Thursday, April 6, 2006
Vinson & Elkins attorney Max Hendrick testified for the defense at the Enron conspiracy trial about his work investigating the issues raised by Sherron Watkins in her famous memo to Ken Lay discussing accounting problems at the company. Hendrick's "investigation" was quite limited (see the law firm's letter to Enron here), and V&E's report that largely exonerated Enron by noting that there were only "cosmetic" problems turned out to be incorrect, to say the least, although the firm did not actively cover-up wrongdoing at the company. Christine Hurt has an interesting post on the Conglomerate blog (here) discussing the testimony of Hendrick, including his cross-examination that raised the question whether V&E had an interest in seeing Lay and Jeffrey Skilling acquitted because of litigation against the firm by former Enron securities holders.
In reading reports about Hendrick's testimony, I wondered why the defense called him as a witness when the V&E report essentially dismissing Watkins' assertions turned out to be wrong, and Watkins' plea for an outside investigation was validated in many ways by subsequent events. Watkins testified for the government at trial, and the defense brought up some questions regarding her conduct around the time of the memo to Lay that could have hurt her credibility. Calling Hendrick, however, emphasizes the fact that Lay was put on notice of the problems and V&E, limited in what it could look at, effectively helped sweep the problems under the rug, at least for a little while. Did Hendrick help to rehabilitate Watkins by focusing the jury on her claims about accounting fraud and other problems at Enron, and the company's failure to respond? In the same vein, former Enron general counsel James Derrick, a former V&E attorney before going in-house at the company, was cross-examined about the limited investigation done by the firm and whether it should have done more (see Houston Chronicle blog here). The focus again is on the Watkins memo and how ineffective management and its attorneys were in responding to a worsening situation.
The upcoming testimony of Jeffrey Skilling, who is the next witness, will likely overshadow the witnesses called to this point by the defense. But the testimony of Hendrick (and Derrick) may have inadvertently helped the government. (ph)