June 18, 2005
Another Two Cents on the Kozlowski/Swartz Guilty Verdict
I figured I'd throw in my two cents (and I'm rounding up on the value) about the convictions of former Tyco CEO Dennis Kozlowski and CFO Mark Swartz. First, a question I heard on two news programs as I was flipping the channels was, "How will this verdict affect the Scrushy prosecution?" Not one iota, I hope. I doubt that the jurors in Birmingham, who have been locked up with each other going on four weeks, will somehow take their cue from the decision of twelve Manhattanites and return a guilty verdict -- or even a not guilty verdict to prove that they are not like all those nasty New Yorkers. While the Kozlowski case may have a "broader meaning" along with the Scrushy prosecution -- both men were CEOs with healthy egos, even for that group -- the conviction in the case has little to do with other pending prosecutions. One case it could have an impact on, at least conceivably, is the Enron conspiracy trial (Lay, Skilling, and Causey) scheduled for next January. This conviction, along with the sentencings of John and Timothy Rigas next week and Bernie Ebbers next month, could move one of the defendants in Houston to switch sides, especially if the sentences are substantial. A 5K1.1 motion, even in an advisory Sentencing Guidelines world, could be mighty enticing.
Second, one interesting point about the retrial is that the conventional wisdom is a retrial favors the defendant because defense counsel gets a preview of the government's case. That may be true in street crime cases, in which the limited discovery and use of confidential informants can result in real surprises at trial. I don't think that is so much the case in a white collar prosecution, where the basic transactions are set forth in the indictment and the documentary evidence is (usually) available to the defendant, who must wade through the morass of documents obtained by the grand jury or in a broad search of a business (especially computer files). The cases are more about interpreting the reams of documents and sparring over how to interpret regular business records. A key piece of evidence against Kozlowski was the W-2 that did not include $25 million in compensation, and whether he happened to notice it (it's a common mistake, one I make with alarming regularity). That document was known to both sides long in advance, and its importance was not somehow highlighted at the first trial. Indeed, the benefit of the retrial in this case appears to be to the government, which changed its focus from the more salacious aspects of the Kozlowski reign at Tyco (e.g. the Sardinian party with David providing libations) to a narrower presentation that focused on the accounting issues. The government made its case in about 25% less time (13 weeks as opposed to 18 weeks in the first trial), and kept the accounting and reporting issues front-and-center. Going technical is usually a recipe for disaster (see the Enron Broadband Services prosecution for an example of mind-numbing detail), but in this case the Manhattan D.A.'s office concentrated on what was truly important.
Finally, the defense lawyers' reaction, with the usual statments about being stunned by the verdict. The first trial appeared to end with an 11-1 vote in favor of conviction, before problems related to possible threats made to the holdout juror brought the deliberations to a quick end. This jury returned a guilty verdict on 21 out of 22 counts. You've got to put the best face on the conviction, but does anyone really believe these statements? The case moves to the next stage, regardless of the obligatory sound bites from both sides ("equal justice" proclaimed by Morganthau) that make the lawyers sound like shills. Sentencing is set for Aug. 2, although I doubt whether the court will be able to keep to such a tight schedule, what with vacations and other complications. (ph -- and don't ask for change)
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