Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. Several years later, when Jeffrey Skilling was hired, he developed a staff of executives that – by the use of accounting loopholes, special purpose entities, and poor financial reporting – were able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron’s Board of Directors and Audit Committee on high-risk accounting practices, but also pressured Arthur Andersen to ignore the issues.
Enron shareholders filed a $40 billion lawsuit after the company’s stock price, which achieved a high of US$90.75 per share in mid-2000, plummeted to less than $1 by the end of November 2001. The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a very low price. The deal failed, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron’s $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldCom‘s bankruptcy the next year.
Many executives at Enron were indicted for a variety of charges and some were later sentenced to prison. Andersen was found guilty of illegally destroying documents relevant to the SEC investigation, which voided its license to audit public companies and effectively closed the firm. By the time the ruling was overturned at the U.S. Supreme Court, the company had lost the majority of its customers and had ceased operating. Enron employees and shareholders received limited returns in lawsuits, despite losing billions in pensions and stock prices.
As a consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies. One piece of legislation, the Sarbanes–Oxley Act, increased penalties for destroying, altering, or fabricating records in federal investigations or for attempting to defraud shareholders. The act also increased the accountability of auditing firms to remain unbiased and independent of their clients.
Hold your horses:
Licensed to Lie is not a book about Ted Stevens or Nick Marsh, and despite the thriller-like beginning, it is both much profound and, thus, inevitably more boring than a John Grisham novel.
However, much like Grisham’s only non-fiction book, it is about a pattern of injustice and government misconduct which may have cost the lives and the sanity of thousands and thousands of people.
In fact, after the first chapter, Licensed to Lie delves deep into a long 200-page analysis of the Enron disaster of the 1990s, and particularly the prosecution of one Jim Brown of Merrill Lynch.
Well, because Powell was tasked with representing Brown in his post-trial defense.
By now, most people have read or heard about the amazing rise and scandalous fall of Enron.
America’s Most Innovative Company for six consecutive years, Enron was a giant in the energy business, employing over 30,000 people and claiming revenues of over $100 billion during 2000, the last year of its existence.
So, what happened?
The Enron scandal did, during which it was discovered that Enron’s financial condition didn’t really align with the actual facts. And you know that this is a subtle euphemism for fraud; systematic, creative and institutionalized fraud. However, asks Sidney Powell, do you know that almost every Enron-related conviction which has gone up on appeal has resulted in a complete or partial reversal?
Wait… what? Exactly!
Take Arthur Andersen, for example.
The only American company in the “Big Five” accounting firms – along with Netherlands-based KPMG and the British giants Deloitte Touche Tohmatsu, PricewaterhouseCoopers, and Ernst & Young) – back in 2001, Arthur Andersen was one of the world’s largest multinational companies.
Unfortunately, it was also the firm in charge of the Enron audit.
On June 15, 2002, Andersen was convicted of obstruction of justice: Nancy Temple (from Andersen’s legal department) and David Duncan (lead partner for the Enron account) had apparently ordered the shredding of Enron-related documents.
Despite employing close to 85,000 people, since the U.S. Securities and Exchange Commission doesn’t accept audits from convicted felons, the company had to be closed soon afterward.
And then, three years later in the case of Arthur Andersen LLP v. United States, the Supreme Court of the United States unanimously reversed the conviction due to serious errors in the trial judge’s jury instructions.
Apparently, hungry for a conviction, the prosecutors had pieced together parts of different statutes to fabricate a crime and purged criminal intent from the jury instructions.
What about all those jobs, you ask?
Well, that’s what Powell is interested in as well.
Enron and Merrill Lynch’s Best Efforts Agreement
Because while representing Jim Brown of Merrill Lynch, Powell had to deal with the very same pattern.
And it all started with a relatively small business transaction between the two conglomerates at year-end 1999: Merrill Lynch entered into a “best efforts” agreement with Enron over some Nigerian barges.
Better put, “Enron solicited – indeed pushed and cajoled – Merrill Lynch to invest $7 million cash to purchase a minority equity interest in a company that would profit from three electrical power barges stationed off the coast of Nigeria.”
Now, Enron held the majority interest and controlled the barge project. Supposedly, it had sent the barges to the Nigerian coast “to help the war-torn country with emergency electrical power” at the request from the US State Department.
On December 23, 1999, there was “a five-minute telephone conversation between Andrew Fastow (Enron’s chief financial officer), Jeff McMahon (Enron’s treasurer), Daniel Bayly of Merrill Lynch, and several others – but not Jim Brown.”
During this conversation, Fastow ensured McMahon that it “would use its best efforts and continue the process it had already started to remarket Merrill’s interest in the barges to another party within six months.”
This was great, since, as Bayly made clear to Fastow, Merrill did not want to hold its equity in these barges very long.
Jim Brown’s and Merrill Lynch’s Crime
The prosecutors, however – Andrew Weissman, Kathryn Ruemmler, Matthew Friedrich, and John Hemann – saw something much deeper and more sinister beneath this agreement.
According to them:
The Merrill executives committed a crime because McMahon had ‘guaranteed’ that Enron would buy back the barges, and Fastow ratified that guarantee in ‘code’ during that five-minute telephone conversation. The linchpin of the prosecution was the prosecutors’ claim that McMahon and Fastow made a guarantee to buy back the barges from Merrill, which made Enron’s accounting wrong. The prosecutors said the sale of equity in the barges was a ‘sham’ – a loan and not a sale, so Enron could not legitimately book a ‘gain.’ Therefore. these Merrill executives were criminally responsible for ‘cooking Enron’s books’ and ‘depriving Enron of the honest services of Andrew Fastow.’
For Weissman, Ruemmler, Friedrich & Hemann “it didn’t matter that none of the Merrill defendants personally profited from this transaction. It didn’t matter that none engaged in any conduct that they thought was unlawful.” And it didn’t even matter that some people such as Jim Brown were not present during the phone call.
Simply put, all it mattered to them was that there was some kind of a conspiracy based on nothing more but a possible (and never proven) “secret oral side deal that Enron guaranteed to buy back the barges.”
This negated even the fact that the Merrill Lynch corporate counsel had approved the transaction: the prosecutors claimed that the Merrill executives had lied to their own lawyers and kept them in the dark about the real deal, the one not in writing.
Do you even have to ask?
We started with a suicide and a lost election; we end, retroactively with hundreds of thousands of people left jobless, and the lives of quite a few innocent people irretrievably ruined.
And what about the prosecutors?
Well, you already know everything about two of them.
Kathryn Ruemmler, for example, who “plainly suppressed” evidence favorable to the defense in the Barge case became a partner at Latham & Watkins, then Principal Associate Deputy Attorney General at the Justice Department, and finally, White House counsel between 2011 and 2014.
Andrew Weissman fared, arguably, even better: after destroying Arthur Andersen and Merrill Lynch, Weissman became deputy director/general counsel of the FBI; in late 2013 he “quietly slipped from FBI to NYU,” and in June 2017, he was appointed as a member of the 2017 special counsel team headed by Robert Mueller.
And Sidney Powell?
“As for me,” she writes:
I question deeply whether I can continue to practice law. I have lost trust and faith that most of the Fifth Circuit judges will do the tedious work, keep an open mind, put ideology aside, rule based solely on the law, and ferret out the true facts in the most difficult cases if it means ruling against the government. If one can be heartbroken by a court, I am.
Dear Sidney, after your book, we are as well.
Key Lessons from “Licensed to Lie”
1. Prosecutors Don’t Care About Justice: They Care About Their Careers
2. “The Best Lack All Conviction, While the Worst Are Full of Passionate Intensity”
3. …and Justice for All
Prosecutors Don’t Care About Justice: They Care About Their Careers
As evidenced in many cases surveyed in Sidney Powell’s Licensed to Lie – the Enron scandal, the Andersen and Merrill Lynch convictions, the Ted Stevens debacle – prosecutors are often willingly and consciously hiding evidence in an attempt to win a case.
“Much more must be required,” writes Powell in the last paragraph of her book, “of those who have the honor, privilege, and responsibility of representing us in our courts. They hold in their hands the very lives of our citizens while they are entrusted with and wield the fearsome might and unbridled power of the Sovereign to seek Justice or deal egregious Injustice.”
“The Best Lack All Conviction, While the Worst Are Full of Passionate Intensity”
Unfortunately, prosecutors hiding evidence often end up being on the winning side: not just of a certain case, but of life as well.
Kathryn Ruemmler, for example, and Andrew Weissman, who destroyed companies and cost the jobs of hundreds of thousands of people by “plainly suppressing” evidence made it to the White House.
Sidney Powell is furious:
The various bar associations have abdicated all responsibility regarding the violations by these high-profile lawyers and prosecutors in general. If these facts are not enough to warrant a real investigation, our rules of ethics are meaningless. The Texas Bar, like the Department of Justice, has learned nothing from its prior mistakes. The only ‘change’ in the Department of Justice has been for the worse. Meanwhile misguided, ignorant, overzealous, ambitious, narcissistic, or dishonest current and former prosecutors, some of whom destroyed innocent people while they deliberately withheld evidence they knew contradicted their cases, are making daily decisions that affect all of our lives and the very future of this country. Their conduct stands in sharp contrast to the oath by which they swore to ‘uphold and defend the Constitution of the United States of America.’
Brady Disclosure… and Justice for All
As can be seen from these cases, even the rich are not safe from obstructions of justice – a dish best served to the poor and unguarded.
Because if prosecutors want to achieve something, they have means to achieve it, and they usually don’t care how ethical or unethical these means are.
Don’t know if you know – we didn’t – but prosecutors have discretion with regard to the evidence they are obliged to provide to the defendants, i.e., they are the ones who decide which evidence is relevant to a defendant.
This, in effect, means that they are preparing his or her defense – which is not only unjust but also downright senseless.