Banking Law Prof Blog

Enron & Jeff Skilling - Still in the News

Today's Wall Street Journal has a short "Today's Agenda" item at the bottom of page one, letting us know that:  "A court will weigh overturning the conviction of Jeffrey Skilling, the government's only unalloyed courtroom victory in its Enron probe."

The Fifth Circuit Court of Appeals will hear arguments from the former Enron CEO Jeffrey Skilling that his conviction and 24 year sentence should be reversed because he claims that prosecutors withheld 400 pages of notes from FBI interviews of Andrew Fastow which might have been exculpatory.

Link for more details:  http://letterofapology.com/category/enron/

(ag) April 2, 2008, in Corporate Governance.

No Reprieve for the Wicked

I heard it on NPR:  Bernie Ebbers, former CEO of WorldCom, got a "No" from the Supreme Court today in response to his appeal from a 25 year prison sencence he is currently serving.  Surely you remember Ebbers.  He steered WorldCom right into the largest bankruptcy case in U.S. history, eclipsing Enron.  Apparently, one issue on appeal was the trial judge's instruction to jurors that they should vote for conviction if  they found that Ebbers consicously avoided learning about the WorldCom fraud committed on his watch.  The Supreme Court did not even dignify the appeal with comment.

(ag) Mar. 5, 2007, in Corporate Governance

V&E Dismissed from Enron Litigation - Banks Remain as Deep Pockets

Here's what some Corporate/Legal Ethics Profs are saying about the Lead Plaintiff's decision to dismiss the law firm Vinson & Elkins from the Enron class action lawsuit:

"Yesterday, Judge Harmon granted plaintiff's motion to voluntarily dismiss Vinson & Elkins from the Enron class action.  The motion was conditioned on a finding by the court that the dismissal is not a "settlement" within the meaning of the Private Securities Litigation Reform Act (PSLRA).  The idea was to avoid triggering the Act's provision for "proportionate share liability" and thus permit a larger recovery against the remaining "deep pocket" defendants, namely banks.  Technically, the dismissal is "without prejudice," so class members could pursue any claims individually, but of course in reallity that's not going to happen, as the court acknowledges.

The full order of the court is attached.  Here are the key paragraphs:

The Court recognizes that while the class members are
not legally bound, i.e., precluded from pursuing the claims
dismissed by Lead Plaintiff in these motions, as a practical
matter they may well be. Clearly a class action serves to help
and protect those who could not afford to bring suit on their own.
The Court further recognizes that many class members and the
public at large may be angered by the dismissal of Vinson & Elkins
and the Enron directors without a trial to determine whether they
are liable for defrauding shareholders, especially in the wake of
the numerous allegations made against them by Lead Plaintiff for
years. Defendants have argued that by dismissing those most
directly responsible for Enron’s business and instead pursuing
secondary-actor banks, Lead Plaintiff is “taking the Enron out of
Enron.”

Nevertheless, the Court recognizes the right of Lead
Plaintiff to control its suit, to streamline it for trial, and to
pursue the “deepest pockets” without expending further time and
money on Defendants from which it does not expect to be able to
collect substantial funds,9 as long as it does not violate Rule
23(e). Lead Plaintiff represents that its decision to dismiss the
law firm and the Enron individual Defendants is based on their
relative financial status, not on the merits of the claims against
them. In Lead Plaintiff’s effort to maximize recovery for the
class and avoid unnecessary expenses for relatively minimal gain,
while preserving the class members’ right to sue independently,
there is no evidence of any conflict of interest between Lead
Plaintiff and the class. Thus the Court concludes that there is
no “settlement” to trigger the judgment reduction provision and
no law applicable to the circumstances here to prevent the
voluntary dismissal of Vinson & Elkins . . . .

9 Mr. Villa has argued, and Lead Plaintiff appears to agree,
that Vinson & Elkins’ resources pale in comparison with those of
the Financial Institutions, that Vinson & Elkins would be unable to
pay a sizeable judgment, and that further pursuit of the law firm
would be expensive and risky.

"A sad day for legal ethics, in my view (full disclosure: I was retained as an expert by the plaintiff class in the case)." - George Cohen, Brokaw Professor of Corporate Law, University of Virginia School of Law

(ag) Jan. 26, 2007, in Corporate Governance

Full Text of SEC's Rule on Internet Availability of Proxy Materials

Today, the SEC posted the full text of its new rule on Internet Availability of Proxy Materials.  Of course, as the rule provides, Notices of Internet Availability of Proxy Materials may not be sent to shareholders before July 1, 2007. 

This rule has the potential to increase shareholder activism by reducing the cost of engaging in proxy solicitations.  Clearly, issuers will also benefit from reduced costs.  Let's see what happens.

Link:  http://www.sec.gov/rules/final/2007/34-55146.pdf

Concurrently, the SEC is seeking comments on a Proposed Rule that would require issuers and other soliciting persons to post the proxy materials on a website and to give shareholders a choice about how they wish to receive proxy materials.

Link:  http://www.sec.gov/rules/proposed/2007/34-55147.pdf

(ag) Jan. 22, 2007, in Securities Law/Corporate Governance

Waiver of Corporate Attorney-Client Privilege

After the corporate scandals at the turn of this century, DOJ worked hard to investigate and prosecute corporate wrongdoers.  The easiest path, of course, is the internal investigation memo prepared by the corporation's lawyers.  To get that, DOJ needed a waiver of corporate attorney-client and work product privilege.  So, the "Thompson Memo" encouraged prosecutors to reward corporations that waived the attorney-client privilege with a prosecutorial decision not to indict -- or to go easier in sentencing because of "cooperation" -- which means waiver of privilege.

The American Bar Association and Congress got all over DOJ for this originally well-intentioned policy.  Sen. Arlen Specter introduced legislation that would have countermanded this practice.  On December 12, 2006, DOJ's Deputy Attorney General Paul McNulty issued a new memo  which supersedes the Thompson Memo.  But is this a real policy change -- or just lipstick on a pig?

Here's a link to the McNulty Memo.  See what you think!

Link:  http://www.usdoj.gov/opa/pr/2006/December/06_odag_828.html

(ag) Jan. 19, 2007, in Corporate Governance.

Business and Ethics - Contradiction in Terms?

Here's the website for a movie I am discussing in my corporate governance course:  "The Corporation", a movie documentary based on Joel Bakan's book, "The Corporation:  The Pathological Pursuit of Profit and Power."

http://www.thecorporation.com/index.cfm?page_id=312

(ag) Jan. 11, 2007, in Corporate Governance

Proxy Materials & the Internet

Effective July 1, 2007, SEC Rules will allow companies to furnish proxy materials to shareholders through a “notice and access” model. Under this elective model, a company must post its proxy materials on an Internet Web site and send a Notice of Internet Availability of Proxy Materials to shareholders at least 40 days before the meeting date.  This amendment to the Proxy Rules was adopted by the SEC at its Dec. 13, 2006 meeting.  Of course, this process should result in a significant cost saving in producing proxy materials -- both for companies and for shareholders that want to conduct proxy solicitations.  Shareholders that want paper copies can still request and receive them.

At the same time, the SEC adopted a Proposal to make this "notice and access" model mandatory for all solicitations not related to a business combination transaction.  The SEC seeks public comment on this Proposal for 60 days after Federal Register Publication.

Link to SEC Release 2006-209:  http://www.sec.gov/news/press/2006/2006-209.htm

(ag) in Securities Law/Corporate Governance