HoustonChronicle.com -- http://www.HoustonChronicle.com | Section: Business March 24, 2003, 9:26PM Only prosecutors know next move Top Enron leaders not charged so far By MARY FLOOD and TOM FOWLER
The arrest of two relatively unknown Enron executives last week raises hopes that the investigation is moving forward, but also raises questions of whether criminal charges will ever reach the top of the corporate ladder. Of the 12 criminal charges filed in connection with Enron's demise, only seven have been against Enron insiders and only one of those against a big fish -- the 78-count indictment against former chief financial officer Andrew Fastow. Sixteen months after the company revealed accounting problems that lead to its downfall, a year after a special grand jury was seated and indicted Enron's accounting firm, the question that's being asked in office chatter and at dinner tables throughout Houston is whether executives such as former Chairman Ken Lay, former CEO Jeff Skilling or others will be charged. "This is like Chinese water torture," said a lawyer familiar with the investigation. "There are all these threats and muscle-flexing from the government but then nothing much happens." Only Enron Task Force prosecutors know what will happen, and they can't talk. "As criminal prosecutors, we must follow the evidence," said Leslie Caldwell, director of the task force, which works primarily in Washington, D.C., and Houston. "If and when there is sufficient evidence to prove beyond a reasonable doubt that a particular person engaged in criminal conduct, that person will be prosecuted." But the media and political attention focused on Enron has made the prosecutors' silence awkward, said Jacob Frenkel, a former federal prosecutor and Securities and Exchange Commission lawyer in Washington. "Now the public is looking for senior officials' heads in nooses," Frenkel said. Public satisfaction may depend on how many people are charged, but prosecutors say they need quality evidence to make charges, he said. There are several reasons top executives like Skilling and Lay may not have been charged, say observers of the case. The most obvious one is that they are not guilty of any criminal wrongdoing and prosecutors have simply not found evidence against them, even though they may still be looking. Or, it could be prosecutors have enough to make a case, but are seeking more evidence for a broad charge against several people and possibly the company itself. The public likely won't know until charges are filed or the task force disbands. Skilling and Lay have consistently said they committed no crimes. And Lay's lawyers have publicly stated they have supplied prosecutors with evidence of his innocence Dan Hedges, a former U.S. attorney in Houston now practicing as a defense lawyer, said he expects the last decision prosecutors will make is whether or not to charge Skilling or Lay. "One view, which is not necessarily right, is that the more time that goes by, the chances of them being indicted becomes less. But the cases against these two guys are so important and potentially so complex that they literally could be the last thing that happens," said Hedges, who has no Enron-related clients. The grand jury has heard from many witnesses about Lay's stock sales and use of Enron stock options to repay millions in loans from the company. Lay's children, his personal staff, financial adviser and even members of Enron's board have testified. That could indicate a build-up to an indictment, but it could also indicate prosecutors are thoroughly investigating every possibility before deciding to drop it. A recent New York Times story indicated Lay may have a good defense against an insider-trading charge. But his lawyers would not provide the Chronicle any documentation of Lay's finances and would not comment for this story. Prosecutors have not abandoned looking at Lay, however, and as recently as this month have questioned people about Lay's loans. The government lawyers could also be looking at other fraud-related charges against Lay or Skilling -- relating to anything from presentations to the Enron board to public statements about asset values. Several lawyers involved in the case believe that is what prosecutors are doing but also note that a built-in defense might come if Lay or Skilling had credible legal advice backing up their actions. The investigation into Enron Broadband Services has been seen as a pathway to charges against Skilling. For months a task force prosecutor has threatened, not cajoled, people involved in Enron Broadband, asking about the reliability of the technology behind the business and how executives, including Skilling, represented the business to investors and analysts. But only two charges have been filed, against mid-level former Enron broadband executives Kevin Howard and Michael Krautz over the propriety of a side deal involving Blockbuster Video. Two higher-ups in the broadband section were mentioned by their titles in the charges, but prosecutors did that in October with another Enron executive who has still not been charged. Bruce Hiler, Skilling's Washington, D.C.-based lawyer, said he won't comment on the investigation. "I have no idea what the prosecutors will do in this case," said another lawyer familiar with the task force's work. "They've gone about some of this in a strange way." He cites the prosecutors' penchant for making the case twice by filing charges, through which they can supply the media juicy details, then taking the same case for a grand jury indictment. Certainly these prosecutors have followed a classic pattern of trying to turn people down the food chain into informants who help them make cases against those further up. But the efforts haven't borne public fruit, except for the case against Fastow, who was clearly implicated by his protégé Michael Kopper. Kopper pleaded guilty and cooperated with the government. There are no signs Fastow is going to turn against Skilling and Lay and it's possible they will avoid charges. To make a case, Frenkel said, prosecutors must have documents or cooperating witnesses. "In white-collar cases you are looking for fingerprints," he said. That won't be easy. Enron used a labyrinth of clever, complex transactions, and tracing them to their source is far more daunting than unraveling the relatively commonplace fraud at such companies as WorldCom and Adelphia. Further complicating the issue is that in some cases Enron's machinations were legal, even brilliant, but not what lawmakers intended. For example, a lengthy congressional review of Enron's tax business was laced with vitriol over how the company's tax department was used as a revenue-generating machine. But ultimately the report had to conclude no laws appeared to have been broken. Hedges said the Justice Department is unlikely to have given up on making a case against Lay and Skilling, but they may have to. "The last thing on earth that should happen is the task force says they have no case and the DOJ tells them to file anyway," Hedges said. "Then (the top men) would walk and it would be the worst of all worlds."
