Risk & Compliance

Keep It Simple, Prosecutor

Upcoming trials involving Qwest and Enron offer insights into a different definition of ''full disclosure.''
Stephen TaubJanuary 11, 2006

Who benefits more from a long, involved jury trial on the complexities of corporate accounting, the prosecution or the defense?

Mindful of the results of the results at the trials of Richard Scrushy (acquitted) and Dennis Kozlowski and Mark Swartz (first a contentious mistrial, then convictions), some interesting table-setting is being put in place for the trials of Joseph Nacchio and of Kenneth Lay and Jeffrey Skilling.

Attorneys for Nacchio — the former chief executive officer of Qwest Communications International Inc. who was indicted last month on 42 counts of insider trading — have asked the U.S. District Court in Denver to declare that his case is “complex,” according to the Rocky Mountain News.

Though requesting that technical status may seem self-evident and even amusing, if granted it would provide Nacchio’s attorneys with at least a year, and probably more, to prepare their defense, reported the News.

Further complicating the case is that Nacchio, who was appointed by President George W. Bush to serve on a telecommunications advisory panel, wants national security to weigh in his defense. Reportedly he would argue that he possessed confidential information that made him optimistic about Qwest’s government business and prospects, the paper explained.

However, Nacchio’s attorneys would then need national-security clearance to determine what information Nacchio possessed, reported the News. Whether the defense motion is granted, the paper added, raises questions about what evidence the jury may hear and could lay the groundwork for an appeal if Nacchio is convicted.

In the case against Lay, the former chairman of Enron Corp., and Skilling, the former president, prosecutors are apparently abandoning an approach that would delve deep into accounting issues that even financial sophisticates have found complex. The New York Times pointed out that on their latest witness list, members of the government’s Enron Task Force deleted 17 witnesses who would have offered testimony on accounting matters.

Instead, according to the Times, prosecutors plan to make the more straightforward argument that Lay and Skilling sold Enron stock even as they were making positive pronouncements about the company’s businesses.

“The government is always, in white-collar cases, trying to prove lying, cheating and stealing,” Thomas A. Hagemann, a lawyer with Gardere Wynne Sewell, told the paper. “They are going to go to an area where they think they can most easily do that beyond a reasonable doubt.”

Indeed, the paper noted that last summer, a federal judge declared a mistrial on virtually all of 164 counts against five former Enron executives who were accused of overstating the strength of the company’s broadband services division.

“Very often, trying to explain these types of accounting cases can be very boring, very confusing, and very time-consuming to jurors,” Richard J. Schaeffer, a defense lawyer involved in another recent Enron trial, told the Times. “Black and white issues like a defendant said something to someone are more easily appreciated and more quickly understood by a jury.”