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Bloomberg Radio News With Marc Ross Regarding the Enron Verdict

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CLIENT: AVALANCHE STRATEGIC COMMUNICATIONS
PROGRAM: BLOOMBERG RADIO NEWS
STATION: BLOOMBERG-AM
DATE/TIME: 5/25/06 12:00 PM
SUBJECT: MARC ROSS: ENRON VERDICT
LENGTH: 19:00

CHARLIE PELLETT, ANCHOR: All right, I have another guest I want to
bring in on the conversation right now. We’ve got Marc Ross with
us, a partner at the law firm Sichenzia, Ross, Friedman and Ference.
Marc, good afternoon, thank you very much for joining us.

MARC ROSS, ATTORNEY: Good afternoon.

ANCHOR: You are learning of these verdicts as we are announcing
them here on Bloomberg Radio. And again, a conviction for Jeff
Skilling, and your reaction to what you’re hearing so far from
Houston?

ROSS: Well, what I’m hearing so far I think is encouraging,
because I think it shows that the laws can be enforced. Hopefully
it will bring about investor confidence in the marketplace, and we
can put all this chapter behind us and move forward and let the
markets prosper. I think the jury did do what they were asked to
do. They looked at it carefully. The government was successful in
prosecution. But, as I’m saying, hopefully, this can be put to…a
sad chapter in American corporate culture behind us, and we can
move forward.

PHIL GREGORY, ANCHOR: Marc, when you look at the outcome of this
case, there have been all these other cases that people were
looking at. We had the Martha Stewart case, you had the case at
Tyco. How significant a case was this? I mean, after all, a lot
of people lost a lot of money.

ROSS: I mean, I think it was a significant case. I mean, I think
there were a lot of individual investors who really did lose a lot.
It goes right to the core of American values, where, you know, the
small investors lost money. I think it goes to the corporate greed
factor, where the small investors lost a lot of money while the
large, wealthy corporate leaders did very well for themselves.

PELLETT: All right, Marc and David, just one more headline to pass
along to you right now. We’ve got Enron’s Ken Lay guilty on all
bank fraud counts, and again as we reported earlier, Jeffrey
Skilling convicted of conspiracy. The Enron jury still reading the
verdicts. We’re getting the information and passing it along to
you right now. And also one additional headline for you, Jeff
Skilling found not guilty on insider trading. David George, what
is happening right now in terms of the process itself. What do you
think is going through the minds of Jeff Skilling and Ken Lay, and
what happens to them in terms of the criminal process here?

DAVID GEORGE, ATTORNEY: Well, this is obviously their worst
nightmare. And my understanding is these guys really, they chose
to fight. A lot of people plead guilty and these guys believed
that they were innocent. From everything I’ve seen, they really
seemed to believe that this was unjust. So, this is a big wake-up
call. The next step obviously, there’s going to be an appeal. And
they’ll be filing that in the next few weeks, and that will work
its way through the system and take a year or more to get through
the system. The question is, well, actually, the next step will be
the sentencing. Sometime in the next few months, they’ll be
sentenced. And that will, some reports will have to be done, and
that will be a long sentence, probably. But that’s going to have
to be determined. Then the question is going to be, do they get to
stay out of jail while they’re on appeal? Or do they have to go
into jail while waiting? That’s going to have to be determined.
So very likely could be not too long actually going into prison.

GREGORY: Mark Powers, there’s always a danger in these kind of
cases for the defense presentation of putting the defendants on the
stand. There’s always some question of whether or not they should
indeed testify. Did Lay and Skilling really have to testify in
this case or was that a mistake?

ROSS: Did you mean Marc Ross?

GREGORY: Yes, I’m sorry, Marc Ross. Go ahead.

ROSS: I think, you know, again, it really comes down to an issue
of strategy. But I think, as my colleague just said, these people
really believed in their own innocence, and I think they believed
that they could tell the story and they could convince the jury.
I think the approach always was for them to look at the jury, try
to present themselves as an ordinary person and not a person of
high stature, and really just tell the story, and say, ‘Look, I
didn’t really know any better than anybody else out there.’ So I
think, yes, it’s always a risk. A lot of times traditional ideas
are not to put a defendant on the stand, and here the decision was
made, and I think it was made early on, because I think it was
something that everybody was expecting that they would testify.
And they wanted to see if they could relate to the jury, have the
jury like them, because, remember, our system really comes down to
while the jurors has to decide the law, there’s a lot that comes
into it as how they perceive the defendants themselves.

PELLETT: David George, you are talking to us from Houston. You
are a civil attorney in Houston. Talk to us about the home team
advantage and how that may or may not have worked for Ken Lay and
Jeff Skilling.

GEORGE: Well, obviously, Enron was a big story. You didn’t get
any jurors who had not heard about this. Enron was the seventh
largest company in America. One of the largest, most prominent
companies of Houston. The baseball field where the Astros play was
named Enron Field, had to be renamed after all this. I think a lot
of people, everyone knows someone who got laid off at Enron. And
everyone knows someone who lost savings there. So, I think it was
a certain disadvantage. Everyone came in pretty upset that this
company went under. But I don’t think that the jurors, or really
anyone saw this as some outsiders from Washington or somewhere
coming in to prosecute local people. I think the biggest concern
was that local people had been so affected by what happened with
Enron.

GREGORY: Yeah. David, what about efforts to portray Ken Lay and
Jeff Skilling as leaders in the local business community, and
really trying to emphasize their links to the City of Houston. Why
didn’t that pay off?

GEORGE: You know, they were very big leaders, and I think everyone
knew that. Some of the choice of having a very prominent pastor
here at one of the largest Baptist churches come and testify in his
favor. I think sometimes jurors don’t care for that. I think they
want to just stick to the facts and are not really interested that
someone’s preacher likes them. The other things were the owner of
the Houston Astros came and testified and those were pretty far
afield from what happened at Enron. So I think in the end, we
won’t know. Maybe the jurors put a lot into that, but I have a
feeling they cared more about what happened in those board rooms
and what the facts were, as opposed to these people’s local
celebrity.

GREGORY: Okay, let’s recap what the verdict is in this case. The
jury convicting Kenneth Lay and Jeffrey Skilling of orchestrating
the fraud that destroyed Enron. The jurors, after deliberating six
days, found Lay, Enron’s former Chairman, and Skilling, its former
Chief Executive Officer, guilty of fraud, conspiracy and other
charges. Marc Ross, we’ve been talking here about some of the
implications of this case. What does it really mean for the
investors in this company, the people who lost all this money?

ROSS: I think it means a lot to them. And I’m hoping it means a
lot to them, where I think they determined, they being the jury,
determined that there was malfeasance, there was bad conduct.
These people misrepresented that and conducted themselves
improperly and illegally. And they’re being held accountable for
that. Of course, that doesn’t help the jurors, the investors in
terms of recovering their money. We’ll see what happens in the
civil action. But, you know, I think the investors can feel
validated in terms that the legal system worked here. And
hopefully, in a bigger picture, it will instill a confidence back
into the capital markets in America and it will be received that
way. There have been a lot of changes in the capital markets and
stock exchanges because of Enron and the other cases, and
hopefully, that will put the confidence back in the system.

PELLETT: Marc Ross, what’s your sense about what happens to Ken
Lay and Jeff Skilling tonight? Do these guys walk or will they be
back behind bars this evening?

ROSS: That’s kind of hard to say. I think there’s going to be a
lot of pressure if they’re just able to walk out. I think you’re
going to have a public uproar. If I had to wager for a nickel, I’d
say they’re probably going to be kept in, but you know, it’s really
hard to say at this time. It really comes down to discretion of
the court.

GREGORY: David George, what’s your view here on the widespread
implications of the decision in this case? What does it mean in
the overall?

GEORGE: Well, this is pretty much bringing an end to the chapter,
the criminal chapter, in a lot of Enron. There’s still another
trial, that’s actually the jury is deliberating, relating to a lot
lower level people with some Enron fraud. But most of the people
now have been tried have plead guilty. And this was the big one.
This was the capstone. And so I think it’s going to bring some
conclusion, and I think people are probably going to start moving
on. There’s still the civil matters and those kinds of things, but
this was the big one. The two CEOs of the seventh largest company,
one of the largest companies here in Houston, have now been
convicted. And big, big doings.

GREGORY: David, every time we hear one of these verdicts, we
think, okay, this is going to send a message, going to be a signal
for others to avoid this. Will this kind of thing ever happen
again?

GEORGE: I think people are people, and we’ve been trying for
thousands of years to have people behave better, but greed does
funny things to people. I think obviously it’s probably going to
have some deterrents, but, yeah, we’re going to see this. I will
go ahead and say we will keep seeing people in high levels of
position doing things they shouldn’t be doing, and you know, I
don’t know when they’re confronted with that how much they’re going
to think, Ken Lay, look what happened to him.

ROSS: Well, you gotta hope they’re going to look at that, and
really, it will have a deterrent factor. And I think that’s the
pressure that the judge is going to feel right now when he gets to
the sentencing stage where he needs to send a message saying that
this is really not okay. This is something that society will not
tolerate. I think one important thing to emphasize is that the
government won this case, and that’s a really important thing,
where, from the investor confidence. If they did not win this
case, as my colleague just said, one of the highest profile cases
we’ve seen tried in a while, if they didn’t win this case, it
certainly would be a very awkward, embarrassing situation for the
government. But they don’t have that problem now.

PELLETT: All right, so this case considered to be a must win for
the government and indeed convictions today. In terms of
sentencing here, Lay and Skilling facing at least twenty-five years
each in prison. David George, what factors might the judge
consider here when they decide how much time these two former
executives should spend behind bars?

GEORGE: Well, he is going to follow the federal sentencing
guidelines, which is a very set formula. It looks at what the
crimes are and how much money was lost, whether these people had
any trouble with the law before. There’s a whole bunch of factors.
It’s very complicated. And that gives him a range of a certain
number of months. Until last year, that was mandatory. The judges
had to follow it in federal courts. Then the US Supreme Court said
no, they can use their discretion but generally should look to it.
So that’s what’s going to happen. The government, the courts are
going to get a report together and see what this book tells the
judge to sentence them to. And then he’s going to use some
discretion to maybe go up or go down a little bit. But the main
factors are going to be how big the fraud was, how bad the acts
were, how much money was lost, those kinds of things.

GREGORY: Marc Ross, we’re waiting to hear the penalty here that
the judge may impose in terms of sentencing. What goes through the
defendants’ minds? What goes through the attorneys’ minds? What
do you say and do while awaiting that sentencing?

ROSS: You know, what’s going through the defendants’ minds is, I
believe these gentlemen thought they were innocent. Whether they
convinced themselves of it or otherwise, and I think they’re just
sitting there in shock. And I doubt that there’s a heck of a lot
of conversation going on right now. There’s not anything that the
lawyers can really say to console the clients, to make them feel
better. They’re really just waiting for the sentencing, and it’s
exactly what you think it would be. You’re just sitting there with
a glum feeling and knowing that it’s going to be a heavy sentence.
As David George just said, there’s not a lot of discretion in the
federal sentencing guidelines. They’re not bound by it, as a
mathematical formula like they used to be, but there’s still not as
much discretion in there. So they have a sense it’s going to be a
long time behind bars.

PELLETT: All right, gentlemen, stay with us. We want to continue
the conversation. And again, just recapping, the federal jury in
Houston has convicted Ken Lay and Jeff Skilling of orchestrating
the fraud that destroyed Enron, giving prosecutors a victory in a
case that came to symbolize corporate crimes sparked by the stock
market bust in 2000.

********

PELLETT: With us discussing today’s verdict also David George, a
Houston civil attorney who has been following the case closely.
David, a couple of minutes ago, we heard Marc talking about the
silence. You’re sitting there with your client really just waiting
to hear from the judge. How much second guessing do you think is
going on, on the part of the defense team? Do you look back and
say we should have done this, this is a strategy we should have
implemented, this is where we made the mistake? Or is it too
premature to have those kinds of thoughts?

GEORGE: Well, I imagine that people are going to internally do
some of that second guessing. I think that’s just what people do.
But I think these strategies were well thought out. This defense
cost tens of millions of dollars, and numerous lawyers, some of the
biggest lawyers in Texas and in the country were involved. And
they made, I think they made, the best decisions they could. I
would hate to see commentators saying they should have done this or
that. I think they made the best…the best lawyers were making
the best decisions, and it turned out like it turned out.

GREGORY: Marc Ross, I’ve been looking at this case just about
every day, reading some of the commentary about it, and following
the developments in it. How difficult was it for a panel of twelve
jurors to go in there and hear the complicated processes of all the
testimony that was determined here and actually follow what
happened?

ROSS: I think it’s incredibly difficult. And I think that’s
something that the defense lawyers usually thrive on and look
forward to, because the extent that the juror can’t understand or
the jury cannot understand it, then they should come back and not
find him guilty. But I think this clearly, the one thing that came
across in all this, is these jurors really paid attention, and
really followed it, and really came up with what seems to be a very
well thought out verdict.

PELLETT: David, what then might be the basis for an appeal?

GEORGE: Well, one of the basis is going to be an instruction the
judge gave about what they sometimes call the ostrich instruction,
which is the idea that the defense put their head in the sand.
That the jury can say that, the judge will tell the jury that they
can find these people guilty if they knew of the wrongdoing or if
they were willfully blind. They took steps to not know. And the
defense lawyer said, ‘No judge, that should not be given because
these people did not claim to be hands off. They never claimed
that.’ So if that’s wrong, that could lead to a reversal. But, I
mean, most criminal defendants are convicted. About ninety-five,
or more, percent of criminal trials in federal system results in
conviction. Fewer than ten or fifteen percent of those are
reversed on appeal. It just doesn’t happen that often. So they’re
going in with incredibly bad odds against them. You can’t predict
what will happen in this case, but the odds are not good.

PELLETT: All right, gentlemen, I want to thank you both very much
for joining us this noon time. We appreciate your time, appreciate
your insights discussing today’s convictions of Ken Lay and Jeffrey
Skilling, convicted of conspiracy and fraud charges in US District
Court in Houston. And throughout the hour we will have more on the
trial, more on the outcome, more on the verdict, and indeed the
sentencing as we get it coming up here on Bloomberg Markets in
Midday. Our guests David George, a Houston civil attorney who has
been following the case closely. Also, Marc Ross our guest, a
partner at the law firm of Sichenzia, Ross, Friedman and Ference.

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