Losses key to jail time

Sentences of Skilling, Lay may depend on economic harm caused by their lies to Enron investors and employees


HOUSTON -- Kenneth L. Lay and Jeffrey K. Skilling will next be put under a microscope by a federal probation officer as their lawyers try to persuade the judge the convicted felons didn't cost shareholders a penny - or at least not many pennies.

Sentencing in the federal courthouse has its own nearly indecipherable procedures. They are so complicated that experienced lawyers often disagree about what will likely happen.

A probation officer will be assigned to look at everything from the men's mental health and family history to financial assets and losses they caused.

U.S. District Judge Simeon T. Lake III, who has set a sentencing hearing for Sept. 11, has already said that the punishment will depend on how much Lay and Skilling cost the victims of Enron Corp.'s collapse in December 2001.

Lake told the defendants Thursday that he expects a calculation of loss to be critical to their sentences. The judge also will be applying federal sentencing guidelines that are no longer mandatory but still must be considered. "I can envision one of the main issues will be the amount of the loss which, under the guidelines, will drive the calculation," Lake said. "I would assume that one or both parties may want to use some expert's report."

Kirby Behre, a Washington lawyer who has written about federal sentencing, said both sides will be making a case to the judge and the probation office on the issue.

"There will be a lot of paper used on this, it'll be a very complex battle of the experts," Behre said. He said the lawyers would have to show how Lay and Skilling's crimes harmed shareholders.

These included many Enron employees who saw their life savings wiped out just weeks after Lay and Skilling were touting the company while selling stock.

The probation department is charged with conducting a "pre-sentencing investigation" that covers relevant conduct, criminal background, education, work and family histories, physical and mental health, financial condition and information about victims.

The department uses these factors, a calculation of the loss and the federal guidelines to recommend a range of prison sentences. Sean M. Berkowitz, head of the Enron Task Force, said yesterday that both the government and the defense will submit a version of the facts to the probation department.

Factors that weigh in the sentencing include the amount lost, the defendants' role as managers and leaders, whether they accepted responsibility and whether they perjured themselves on the stand.

Frank Bowman, a professor at the University of Missouri-Columbia School of Law who specialized in sentencing issues, said other factors could increase a sentence, but a loss of more than $100 million can really bump it up.

Lengthy sentence

Lake gained some national attention for sentencing Jamie Olis, a former Dynegy executive, to 24 years in prison - a stiff sentence for a white-collar crime.

The 5th Circuit Court of Appeals overturned the sentence, saying Lake "overemphasized his discretion as fact finder at the expense of economic analysis," and relied on the testimony of one government expert in determining the loss to shareholders.

Lake has yet to re-sentence Olis. He's also handed out other tough sentences for white-collar crimes.

"Because Lake is the Olis judge, my guess is that he will be particularly careful on the [Enron] loss issue," Bowman said.

He said the shareholder loss may apply less to Lay than to Skilling, because Lay is accused of wrongdoing in such a narrow time period - a few months at the end of 2001.

"He can argue Enron was already on its way down the tubes," Bowman said. Lay argued the opposite in the trial itself, maintaining the company was always in good shape.

Courthouse experts expect a sentence for Lay and Skilling of from 12 to 25 years each. But Bowman predicts that the men could get from 25 years to a life sentence.

Kent Schaffer, a Houston lawyer with a federal practice, said he finds the sentencing date of Sept. 11 to be uncomfortable and he'd try to change it were the case his.

`Ominous day'

"It's an ominous day, Sept. 11th. I'd rather be sentenced on Oct. 31," Schaffer said, referring to the 2001 terrorist attacks.

He said defense attorneys could argue they need more time to gather experts to support a low- or no-loss argument.

"A defense lawyer ought to be figuring out every honest and borderline dishonest way of postponing the sentencing as long as possible," said Douglas Berman, an Ohio State University law professor who specializes in sentencing issues.

Berman said they should ask for a postponement to prepare their loss arguments. He also suggested that calling in victims to get their input could slow the process.

In a related matter, Berkowitz said the prosecutors want to keep the sentencing dates for the government's cooperating witnesses who pleaded guilty and are scheduled to be sentenced in June and July. But he said it is likely some of those dates will be postponed.

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