Wednesday, January 19, 2005

Defending Cendant's CEO

With the trials of former CEOs Bernie Ebbers, Richard Scrushy, and Dennis Kozlowski just getting under way, and the trial of Enron's two former CEOs (Ken Lay and Jeffrey Skilling) around the corner, corporate chieftains are certainly in the spotlight in criminal prosecutions.  An interesting article from the New Jersey Law Journal (available on Law.Com) by Tim O'Brien reviews the long trial of former Cendant CEO Walter Forbes and his second-in-command, Kirk Shelton, which resulted in a guilty verdict for Shelton and a hung jury for Forbes. 

The article notes: "When it comes to surviving cooking-the-book corporate scandals, it's good to be the CEO. That seems to be the message from the prosecution of the top executive of Cendant Corp., the first major company hauled to court for the type of massive accounting frauds that rocked the nation and led to reforms."  The article describes the Forbes approach as the "Dumb CEO Defense" which this blog has more charitably called the "Honest-but-Ignorant CEO Defense" (see posts here and here).  Forbes testified that he focused on the "big picture" involving strategy and clients, leaving the details (such as accounting) to lower-level employees.  The article also discusses the "aggressive" tactics pursued by the Forbes defense team of Brendan Sullivan and Barry Simon from Williams & Connolly.  One approach was to extensively cross-exam the government's witnesses, which drags out the trial and makes it much more difficult for the jury to piece all the evidence together.  The trial lasted from May to November 2004, and the jury deliberated for over a month. 

The U.S. Attorney's Office has not announced whether it will pursue the charges against Forbes in a second trial.  The article is a worthwhile read as we watch other CEO prosecutions unfold. (ph)

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