Saturday, October 21, 2006
The conclusion of the District Court phase of the prosecution of Jeffrey Skilling should come with the sentencing scheduled before U.S. District Judge Sim Lake on Monday, October 23. The original sentencing date was September 11, and the Judge rather grudgingly granted a defense motion for a postponement. With the end of the highest profile prosecution of Enron defendants nearly upon us, there will be plenty of discussion about the meaning of the case and what comes next, so here are my two cents worth (and that's an overestimation):
- The Sentence: The sentencing materials have been filed under seal, but the government is seeking to use the 2001 version of the Federal Sentencing Guidelines, which provides for a higher sentence based on the amount of the loss. There will be fighting over the loss, which is the main driver of the sentence under the Guidelines. Unlike the Olis/Dynegy case, also presided over by Judge Lake, there are plenty of ways for him to view the collapse of Enron as being traceable to the securities fraud of Skilling (and the now-deceased Ken Lay) that can easily exceed the $400 million threshold for the greatest enhancement. After Booker, the Judge has some flexibility in determining the final sentence, but the Olis sentencing (and resentencing) show that he will hew pretty closely to the Guidelines. As for the final sentence, if the over/under line is twenty years I would bet the over, while a twenty-five sentence strikes me as the likely upper-end. The sentencing of John and Timothy Rigas of Adelphia (fifteen and twenty years respectively) and Bernie Ebbers of WorldCom (twenty-five years) are probably the parameters for CEO sentencing. While former Enron CFO Andrew Fastow received a six-year sentence, I doubt that will play much (if any) role in Judge Lake's final determination.
- Collateral Issues: The Judge is likely to decide the asset forfeiture issue along with the sentence, plus enter a restitution order. The government is looking for $183 million, which includes the amount owed by Lay but lost as a criminal forfeiture due to his death that triggered application of the abatement doctrine. While that's probably more than the Judge will order against Skilling, forfeiture and restitution make it unlikely that Skilling's lawyer, Daniel Petrocelli, will get any of the $30 million O'Melveny & Myers claims it is still owed. Then again, after being paid approximately $40 million so far, not many will shed tears over that unpaid bill (see BusinessWeek article here). I expect the Judge will grant a motion for bail pending appeal, especially after the Fifth Circuit denied en banc review of its decision in the Enron Nigerian Barge prosecution, U.S. v. Brown (see earlier post here). That decision overturned the conviction of three defendants on mail fraud charges involving the same honest services theory used in Skilling's case. I think it's unlikely Skilling will see the inside of an FCI in 2006.
- The Appeal: Plenty of issues, starting with the mail fraud/honest services instruction that may violate the holding in Brown. The problem for Skilling on that issue is that the honest services theory was one part of a few counts, and is unlikely to affect the conviction on other charges. Another issue will be the "ostrich instruction" as a basis for finding knowledge for the securities fraud and conspiracy charges. A significant sentence may be challenged as unreasonable, although Judge Lake may grant a small downward departure from the range recommended by the Sentencing Guidelines to demonstrate that the sentence was the product of a thorough review of the facts and law.
- The Punditry: Every April 15 demands a story about lines at the post office to mail tax returns, and what would the Thanksgiving holiday be without stories of it being the heaviest travel period of the year. Articles on the sentencing I expect will quote at least one former Enron worker (or retiree) who views any sentence less than death or life imprisonment as inadequate. There will be complaints from academics and defense lawyers about the severity of the sentence questioning why non-violent first offenders must spend "X years" in jail when they present no threat to society. The question whether the sentence was "fair" is ultimately unanswerable beyond an assertion of one's opinion, at least when it does not violate the Supreme Court's rather skimpy "cruel and unusual punishment" jurisprudence. Between the extremes of complete judicial discretion and rigid mandatory Sentencing Guidelines, the judge makes an educated guess.
With my track record of predictions, I am a good negative indicator. (ph)