CORPORATE CRIME REPORTER
& Manella's Hueston Says Eichenwald Missed the Mark on Prosecution of Ken
20 Corporate Crime Reporter 45(1), November 15, 2006
In February 2003, the New York Times ran a front page business section article about former Enron CEO Ken Lay titled “Company Man to the End, After All,” by Kurt Eichenwald.
In the article, Eichenwald sought to debunk the prevailing wisdom at the time – that Lay betrayed his company, that he encouraged employees in the summer of 2001 “to buy company stock, even as he was secretly unloading much of his own stake.”
Over the course of 2,200 words, Eichenwald essentially laid out the defense Lay himself would make at his criminal trial three years later in Houston – that Lay sold Enron stock only under duress to meet margin calls – he had no other choice.
“Mr. Lay retained his faith in the company virtually until its collapse,” Eichenwald wrote.
And Eichenwald quoted Columbia University Professor John Coffee as saying – "This would be a case that the government would normally shy away from.”
Of course, the government did not shy away – and convicted Lay in May 2006 on ten counts of fraud and conspiracy.
Lay died of a heart attack in July 2006.
Eichenwald laid out a similar defense of Ken Lay in his 2005 best -selling book Conspiracy of Fools.
Eichenwald left the New York Times earlier this year to join a start-up business magazine.
John Hueston, a partner at Irell & Manella in Los Angeles and the former lead prosecutor at trial of Ken Lay, now says that Eichenwald’s writing about the Lay case “missed the mark.”
“My impression is that Eichenwald's premise was that Lay and Skilling, though arrogant, were not criminals,” Hueston told Corporate Crime Reporter in an interview this week. “They instead created a culture where crime could occur. My view was that that premise, though accurate in important respects, missed the mark. Both Skilling and Lay were more directly involved – the book failed to identify any such evidence. Having said that, it is certainly no fault of his because he didn't have our access to evidence and witnesses.”
“Eichenwald in his article ‘Company Man to the End After All’ referenced documents that he claimed supported the theory that Lay sold only under financial duress,” Hueston said. “After reviewing documents prior to trial, it was difficult for me to understand how he could come to that conclusion. . . Mr. Lay had shared documents with Eichenwald. My conclusion was that Eichenwald did not see all of the documents that prosecutors reviewed.”
Hueston said Lay’s defense counsel made the same mistake that Eichenwald made – and Lay paid for it.
“There were some grave strategic errors made by defense counsel,” Hueston said. “With respect to Lay, defense counsel said this – ‘As a matter of fact, one of the strongest parts of the case has to do with the fact that Ken Lay never sold one share of Enron stock that he was not compelled to sell. Let me say that again. . .’”
“That was not a promise that the defense needed to make,” Hueston said. “They believed, like Eichenwald, that the stock sale story was a strong part of their case and if they could distract the jury and prove that one point, they could win. But instead, it turned into a disaster. By making such an air tight promise, that allowed me to show that Lay in fact had choices. And if I could prove to the jury that he had the discretion to sell other stock or had other choices in his arsenal, then he would have been shown to have lied once again to the jury. And that is exactly what happened during a cross that laid out that he had other lines of credit that he could have used to pay off his margin calls, including other assets like Eli Lilly stock.”
Prior to trial, what were the odds that Lay and Skilling would be convicted?
“Prior to trial, we thought we had a good chance at convicting Skilling and a decent chance of convicting Lay,” Hueston told Corporate Crime Reporter. “The Lay case was one we thought we could lose. The Skilling case was one we thought it was possible to lose, but thought we should win, unless something surprising happened at trial. After the cross-examinations of both Lay and Skilling, we felt increasingly confident about our prospects for convictions. By the time we were waiting for jury verdicts, we believed that unless the jury had missed something or was a jury that we had completely miscalculated, they were likely at that point to return verdicts of guilty on at least some counts against both men.”
And what was his reaction when he heard that Ken Lay had died prior to sentencing?
“There wasn't a single serious legal analyst who was predicting that Ken Lay might be acquitted on appeal on all counts,” Hueston said. “Remember, he was convicted on all counts after both the jury trial with Skilling and a bench trial involving bank fraud. I had to prosecute that case the day after we finished the jury trial case, which was a very difficult thing to get up and do. In sum, Ken Lay was convicted on all counts in both trials after a very public defense, where he was on the stand in both cases. He was not only seeking acquittals. He was seeking social vindication. He achieved neither goal. So his death, after the convictions on all counts and no hope on appeal, was a merciful exit for him from the certainty of the same sort of sentence that Skilling received himself – namely a sentence in excess of 20 years, which would have been a life sentence for Lay.”
Hueston has just returned from a trip to China.
The Chinese wanted to hear first hand about Hueston’s fight against corporate crime at Enron.
His trip was sponsored by the State Department.
“The Chinese had closely followed the trial,” Hueston said. “And it is very important for Chinese businesses to have the respect internationally and credibility internationally to continue to bring foreign investment to China. In addition, multibillion dollar Chinese pension funds and other Chinese investors are looking to invest in the United States. So, China is eager to learn the nature of the regulatory and enforcement schemes in the U.S. both to assure themselves that their investments will be safe here and also to learn how to provide more assurances in China to encourage more foreign investment.”
(For a complete question/answer format transcript of the Interview with John Hueston, see 20 Corporate Crime Reporter 45(10), November 20, 2006, print edition only.)
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