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THE FALLOF ENRON

Convictions for Enron Execs Would Be Hard Won

January 28, 2002|ERIC LICHTBLAU and DAVID G. SAVAGE | TIMES STAFF WRITERS

WASHINGTON — Although Enron Corp. may have destroyed thousands of documents, misled shareholders and left the retirement accounts of many of its employees nearly worthless, legal experts say the prospect of serious criminal convictions of corporate executives is far from certain.

Despite some recent success in corporate fraud cases, prosecutors must overcome daunting hurdles, including changes in federal regulation of insider trading, the vagaries of securities law and the sometimes conflicting agenda of congressional investigators, according to law professors, attorneys who specialize in white-collar crime and law enforcement officials.

Evidence that Enron destroyed documents related to the company's meteoric collapse offers the most compelling prospect for a criminal case, suggesting possible obstruction of justice charges, legal experts and law enforcement officials agree.

But it could take years for authorities to build more serious charges of conspiracy, insider trading or securities fraud against Enron's higher-ups, and even then it may prove tough to return convictions, experts predicted.

"Financial fraud cases are very hard to prove. [Executives] can say they made bad business judgments, but you have to prove unanimously and beyond a reasonable doubt that they deliberately intended to deceive" the public and their shareholders about the company's finances, said Columbia University law professor Jeffrey N. Gordon.

Even as FBI investigators began descending on Enron's Houston headquarters last week to probe possible crimes, they probably will confront several legal and political realities that could work to Enron's advantage. Among the potential roadblocks:

* The entire U.S. attorney's office in Houston has pulled out of the investigation because too many prosecutors are related to Enron employees, forcing the Justice Department to create a special task force that must start from scratch in probing the energy company's labyrinth of partnerships.

* Democrats already have called for an independent counsel to probe Enron's well-documented political connections to the Bush administration, but the demise of the outside counsel law in 1999 has muddied the process for determining how and when to appoint an outside counsel.

* A recent rule change at the Securities and Exchange Commission, authorizing prearranged sell-offs of executives' stock, gives added insulation to allegations of insider trading and could provide former Enron Chairman and Chief Executive Kenneth L. Lay and other executives with a built-in defense.

* And Congress' zeal to conduct high-profile hearings on Enron could complicate the use of testimony from witnesses who become part of the criminal probe, as happened in the Iran-Contra scandal. In that case, charges against Oliver L. North and John M. Poindexter were thrown out in 1990 because their prosecutions were deemed tainted by immunized congressional testimony.

Coordinating Immunity Offers

Justice Department officials have begun discussions with Congress on how to coordinate immunity offers that Congress might make to witnesses, such as David B. Duncan, the partner at accounting firm Andersen who oversaw the Enron account. Duncan, who since has been fired, invoked the 5th Amendment last week before a congressional committee rather than answer questions about the destruction of Enron documents.

The department hopes to blunt the effect that any congressional immunity deals would have on future criminal cases.

"We never like to see potential witnesses paraded before Congress, but that's always a danger in a case like this," acknowledged a law enforcement official who asked not to be identified.

Enron spokesman Eric Thode said it would be premature to discuss any criminal allegations, noting: "We'll just let the investigations take their course, and, of course, we're cooperating fully."

Despite the obstacles that prosecutors face, authorities are buoyed by the recent progress they have made in several other high-profile financial fraud cases.

In Pennsylvania, the former chief financial officer of apparel maker Leslie Fay Cos. was sentenced last week to nine years in prison for inflating the company's earnings by $81 million. The scheme forced the company into Chapter 11 bankruptcy protection for four years.

In San Francisco, former executives at health services giant McKesson Corp., are facing civil and criminal charges for allegedly concocting bogus revenue figures. The losses for the company's shareholders: $9 billion.

And in New Jersey, in a case with even more telltale similarities to Enron, the former chairman and vice chairman of Cendant Corp.--a franchiser whose brands include Howard Johnson, Avis and Century 21--are awaiting trial on charges of conspiracy and securities fraud.

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