Kenny Boy in the Dock

What the Lay indictment should teach President Bush about lawyers.

Lawyers at work: moving up the Enron food chain
Lawyers at work: moving up the Enron food chain

From Guantanamo to tort reform to the attacks on John Edwards, President Bush’s administration has treated lawyers as enemies of free enterprise and the state. (Abu Ghraib and the detainee cases suggest that the most important task of Bush administration lawyers has been figuring out ways to hobble other lawyers.)

But as today’s indictment of former Enron Chairman Kenneth Lay shows again, lawyers have proved to be the most effective tools—perhaps the only effective tool—for making the Bush government work.

Bush’s MBA administration proved itself singularly unequipped to deal with the cascade of bankruptcies, accounting scandals, and Wall Street conflicts that exploded in 2001. The Securities and Exchange Commission was run by the hapless, toothless Harvey Pitt. While the administration dithered or prayed the scandals would go away, it was the trial lawyers who forced real reform. New York State Attorney General Elliot Spitzer rushed into the vacuum and became the nation’s most trusted scourge of corporate evildoers.

Meanwhile, the Enron Task Force, an interagency team formed in January 2002 and run out of the Justice Department, was methodically going about its business. The Lay indictment has shown it to be the very picture of interagency cooperation, patience, and sound judgment.

While the public clamored for the heads of Lay and former CEO Jeffrey Skilling, the task force started by targeting external accessories and midlevel Enron executives and slowly worked its way up the organizational chart. In March 2002, it brought its first case against Enron’s accounting firm, Arthur Andersen, and Andersen partner David Duncan. In April, Duncan pleaded guilty. Andersen was convicted of obstruction of justice in June 2002.

Between June 2002 and June 2003,according to the Justice Department’s Corporate Fraud Task Force first-year report,the Enron Task Force brought indictments against 19 people. (The Houston Chronicle maintains a helpful up-to-date scorecard: 31 indictments, 10 guilty pleas, one jury conviction, 20 others awaiting trial.) The investigation wended its way through the different tentacles of Enron and also nailed those who did shady business with it. Three British bankers formerly employed by National Westminster Bank were indicted in July 2002, charged with stealing cash from an Enron deal. Timothy Belden, the former head of Enron’s California trading operation, was indicted for manipulating the Golden State’s electricity market. He copped a plea in October 2002. An indictment in March 2003 charged former Enron Broadband Services executives Kevin Howard and Michael Krautz with falsifying earnings concerning a deal with Blockbuster.

Some of the indictments may have seemed peripheral to the main Enron crimes. And for many of those hurt by the Enron debacle, it was frustrating to see these comparative small fry laid low while Fastow, Skilling, and Lay remained free. But the circle slowly tightened around Fastow, the mastermind of Enron’s financial structure. Finance executives and Fastow cronies Michael Kopper and Benjamin Glisan pleaded guilty, in August 2002 and in September 2003, respectively.

The indictments and plea deals are far more satisfying than the outcomes in many other areas. Trials of high-profile executives involved in complicated financial shenanigans have been difficult for prosecutors to win. In civil cases with the SEC, too many rogues have been allowed to settle without having to admit their guilt. They’ve walked away with little more than a fine and some embarrassment.

The task force, however, has had steady success at getting people to plead guilty to crimes that brought prison sentences and to provide information on bigger game. The real coup was turning Fastow. He was first indicted in October 2002 and gave indications of fighting. (His wife, Lea, was indicted in May 2003.) But with several of his alleged accomplices having flipped, Fastow was boxed into a corner. In January 2004, Fastow pleaded guilty, accepted a 10-year prison sentence, and agreed to cough up more than $29 million. Most important, he agreed to cooperate. A week later, former Chief Accounting Officer Richard Causey was indicted. And in February 2004, likely armed with juicy information from Fastow, the task force indicted Skilling. Now it’s Lay’s turn.

Had there been a deck of cards of corporate evildoers, Skilling and Lay would have been among the aces. And their indictments would seem to be symbolic milestones in the long-running effort to restore credibility and trust among the investor class. So why isn’t Attorney General John Ashcroft preening? And how come President Bush hasn’t stepped forward to warn potential corporate crooks that Lay’s indictment shows the long arm of the government will hunt them down, even if they hide out in Houston?

Bush, and many of his surrogates, can’t make political hay out of this great coup. Every development in the Enron saga becomes an occasion to rehash the many links between Bush, the Bush administration, and Enron—and inconveniently close to the elections. (Salon conveniently dusts them off here.) And it’s difficult to criticize trial lawyers for destroying Americans’ businesses when Enron stands as an example of how a bunch of greedy MBAs from Texas sunk a giant American corporation all by themselves—or to bash lawyers when, as the Enron Task Force shows, they’re the only potent weapon the government has against corporate corruption.