Enron's Lay, Skilling Face Uphill Battle on Appeal

Former Enron executives Kenneth L. Lay and Jeffrey K. Skilling plan to appeal their convictions.
Former Enron executives Kenneth L. Lay and Jeffrey K. Skilling plan to appeal their convictions. (By F. Carter Smith -- Bloomberg News)
By Carrie Johnson
Washington Post Staff Writer
Saturday, May 27, 2006

HOUSTON, May 26 -- Now comes the second act.

Defense lawyers for former Enron Corp. leaders Jeffrey K. Skilling and Kenneth L. Lay already are activating plans to appeal their convictions on fraud and conspiracy charges, the start of a costly and potentially years-long process designed to keep both men out of prison.

But as the defense teams inspect transcripts from the four-month-long trial and scrutinize juror interviews for signs of bias, their goal may be a long shot. U.S. District Judge Simeon T. Lake III generally won plaudits from legal experts, raising the bar for a defense bid to overturn the verdict in one of the most complex business-fraud cases in history.

"The prospects for a successful appeal are extremely slim," said Michael Wynne, a former prosecutor who followed the case and now works at the Houston firm Yetter & Warden LLP.

Lake avoided several pitfalls by barring the government from introducing extraneous and inflammatory information, including Lay's response to a 1987 trading scandal in Enron's New York office. Prosecutors argued that Lay's alleged blind eye in the face of warnings nearly two decades ago mirrored the behavior he was accused of engaging in when the company began to crater in late 2001. But he was never charged with wrongdoing in connection with the earlier affair, so the judge excluded the testimony.

Defense lawyers also have criticized the judge repeatedly for refusing to move the trial from Houston and for picking jurors in just one day. Lake may have inoculated himself by allowing defense lawyers wide berth in a multi-page jury questionnaire and by taking the reins himself to inquire whether each prospective juror could keep an open mind.

Andrew Weissmann, former director of the government's Enron Task Force and now a partner at Jenner & Block LLP, called the trial-location issue "a loser" for the defense because the eight women and four men on the jury showed that they could evaluate the evidence with intellect, not emotion, by declining to convict Skilling on nine insider-trading charges. In a previous Enron trial in Houston, former corporate accountant Sheila Kahanek won a full acquittal, proving that people connected to the company don't automatically lose the presumption of innocence in the town that was once Enron's headquarters, Weissmann said.

Even so, the defense's appellate brain trust is assembling, hoping it can win a reversal, just as accounting firm Arthur Andersen LLP did on an obstruction-of-justice charge connected to its Enron work last year.

Daniel M. Petrocelli, the lead defense lawyer for Skilling, said he and a team of 20 lawyers, paralegals and others from the Los Angeles firm O'Melveny & Myers LLP would spend the summer on an appeal. They also will request a new trial, as is customary in such cases. Meanwhile, George "Mac" Secrest, a defense lawyer for Lay, said Friday that the team would "definitely" appeal his client's conviction and the sentence once it is handed down Sept. 11.

Lake, known as a tough sentencer, was reversed by the U.S. Court of Appeals for the 5th Circuit after sending former mid-level Dynegy Inc. executive Jamie Olis to prison for more than 24 years on accounting-fraud charges. The judge has requested that prosecutors and defense lawyers in the Enron case submit lengthy memos on the issue of how much Enron investors lost because of Skilling's and Lay's actions. One of the key issues in the Olis reversal was that the judge improperly calculated how much shareholders lost as the result of his participation in the fraud.

Houston trial lawyer David H. Berg reasoned that aside from the venue issue, jury instructions are perhaps the defense's best hope. He said that when the judge allowed jurors to consider whether Skilling or Lay turned a blind eye to fraud, it may have lulled the jury into considering a lower, should-have-known legal standard rather than the higher burden of proof required in criminal cases.

The issue is particularly acute for Skilling, Berg said, because he never argued that he disregarded the facts. "That's really contradictory to his defense" that no fraud took place at Enron, he said.

Finally, the Enron defendants could take a page from the playbook of another former corporate chief, convicted WorldCom Inc. founder Bernard J. Ebbers, who argued before a New York appeals court this year that prosecutors had unduly limited his right to call witnesses by branding key executives "co-conspirators" and bullying them into not testifying on his behalf. Defense lawyers for Lay and Skilling have criticized the Enron prosecution's sometimes aggressive stance toward witnesses in the years since the company's December 2001 bankruptcy filing.

© 2006 The Washington Post Company