A federal jury convicted a former Enron Corp. executive and four former Merrill Lynch & Co. officials yesterday in the first criminal trial arising from the accounting fraud that led to the energy trader's collapse.
The verdicts in the case, in which prosecutors laid out evidence and strategies that may be used in later Enron prosecutions, lent some momentum to the government as it prepares for the trials next year of former Enron chief executives Jeffrey K. Skilling and Kenneth L. Lay.
Convicted of one count of conspiracy and two counts of wire fraud were former Merrill investment banking chief Daniel H. Bayly, 57; former Enron finance executive Daniel O. Boyle, 48; former Merrill strategic financial group chief James A. Brown, 52; former Merrill managing director Robert S. Furst, 43; and former Merrill vice president William R. Fuhs, 36.
Brown was also convicted of two counts of making false statements, and Boyle was convicted of one count of making a false statement.
Yesterday's verdicts, after four days of deliberations, ended a six-week trial in Houston federal court stemming from Enron's 1999 sale to Merrill of a $7 million stake in three energy-generating barges moored off the coast of Nigeria. Prosecutors said the deal, which they said was initiated by former Enron Chief Financial Officer Andrew S. Fastow, enabled Enron to improperly book a $12 million profit that enabled it to meet earnings estimates.
The trial was "a milestone in bringing both an Enron executive and Merrill Lynch executives who aided and abetted the fraud at Enron to justice," said Assistant U.S. Attorney General Christopher A. Wray in a statement.
Each of the conspiracy and wire-fraud counts carries a maximum sentence of five years in prison. Each of the false-statement counts carries a potential 10-year prison term. Former Enron accounting executive Sheila K. Kahanek, 38, was acquitted of all charges.
Houston-based Enron created a series of off-the-books partnerships that allowed it to boost revenue artificially and disguise debt until it collapsed into bankruptcy in 2001. Enron lost $68 billion in stock market value, wiping out 5,000 jobs and erasing $800 million in employees' pension investments.
Prosecutors claimed that Fastow in late 1999 helped hatch a conspiracy among the defendants and unindicted co-conspirators to inflate Enron's earnings by disguising a loan by Merrill as a sale of the three barges.
Testimony during the trial focused on whether Fastow made such a promise and whether the defendants knew of it when they were working on the barge deal.
The six defendants argued that Fastow promised only to find a third-party purchaser of Merrill's stake, preserving the deal's status as a legitimate sale under accounting rules and justifying Enron's profit.
Fastow, 42, pleaded guilty to fraud charges earlier this year and is cooperating with the government. He didn't testify during the barge trial. He is expected to testify at the trials of Lay and Skilling, who have pleaded not guilty to all charges. Their trials on securities fraud charges are expected to begin late next year.