After the Enron Trial, Defense Firm Is Stuck With the Tab

Former Enron Corp. chief executive Jeffrey K. Skilling, right, was represented by Daniel M. Petrocelli during his four-month fraud and conspiracy trial.
Former Enron Corp. chief executive Jeffrey K. Skilling, right, was represented by Daniel M. Petrocelli during his four-month fraud and conspiracy trial. (By Richard Carson -- Bloomberg News)

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By Carrie Johnson
Washington Post Staff Writer
Friday, June 16, 2006

To the list of employees, investors and businesses who suffered financial misfortune in Enron Corp.'s demise, add this one: the law firm defending former chief executive Jeffrey K. Skilling.

Los Angeles-based O'Melveny & Myers LLP, which has represented Skilling on both civil and criminal charges since 2001, collected what in a typical case would be a fat payday: $23 million from its client and $17 million more from his insurance policies.

But, true to form, Enron is still destroying financial expectations. Even before the trial began in January, Skilling's team of more than 20 lawyers, paralegals and support staff burned through those funds, leaving the law firm holding the bag for "multiple tens of millions" of dollars in unpaid fees and expenses racked up during the four-month trial, Skilling's lead defense lawyer said. While Daniel M. Petrocelli declined to provide an exact tally, one source put the price tag at more than $25 million on top of the $40 million O'Melveny already collected.

The trial, which culminated in the convictions of Skilling and former chairman Kenneth L. Lay last month, featured 56 witnesses and some of the most sophisticated business deals ever to make their way into a courtroom. The Skilling defense, which experts say may be one of the most expensive in history, is a case study in how high the stakes can rise in white-collar criminal representation.

"This is almost a carte blanche to the lawyers: Do everything you can to keep me out of jail," said John Marquess, president of Legal Cost Control Inc., a New Jersey firm that monitors legal fees in bankruptcies and for Fortune 500 clients. "Very little thought is given to cost. It is not a concern."

In the beginning, O'Melveny did not have to worry about how its high-profile client would pay his bills. Skilling exited the Houston energy trader in August 2001, with enough time to sell more than half of his remaining Enron stock before the company hit bottom and filed for bankruptcy protection that December. But, on the heels of his 2004 indictment, prosecutors put a hold on nearly $60 million in cash, brokerage accounts and other assets, including a $5 million Mediterranean-style Houston mansion and a $350,000 condominium in Dallas that Skilling bought to use when he visited his daughter, then a student at Southern Methodist University. Meanwhile, a settlement by board members depleted the company's insurance policies, closing off that avenue of recovery for lawyers hired by Skilling and Lay.

Within weeks, the government is expected to start legal proceedings to transfer Skilling's assets to its coffers, from which proceeds might be distributed to shareholders and other victims of Enron's collapse -- setting up a fight over the money.

Lay and Skilling's "accumulated money was gained at our expense," said Rod Jordan, chairman of a group of former Enron employees. The assets "should first be used to return money lost by the employees and only then be used for their defense," he said.

Defense lawyers said they will urge U.S. District Judge Simeon T. Lake III to release most of it to Skilling because jurors acquitted him on nine of 10 insider-trading charges. The defense argued in court papers filed this week that "only a very small portion" of the frozen assets is subject to forfeiture under the government's initial analysis.

"Jeff's not trying to get rich off anything," his lawyer Petrocelli said in an interview. "He's got child-support obligations, legal obligations from the sentencing and the appeal, and hundreds of civil lawsuits to defend. . . . He wants to take care of his family and his lawyers."

Justice Department prosecutors on Wednesday reiterated their desire to seek Skilling's assets and said they would file a motion for a money judgment against Skilling by the end of June. Despite his acquittal on most of the insider-trading counts, prosecutors said, the jury convicted Skilling of 19 other charges, including engaging in a conspiracy to prop up Enron's stock price and enrich himself. To win a forfeiture action, prosecutors must prove by a preponderance of evidence that assets are proceeds of the conspiracy.

The single biggest expense in any trial, according to legal experts, is personnel.


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