MARGARET WARNER: For the significance and prospects of the government's case against Skilling, we turn to: Kurt Eichenwald of the New York Times -- he was in the Houston courtroom this morning; and John Coffee, a professor specializing in corporate law and white collar crime at Columbia Law School.
Welcome back to you both, gentlemen.
Kurt Eichenwald, that was quite a scene today, the former high-flying Jeff Skilling taken to a courthouse in handcuffs. What was it like inside the courtroom?
KURT EICHENWALD: Well, pretty much business as usual. I mean, other than the fact that the place was packed with reporters -- it was standing room only -- and that Mr. Skilling was, in terms of his legal team, was really loaded for bear, it was fairly calm. I mean he went in, they had a pre-arrangement on bail, he was released on $5 million bond. He pleaded not guilty. But it wasn't emotional, there wasn't... you know, there weren't any strong scenes. It was a very just simple procedure.
MARGARET WARNER: Garden variety indictment. This is a complicated case. This is a huge indictment. I'm sure you've looked at it and I have, too. What's the nub of this case, what's the gist of this case against him?
KURT EICHENWALD: Well, the basic point is that...what the government is saying is that Enron was a company that was in truth falling apart, that it was unable to meet the financial expectations of Wall Street and continued to do so through accounting gimmicks, through games, through one-shot sales, through one-shot markups of the values of assets, by creating reserves and then bleeding them off.
One of the things that's most interesting about these charges is that there are some that are undeniably charges of criminal activity that anybody would be faced [sic]. Others of them are, in and of themselves, individually, the kinds of things that a lot of companies do, the kinds of games-playing that a lot of companies do, the earnings management they do at the end of the quarter to meet Wall Street's estimates.
What's interesting about that, though, is it is the compilation, it's the magnitude, the quarter after quarter appearance of what the government is charging, that, you know, they are truly trying to create what appears to be, here is the big picture of Enron. And so the defense is going to be arguing it on the details. They're going to be saying, no, Andersen, Arthur Andersen approved the accounting here, there's a business judgment reason for this, and that's really going to be the battle in the courtroom.
MARGARET WARNER: Professor Coffee, the other big element is that at the same time, Skilling is actually selling his own stock.
JOHN COFFEE: I think you're quite right. I think that the jury may be confused, their eyes may glaze over when it comes to a battle of accounting principles with rival experts on both sides. But I think any jury can understand the difference between the defendant's actions and the defendant's words. It's very important that Mr. Skilling sold something like $62 million worth of stock in just a 15-month period, as the company was falling apart and after he resigned.
At the same time he was doing that, he was telling the world and securities analysts in particular, that the company had a bright future, everything was better, and that there was a very rosy picture. So his behavior and his words to the world are glaringly inconsistent, and I think juries pick that up fairly quickly.
MARGARET WARNER: Do you share Kurt Eichenwald's assessment or expectation of what the defense will consist of?
JOHN COFFEE: Oh, I think the defense has to fight this piece of hay by piece of hay, because there's a huge haystack that's been thrown on the defendant. As Kurt properly said, the charges here cover the waterfront, there's a lot of mud thrown at the wall in the hopes that is some of it may stick. And he's particularly correct in saying the charges run from the extremely culpable to the fairly pedestrian kind of earnings management that most companies during the 1990s were engaged in to some degree.
MARGARET WARNER: Kurt, the deputy attorney general who had a press conference today said these kind of cases, he acknowledged, are very hard to prove in white-collar case because you not only have to prove that the fact occurred, but that you have to prove to the jury that the person who did it, what was in their mind, as he put it. Does that definitely apply here, and if so, how can they do that?
KURT EICHENWALD: That is, without doubt, the critical issue in every Enron case. I mean, now this one in particular, Jeff Skilling. There are no secret bank accounts, there are no transactions where money is funneling out of the company and into his pocket in any way, as there were with the criminal case against Andy Fastow, the former chief financial officer, who plead guilty earlier this year.
What you have to establish, what the government has to establish is that the actions that were being undertaken, the transactions being entered into, were done with the knowledge that they were in violation of the accounting rules. There are ways that that can be done. There can be...if the evidence is suggested in the indictment, the evidence is they decide we need this much money and then they back in to it by changing the accounting treatment of certain things, that's going to be evidence of intent.
On the defense side of the ledger, they're going to be able to keep turning, and believe me, they're going to do it a lot, they're going to be able to keep turning and saying Arthur Andersen said this was appropriate. That is known as a reliance defense. I relied on the professional advisers. I mean, truly, one of the things, having finished reading the Skilling indictment, one of the things that I walked away with was just an amazement at how much Arthur Andersen approved that clearly just went far too far off the track in terms of what was appropriate.
MARGARET WARNER: And of course, Arthur Andersen having been prosecuted and is now defunct. Professor Coffee, then how important is, say, this Andrew Fastow who did cut a plea deal and he only got two charges against him and the rest were set aside? Is he key to the prosecution's case?
JOHN COFFEE: I think you're exactly right. The government waited two years before indicting Mr. Skilling, and they waited only about three or four weeks after Mr. Fastow's guilty plea because they have to prove intent that he knew the financial statements were cooked. They're going to rely on Mr. Fastow for that, because he can get on the witness stand and say, yes, there was a conspiracy I was part of it, Mr. Skilling was part of it, Mr. Causey was part of it and I told Mr. Skilling that we were way over the line in terms of our use of these special-purpose entities.
So the jury won't be particularly convinced by broad propositions about what accounting principles may require. They may, however, be very convinced when someone else says he knew it because I was told him, we were all in it together and we cooked the books. That's the simple way the government can try to attribute knowledge to Mr. Skilling.
MARGARET WARNER: And then also, what do you make, Professor, of the fact that Richard Causey, the former chief accountant, he's named in a lot of these counts in the indictment. I mean are the prosecutors trying to turn him against Skilling, or are these two guys up there facing it together?
JOHN COFFEE: He's under an extraordinary amount of pressure. It took about a year for Mr. Fastow to flip, twisting slowly in the wind the entire time. Mr. Causey may also. And if Mr. Causey flips because the government will offer him very significant concessions and probably none to Mr. Skilling, then it becomes two co-conspirators saying we were guilty and both pointing their fingers at Mr. Skilling. At that point, it's going to be very, very difficult for Mr. Skilling to mount a credible defense.
MARGARET WARNER: Kurt Eichenwald, the government said today it's seeking, in addition to jail time-- by the way, how much jail time could he get if convicted on all of these counts?
KURT EICHENWALD: One of the fallacies of all this is when they say how much they can get. Technically, he could get 335 years. Under the sentencing guidelines, that's just sort of off the charts. The reality is what we're talking about is, if he were convicted on everything, if he were to go through the guidelines, I haven't done the calculation, I wouldn't be able to without a pre-sentencing report, but you'd probably be talking about fifteen to twenty years.
MARGARET WARNER: And then briefly, they are also seeking that $60 million in insider trading profits that they say Skilling made. Do prosecutors know where that money is?
KURT EICHENWALD: Well, it wasn't, it's not just insider trading profits; it's profits that are they say are derived from the fraud. Yes, they know where all of it is. There's no hidden money here. These are...they're sitting in brokerage accounts, they're sitting in bank accounts, they're sitting in real estate that he owns. And there are no offshore accounts, there's... it's just, you know, a wealthy man's portfolio.
MARGARET WARNER: And one brief final question to you, also, Kurt: Is Ken Lay still in the prosecutor's sights, or is he in the prosecutor's sights? What can you tell us about that?
KURT EICHENWALD: I have never been...even though the public perception has always been that this case is about Ken Lay, I have never really subscribed to that. His fingerprints have not been on the types of transactions that are at the center of this case. He's never been held up as a hands-on manager. Mr. Skilling has always been portrayed as one of the people who was the ultimate target of the investigation. His was a name you heard a lot.
This doesn't mean that Ken Lay might not face criminal charges. If somebody comes forward and says, you know, I told Ken Lay in July of 2001 all of these things were true and Ken Lay had obvious reason to believe that it was true, say, if it was coming from Andy Fastow, then he might have trouble. But there's no indication that that happened, there's no indication that that's true. And I would not be surprised if this case ended without any charges against Ken Lay.
MARGARET WARNER: Okay, Kurt Eichenwald and Professor John Coffee, thank you both.