for writing the memo or order or whatever ‘is your recollection better now or then?’” said Pennington. “Remember you may be asking people to recall actions taken three, four or five years ago,” he said. “You want to be able to say to the jury, ‘He’s remembering stuff that does not exist.”

And sometimes defendants just simply “out live the case,” Pennington said, recalling a statewide corruption case which seemed to drag on forever until disaster struck. “The government’s star witness was killed in a car accident. Guess what? No case,” he said. “So that happens. People die. People have strokes, things happen and people forget stuff.”

But perhaps not this time, at least not for the main actors involved in the Enron case. Attorney Bebel believes that the case against Enron’s former CEO Kenneth Lay is so strong that it won’t need Fastow’s help, “even if he undoubtedly could put the government case [against Lay] on the fast track.”

Bebel believes that even “if Fastow decides not to cooperate [with the government investigators] I think we would see an indictment of Lay within the six months. That might be a little aggressive, but I think that’s realistic.”