Thursday, May 25, 2006
The jury returned guilty verdicts on all counts against former Enron CEO Ken Lay and 19 of 28 counts for Jeffrey Skilling, with not guilty on 9 of the 10 insider trading counts. The verdict came much more quickly than most expected, and U.S. District Judge Sim Lake also announced his decision convicting Lay on the bank fraud and false statements to a financial institution charges that were tried separately. For those interested, the redacted version of the indictment given to the jury is available below.
With the conviction of the two defendants, the next two issues significant issues will be sentencing and the inevitable appeal. The key to the sentencing under the Federal Sentencing Guidelines is the amount of the loss attributed to the defendant's crimes. Although the Guidelines are now advisory, Judge Lake has shown in other cases that he will follow them fairly closely in determining the final sentence. Under the fraud loss table in Sec. 2B1.1 in the 2000 Guidelines (here) that would apply to these offenses, a loss of more than $80 million would put them in range of a 6-7 year sentence, and additional enhancements for number of victims, sophisticated means, etc. could add enough points to put them in a 10-15 year range. An interesting question is whether Judge Lake will apply the obstruction of justice enhancement by finding that one or both defendants committed perjury; in a case like this, the government is almost guaranteed to request that increase. The defendants will argue that the loss was insignificant because the company's stock price was unaffected by their statements. Judge Lake also handled the trial and sentencing of Jamie Olis, and the Fifth Circuit required that he more carefully analyze the loss from his criminal conduct. The Judge's decision on Olis likely will provide an outline to how he will approach the sentencing of Lay and Skilling on the loss issue.
I expect that a key appellate issue will be the "Ostrich Instruction" given to the jury on the issue of determining the defendant's intent (see earlier post here). The use of this instruction usually is controversial, and the fact that the jury returned a guilty verdict on all counts for Lay and the non-insider trading counts for Skilling may actually help the defendants if the Fifth Circuit were to find the instruction should not have been given. The lack of any not guilty verdicts related to the disclosure counts could show that the jurors were influenced by the Ostrich Instruction, which would blunt the government's harmless error argument. (ph)