Crime & Federalism

[Editor's note: This is the third of a six part series discussing the criminal charges against Ken Lay.  You can read other posts discussing the Ken Lay prosecution here (Introduction) and here (the Indictment).  The next three parts will address the wire fraud, securities fraud, and Reg-U charges, respectively.]

Charge1 (which Count 1 of the Indictment) alleges that Lay, Skilling, and Causey conspired to commit securities and wire fraud in violation of 18 U.S.C. 371. 

Conspiracy is perhaps the easiest crime to understand.  Criminal liability attaches under the conspiracy statute if two or more people agree to commit a crime and one person takes an act in furtherance of the agreement.  18 U.S.C. 371 ("If any two or more persons conspire [to commit a federal crime], and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.")  The conspiracy statute, in other words, punishes the agreement to commit a future crime.  Fifth Circuit Pattern Jury Instruction 2.20 ("A 'conspiracy' is an agreement between two or more persons to join together to accomplish some unlawful purpose. It is a kind of 'partnership in crime' in which each member becomes the agent of every other member.")

A conspiracy count is considered typical in any federal prosecution.  "Conspiracy has been called the darling of prosecutors."  McCart v. State, 765 So.2d 21, 34 (Ala. Crim. App. 1999).  See also Interview with Robert F. Clark, ("Conspiracy is ... the darling of the prosecutor. You don't have to catch people. You can sit in your office and say, 'We have a conspiracy.'")  Generous liability rules is one reason prosecutors love conspiracy.

Under Pinkerton v. United States, 328 U.S. 640 (1946), a conspirator is liable for the reasonably forseeable acts of his co-conspirators done in furtherance of the conspiracy.  The Fifth Circuit Pattern Jury Instruction 2.22 (2001) phrases the Pinkerton rule as follows: "A conspirator is responsible for offenses committed by other conspirators if the conspirator was a member of the conspiracy when the offense was committed and if the offense was committed in furtherance of, or as a foreseeable consequence of, the conspiracy."  This rule applies even if the co-conspirator may not have assented to the comission of some crime.  Consent to each act done by a co-conspirator is not required: the touchstone is whether the acts were forseeable.  Thus, the District Court intructs the jury as follows:   

Therefore, if you have first found the defendant guilty of the conspiracy charged in Count___ and if you find beyond a reasonable doubt that during the time the defendant was a member of that conspiracy, other conspirators committed the offenses in Count[s] ___ in furtherance of or as a foreseeable consequence of that conspiracy, then you may find the defendant guilty of Count[s] ___, even though the defendant may not have participated in any of the acts which constitute the offense[s] described in Count[s] ___. Id.

Do note there is an exception to the Pinkerton rule.  Lay is not liable for Skilling's and Causey's acts if Lay affirmately pleads that he withdrew from the conspiracy.  United States v. Schorovsky, 202 F.3d 727, 729 (5th Cir. 2000) ("[W]e believe it is logical to infer that the conduct of conspirators after a defendant withdraws from the conspiracy likewise is excluded from the defendant's relevant conduct for sentencing purposes."); Jury Instruction No. 2.23.  ("[T]he defendant must demonstrate some type of affirmative action which disavowed or defeated the purpose of the conspiracy. This would include, for example, voluntarily going to the police or other law enforcement officials and telling them about the plan[].")  Of course, since Lay has not admitted that a conspiracy existed, by definition there would have been nothing for him to withdraw from. 

Thus, Lay's being charged with conspiracy is unremarkable, though something about Count 1 is quite remarkable. 

What is Not Charged.

You can see that the Indictment charges, in total, 18 counts of securities fraud and 6 counts of wire fraud.  However, Lay is only charged with 4 counts and 2 counts, respectively.  This could become very significant.   

If Lay agreed with Skilling and Causey to commit wire and securities fraud, then Lay is liable for Skilling's and Causey's wire and securites fraud.  That Lay is not charged with more counts may be an indication that the prosecution can not prove that Lay, Skilling, and Causey agreed to commit any crime.  Of course, the prosecution could merely be waiting to see what evidence develops at trial.

If there was a conspiracy to commit wire fraud, and indeed Skilling and Causey committed wire fraud, then why isn't Lay charged with more counts of wire fraud? Indeed, this is more interesting since on page 39 of the Indictment, prosecutors allege that Lay's committed the following overt acts in furthernace of the conspiracy:

[1] [He] "spoke to a representative of a national credit reporting agency," para. 88p; [2]  [He] "conducted a quarterly conference call," para. 88r; [3] 
[He] made another "conference call," para. 88s. 

These three acts serve as the basis for three counts of securities fraud against Lay.  However, Skilling is not charged for any of these three acts, and Causey is only charged in connection with two of these acts. 

Also note that the prosecution hasn't charged Skilling and Causey with the wire fraud Lay allegedly committed. [We will be discussing wire fraud in a later post.]  So, why is it that Lay's wire fraud counts are inapposite Skilling's and Causey's?  Could it be that no agreement between Lay, Skilling, and Causey can be proven?

Perhaps Lay's knowledge of Skilling's and Causey's actions can not be proven.  If so, then Charge 1 is out the door.  Also, if the prosecution can not establish a broad conspiracy between Lay, Skilling, and Causey, it may have a harder time proving that Lay knew about the company's financial situation since it was Skilling and Causey who filed the 10-K and 10-Q forms with the SEC.  Forms 10-K and 10-Q are mandated by the SEC and require a company to fully disclose its financial condition.  If Lay was not privy to the information in these documents, then he has a strong claim that he really did not know that Enron was in poor financial condition.  As such, he was not acting in a conspiracy with Skilling and Causey when he told analysts that Enron was doing well.