Almost seven years after the energy giant Enron collapsed, a series of court decisions has opened the door to new trials for some of the convicted corporate executives and threatened to hobble the Justice Department's efforts to pursue future corporate-fraud cases.
In the wake of the scandal, prosecutors pursued executives for covering up the company's financial bleeding and unloading millions of dollars in stock. The Bush administration was under pressure to hold the company's executives accountable for what at the time represented the largest bankruptcy in U.S. history. More than 4,000 Enron employees lost their jobs, and investors lost billions.
However, legal experts said the government's recent setbacks in court raise troubling questions about how federal prosecutors handled the high-profile cases and suggested that the Justice Department could face serious obstacles in other white-collar investigations:
In one defeat for the Enron prosecutors, the usually divided Supreme Court in 2005 unanimously overturned the conviction of Enron accounting firm Arthur Andersen after the justices found that the trial judge had instructed the jury improperly.
In another case, four former executives from Enron's Internet subsidiary, Enron Broadband Services, are getting another trial after a federal jury acquitted them on some charges and deadlocked on the rest. The group was accused of exaggerating the firm's technology capabilities in order to inflate stock prices and cash out. One former executive was acquitted in the original trial.
Finally, prosecutors are under fire in the conviction of former Enron Chief Executive Officer Jeffrey Skilling because of allegations that they withheld evidence that could have cleared him. A federal appeals court also tossed out a legal approach that the prosecutors used, giving Skilling and future defendants new ammunition to challenge their convictions.
Prosecutors secured 18 guilty pleas, but the legacy of the entire Enron investigation is at stake in Skilling's appeal.
“Skilling is kind of the linchpin,” said Peter J. Henning, a Wayne State University law professor and a former Securities and Exchange Commission attorney. “If his conviction stands, the Enron prosecutions were a success. If it doesn't, prosecutors will have a hard time convincing the public that they took the right approach.”
Skilling, who's serving a 24-year prison sentence, is awaiting the outcome of his appeal before the 5th Circuit. A jury convicted him of 19 counts of conspiracy, insider trading and lying to auditors. Kenneth Lay, Enron's former chairman of the board, also was convicted, but he died of a heart attack before he could be sentenced.
Defense attorneys contend that prosecutors responded to the public outcry over the Enron scandal by bringing unwarranted charges, taking shortcuts and relying on unorthodox tactics.
In a separate development, Attorney General Michael Mukasey announced in June that he would not create an Enron-like task force to oversee the investigation into the subprime mortgage crisis. Although he said he thought that individual U.S. attorneys could handle the job, some suspect that the Justice Department is trying to avoid a repeat of the sprawling Enron investigation.