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Enron Update: Skilling's Last Stand

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Carrie Johnson
Washington Post Staff Writer
Tuesday, October 24, 2006; 12:00 PM

Washington Post staff writer Carrie Johnson was online from Houston to discuss the sentencing of former Enron chief Jeffrey K. Skilling at Noon ET on Tuesday, Oct. 24 .

A transcript follows .

Read more in Carrie Johsnon's recent stories:

Skilling Gets 24 Years for Fraud at Enron (Oct. 24)

Skilling's Last Stand (Oct. 20)

Coverage on Enron's collapse and the legal proceedings against its former executives is available in a special report online here .

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Carrie Johnson: Good morning from Houston, where the Enron troops are in retreat after a long, chaotic day Monday. Jeff Skilling, one of the most complex and unusual executives to surface in this era of accounting scandals, received more than 24 years in prison yesterday, but he's free (with a new ankle bracelet) while the Bureau of Prisons decides where to send him. Let's go.

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Arlington, Va.: So if I understand the math from the article, Skilling spent $70 million on his defense! How is that even possible?

Carrie Johnson: I think that it is not only possible, it is quite probable, that his defense on criminal and civil charges topped the $70 million mark.

Skilling paid his lawyers in cash, before he was indicted, more than $23 million. Separately, directors and officers insurance policies taken out by Enron years ago paid Skilling's defense team $17 million more. In court papers filed after the conviction in May, the law firm O'Melveny & Myers LLP said it was still out $30 million in fees.

Yesterday, as part of a joint settlement with the Justice Department and lawyers for employees, Skilling agreed to hand over $45 million, what his lawyers called the "overwhelming majority" of his remaining assets. That's on top of $15.5 million more that went to his defense lawyers, so they could recover some fees and pay outside suppliers they used to do courtroom graphics and perform other services.

Legal analysts told me this summer it's the most expensive defense by an individual that they've ever seen. Take a look at our Wash Post archives for the story.

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Houston, Texas: Carrie: Hope you like the weather in Houston better this time around.

Regarding the sentence for Skilling; does the length of time imposed by the judge mean he can't go to a Club Fed?

Carrie Johnson: Hi Houston-

Thanks for the question. Skilling has asked to be sent to the Federal Corrections Institute at Butner, N.C., near the Research Triangle. The place has facilities for inmates under medium security and minimum security as well as a special medical program. Because of the length of his sentence, Skilling will be placed in medium security, which often has cell-type housing and strengthened borders, including double fences. Skilling's defense lawyers asked the judge yesterday to slash 10 months from his sentence, which would have made him eligible for lower security, including dorm type housing. But the judge refused. However, by letting Skilling self surrender, a factor that the Bureau of Prisons takes into account when it decides where and how an inmate will be housed, the judge cut Skilling at least a small break that could allow him to transition into a lower security environment sooner, legal analysts told me yesterday.

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Denver, Colo.: What recovery measures, if any, have been tried to recover some of the retirement funds of former employees of Enron? What help can they get now?

Carrie Johnson: Good question Denver.

As I mentioned in the previous response, Skilling yesterday agreed to hand over as much as $50 million that will ultimately go to former employees ($45 million in assets plus $5 million in his bond that the court is holding). Here's the catch: Skilling has vowed to appeal his conviction on 19 fraud, conspiracy and insider trading charges, so while that process stretches on, the money will be held in abeyance (essentially a special fund that no one can touch for a while). If he wins on appeal, he gets the money back. If he loses, it goes to employees, not the US Treasury or anyplace else.

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Houston, Tex.: Hi Carrie - Do you have any sense of what Skilling's day-to-day life will be like in a medium security prison? Thanks...

Carrie Johnson: The folks at the facility in Butner, N.C., where Skilling might go have not got back to me yet with details. But I can tell you that in the 2 medium security facilities there, there are a total of more than 1100 male inmates.

Inmates are instructed when to awaken, when to eat, when to sleep, and they must have some type of job inside the prison (cleaning, cooking, facilities management, etc.) where they earn far less than the minimum wage per hour. There are clear limits on visitors and spending in the prison commissary, among other things.

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Richmond, Va.: While the people who suffered because of Skilling might feel some satisfaction that he got a 24+ year sentence, I cannot imagine how they feel that Kenneth Lay's family will now benefit luxuriously because of his death. Is there absolutely no way that some measure of justice can be wrought from Lay's involvement in these people's destitution?

Carrie Johnson: Good morning Richmond.

You refer to the judge's erasure of Ken Lay's conviction last week because of Lay's death from heart disease in July. This is a pretty clear matter of legal precedent. But it doesn't mean the Justice Department won't go down fighting. Late yesterday they filed a civil lawsuit against Lay's estate, seeking $2.5 million he used to pay down the mortgage on his 33rd floor condo in a prominent Houston neighborhood; $10 million in a family investment partnership; and more than $22,000 in a Bank of America checking account. We'll see whether the government actually gets that money in the end.

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Fort Lauderdale, Fla.: It bothers me no end that Ken Lay's conviction was vacated only because he died while awaiting sentencing, leaving is widow to keep unjust gains. Now it appears Jeff Skilling has the luxury of being home for the holidays before being locked up. Authorities have known about his conviction for months. So what's the hold-up on selecting an appropriate slammer? I certainly hope he doesn't orchestrate an alternative exit. Thanks for great coverage.

Carrie Johnson: Thanks, Florida. Where Skilling will be sent depends on the Bureau of Prisons, which takes into account recommendations from the judge, the prosecution, and the defense. But prison officials also need time to determine the threat that an inmate poses, the threat that others inside the prison could pose to him, and the relative under-or over-crowding in different facilities around the country. This process can take from weeks to a couple of months, according to lawyers familiar with the process. Skilling had asked to remain free pending appeals, but the judge refused.

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Houston, Texas: Did Lay's death factor into Skilling's sentence? It seems that Fastow got off relatively easy as compared to Skilling. Your thoughts?

Carrie Johnson: One of Skilling's friends who testified on his behalf yesterday called the likely disparity in sentencing between Skilling (24 yrs plus) and Fastow (6 yrs for cutting a deal) "a travesty." Skilling's defense lawyers urged the judge not to make him a "sacrificial lamb" and said the message of deterrence already has been sent, all over the planet. But Judge Lake, who had for years dealt with sentencing policy issues on an influential panel, flatly rejected that plea. The judge said that Congress had decided, repeatedly, to treat corporate crimes as a serious matter worthy of long sentences.

Worth noting that in the appeal of WorldCom

Carrie Johnson: whoops--meant to say, It's worth noting that the federal appeals court in New York also considered the disparity in sentences between WorldCom chief Bernie Ebbers (25 yrs) and finance executive Scott Sullivan (5 yrs for flipping and testifying against his boss). The appeals court recognized in its strongly worded decision that convictions in big white collar fraud cases could amount to a life sentence for business executives. But the court said that's what Congress intended. You might also want to check out a story we ran last month on this issue, as Ebbers entered prison and Enron's Andy Fastow received his sentence.

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West Chester, PA: Hi, Carrie- Thanks for your continuing good coverage of this Corporate morality play. What does the "smart money" have to say about the likelyhood of Mr Skilling's conviction being overturned or his sentence being reduced? Don K

Carrie Johnson: Hi Don,

Thanks for the kind words.

In court papers filed earlier this month, Skilling's defense team set out several likely grounds for appeal. They include: the judge's decision to hold the trial in Houston, which suffered tremendously in lost jobs and revenues amid Enron's collapse; his decision to select a jury in a single day; the judge's instructions to the jury that they could convict Skilling and Lay of deliberate indifference, or turning a blind eye to fraud they knew was going on in their ranks; and a few other issues.

Legal analysts said Skilling could gain some ground on the deliberate indifference (aka ostrich) instruction. But such language is not unusual in fraud cases and in fact the appeals court in NY upheld such provisions in the appeal by WorldCom's Bernie Ebbers.

Also a likely focus of Skilling's appeal is a recent ruling by a federal appeals court in Texas that overturned convictions of Merrill Lynch & Co. bankers who did a sham deal with Enron because they had allegedly deprived employers of their "honest services." This is part of Skilling's conviction, but it applies only to a limited number of the 19 charges on which the jury convicted him. It's also more difficult for Skilling to make that argument because of his position at the top of Enron, lawyers have told me.

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Philadelphia, Pa.: How long should the appeal process for Skilling's case take?

Carrie Johnson: My best guess is at least a year, but I am less familiar with the caseload of the U.S. Court of Appeals for the Fifth Circuit. Rest assured that if he loses at that level, Skilling will try to interest the U.S. Supreme Court in his case as well.

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Herndon, Va.: Simple question: what will his appeal be based upon? Thanks.

Carrie Johnson: Got at this in a previous response, but to add one more thing:

Defense lawyer Daniel Petrocelli told reporters outside the courthouse yesterday that he soon would appeal the judge's ruling yesterday that forces Skilling to go to prison soon, rather than remain free pending appeal. So there are some intermediate issues hanging out there as well.

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Fairfax, Va.: 24 Years- ouch. The level of malfeasance at Enron was extraordinarily high, and Skilling certainly deserved his share of the blame. However, in the numerous books I have read on the collapse, the one person universally painted in the harshest light was Andrew Fastow.

Now that it is all said and done, who do you think was the "worst of the worst"? To me, it's Andy Fastow, hands down.

Carrie Johnson: Interesting response. Surely both Skilling and Ken Lay would agree with you, as attacking Fastow was a key plank of their defense.

That said, the 6 yr sentence for Fastow outraged many people in Houston, and prosecutors are contemplating an appeal of the decision. Under his plea deal, Fastow was set to receive 10 yrs in prison, with his cooperation.

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Washington, D.C.: Did Skilling seem to show any sincere remorse for all of the pain and financial ruin he's caused for thousands of folks? I don't get that impression from his video response to the sentencing as he seemed to come across as quite self absorbed and out of touch, like most of the upper echelons of corporate America.

Carrie Johnson: Prosecutors didn't think so, yesterday criticizing Skilling for talking about the company's credit rating and showing insufficient remorse to a tableau of former employees who choked up over their investment losses.

But Judge Lake aptly noted that Skilling was walking a very fine line yesterday: with an appeal in the works, Skilling was not about to take responsibility for Enron's collapse, nor for any book cooking that occurred there.

Watching Skilling outside the courthouse was fascinating for many reasons: he was red eyed, he cracked a few jokes, he bashed the media for demonizing him, he talked about what coulda been at Enron, and he likened himself to someone facing the Inquisition. Enough said.

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Bethesda, Md: A recent article in the Washington Post detailed the various short prison sentences and releases on parole of the defendants who are now accused of murdering the British citizen in Georgetown. Mr. Skilling gets 24 years--essentially a life sentence under federal parole standards. There is no basis in proportionality here and a sentence of this length goes well beyond what is necessary to deter and punish. The entire Enron prosecution smacked of a political show trial and the sentence confirms this. The prosecutors can now go on to lucrative careers in the private sector after placing this notch on their belts. Our legal system, which is based on principles of proportionality, is losing its balance. Politics and ambition trump reasonableness.

Carrie Johnson: Thank you for your comments. Potentially disproportionate sentencing has troubled people for a long, long time, maybe since the ratcheting up of sentences amid the drug wars of the 1980s. The best solution: interest Congress in the problem, since they have legislated ever higher penalties for nearly 30 years.

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Huntsville, Ala.: Do you think it is fundamentally unfair to mete out a life sentence to someone convicted of financial crimes? That is, in the cases of Ebbers and Skilling, hasn't the retribution element of punishment been grossly over-emphasized?

Carrie Johnson: Good question Huntsville. Perhaps you have more insight on this given your location?

Check out the lede of a story we wrote last month, noting that WorldCom's Ebbers is serving more time than the acting boss of the Gambino crime family and some Bronx drug lords. It's true: I swear! I researched the clips myself.

As for the view from the business world, many executives tell me that they are tired of all the costly new rules that Enron and WorldCom ushered in. They say that the sight of one or two executives in handcuffs is enough to scare the bejeezus out of folks in the business world. Maybe, but why do these scandal cycles seem to emerge like clockwork every 10 or 12 years?

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Washington, D.C.: I have not seen any reporter note that the millions 'lost' by Enron workers were largely illusory. The real value lost was probably much less. Has this issue ever been addressed - is this how the judge came up with the small, $80 million figure?

Carrie Johnson: This is a smart question. The $80 million loss amount pegged to Skilling's conduct at Enron was a negotiated figure that prosecutors and defense lawyers argued about for a long time. The amount of loss is often the single biggest factor in determining a long prison sentence for a white collar official convicted of fraud or financial wrongdoing. Sherri Sera, Skilling's loyal assistant of two decades, yesterday told the judge that she blamed only herself and her risky investment decisions for her stock losses at Enron. She could have, she said, diversified, as experts repeatedly advised.

But five former employees who testified yesterday did not seem moved by her words, or by what they perceived as a mystifying lack of contrition from Skilling.

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Washington, D.C.: I have read several differing accounts as to how much money Jeff Skilling is worth, and how much he is forfeiting to plaintiffs in civil suits. I read that he left Enron with $67 million, he will pay plaintiffs about $45 million, and that he paid Daniel Petrocielli's firm somewhere in the neighborhood of $30 million. What is the truth? Will all of his money be extinquished? Will his fortune also be responsible for Ken Lay's crimes, even though his conviction was vacated?

Carrie Johnson: I think we addressed this a bit earlier in our chat. But one point you raise merits more attention.

After Lay's death, prosecutors raised the prospect of trying to hold Skilling accountable for losses caused by Lay. It now appears they will not do so, under a forfeiture agreement that leaves Skilling with few remaining assets to cover living expenses. Instead, the government sued Ken Lay's estate yesterday for more than $12.5 million. Stay tuned.

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Arlington, Va.: I must say that I am quite pleased with the sentence that was handed to Skilling. Kudos to the judge for taking a hard-line stance with him and handing down a sentence that fits the crime.

Carrie Johnson: Thanks for your comment Arlington.

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Bethesda: What will the lesson of Enron be in 50 years? Don't game the system through accounting tricks or cooperate with the government and show remorse and contrition and watch your sentence be significantly reduced? Or take your heart medicine when at high altitudes?

Carrie Johnson: Another word comes to mind, but thanks for your wiseacre response. Does anybody even say that anymore? (:

Truth be told, we are way too early in this process to know what the Enron lesson will be in 50 years. Clearly there is a rigorous ongoing debate about sentencing policy that we all need to have in this country. And as well, there's an ongoing pushback by business groups already straining under the 2002 Sarbanes Oxley law passed in Enron's wake.

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Anonymous: How much in inheritance taxes would have been paid by the estate of Ken Lay? Too bad his buddy managed to get rid of that tax, Huh?

Carrie Johnson: Lay's personal finances remain something of a mystery to me. At trial, he testified that his net worth was negative $250,000. But yesterday prosecutors sued his estate to try to yank back $12.5 million. In his will, a copy of which became public, Lay left his remaining assets to his second wife of nearly 25 years, Linda Phillips Lay.

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Houston, Texas: Just wondering if you agree that it would plot well in a mystery thriller to stage the death of an indicted criminal on a holiday weekend away from home where the usual doctor's etc are not available and then have a hasty cremation?

Carrie Johnson: I think one more conspiracy theory about the death of Ken Lay is going to give me a heart attack. (It's a joke, mom.)But a more objective person should probably consult the works of John Grisham and Michael Connelly.

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Philadelphia, Pa.: I am fearful that the practices of CEO's of our country's corporate culture have become so common place as to be irreversible. Have there been any serious corrections to the arrogance of the leaders in business? Or do they continue to think they are above the law and deserving of luxurious life styles?

Carrie Johnson: I don't think we know whether executives have really changed their behavior. It's become more difficult to get away, undetected, with large scale accounting frauds and smaller embezzlement type schemes because auditors and board members pay more attention to management and ledgers now. But the executive compensation problem, and almost everybody agrees there is a problem, including President Bush who apparently remarked on it yesterday in a television interview, is far from being resolved.

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Washington, D.C.: Thanks, Carrie for answering my earlier question re: Skilling's remorse. I just have to add that I'm pleased with his sentence and I agree with Houston that Lay is alive and well, on some obscure beach in the West Indies living off of his negative $250,000.

Carrie Johnson: Thanks for your comment DC. I think a coroner, a sheriff, and various federal officials would disagree with you though.

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Carrie Johnson: Thanks for joining the chat today! Taking off a few minutes early to check out of my hotel. Farewell, Houston.

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