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First criminal trial involving enron executives Original Source Link: (May no longer be active)
http://www.forbes.com/business/businesstech/feeds/ap/2004/09/21/ap1554566.htmlhttp://www.forbes.com/business/businesstech/feeds/ap/2004/09/21/ap1554566.html
Associated Press
Update 6: Prosecutor Says Enron Cheated, Lied
09.21.2004, 06:04 PM
The first criminal trial involving former Enron Corp. executives "is a case about cheating and lying" with Wall Street's help, a prosecutor said Tuesday.
For Enron, the alleged sham sale of three electricity-producing barges moored off the coast of Nigeria at the end of 1999 helped the energy company appear to have met earnings targets.
For the purported buyer, Merrill Lynch & Co., participation in a deal outside the brokerage's normal dealmaking purview could lasso more lucrative investment banking business from Enron, then a high-dollar client courted by Wall Street.
But attorneys for the six defendants on trial for conspiracy and fraud - four former Merrill Lynch executives and two former midlevel Enron executives - say their clients thought the deal was legitimate and none had final say on it on behalf of either company.
Prosecutors contend the defendants helped push through the deal knowing that Enron promised to find another buyer or buy back the barges by mid-2000, wiping out the legitimacy of a $12 million pretax profit the energy company booked from the deal.
Former Enron finance chief Andrew Fastow, who became the government's most high-profile cooperating witness when he pleaded guilty to conspiracy in January, followed through on the promise at the end of June 2000. Enron's search for an outside buyer failed. LJM2, a partnership controlled by Enron and run by Fastow, bought the barges, giving Merrill Lynch its $7 million in investment plus a premium of more than $500,000.
"This was really no more than a loan - a loan to help Enron out of a jam at the end of 1999," Assistant U.S. Attorney John Hemann told a jury panel of nine women and seven men, which includes four alternates.
The barge deal is not among the financial machinations that pushed Enron into bankruptcy in 2001, but prosecutors contend it is indicative of how the company did business, with a focus squarely on meeting lofty earnings targets - whatever the method.
The defendants are: Daniel Bayly, former chairman of investment banking for Merrill Lynch; Robert S. Furst, the former Enron relationship manager for Merrill Lynch, who answered to Bayly; James A. Brown, former head of Merrill Lynch's asset lease and finance group; William Fuhs, former Merrill Lynch vice president who answered to Brown; Dan Boyle, a former finance executive on Fastow's staff; and Sheila Kahanek, a former in-house Enron accountant who participated in deals involving sales of international assets.
In opening statements, the six defense attorneys disputed the government's claims against their clients.
"Jim had absolutely no intention of defrauding Enron or its shareholders," Brown's lawyer Lawrence Zweifach said.
"Dan Bayly never dreamed in the slightest that he, Merrill or anyone at Merrill was doing anything wrong," said one of his lawyers, Tom Hagemann.
Boyle's attorney William Rosch and Kahanek's attorney Dan Cogdell each called their clients "bit players" in comparison to higher-ups at Enron who signed deal approval documents or received bonuses for their work on the barge deal. Some of those executives are among prosecution witnesses who haven't been charged with a crime.
The first witness was a former Enron employee who was positioned above Kahanek and below Boyle in the corporate hierarchy. Amanda Colpean, who now works for Dallas-based TXU, told jurors that Kahanek yelled at her for drafting a document that outlined the barge agreement.
"She told me I had jeopardized the deal by putting certain information in the document and that if it fell into the hands of (auditor) Arthur Andersen the deal was over," Colpean said.
Kahanek ordered her to destroy the document and rewrite it, but Colpean said she refused, telling Kahanek to do it herself.
The six barge defendants each face one count of conspiracy and two counts of wire fraud. In addition, Brown, Fuhs and Boyle each face charges of lying to either a grand jury, the FBI or a congressional investigator about whether they knew of the alleged secret buyback deal.
Hemann noted numerous e-mails that indicated the defendants knew the deal was a sham and some ensured the buyback promise was hidden from outside accountants so Enron could appear to book a legitimate profit.
Zweifach countered with a note handwritten by Brown around the time of the barge deal in which he listed several concerns about the proposed transaction.
Brown wrote, "reputational risk, i.e. aid/abet Enron income stmt manipulation," but also wrote, "no repurchase obligation from Enron."
"Every item he wrote down reflects he was worried Merrill Lynch was at risk in this investment," Zweifach said.
Associated Press writer Mark Babineck contributed to this report.
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