Ultimately, most cases turn on the definition of fraud. If a defense attorney cannot avoid charges and cannot argue that his client was not involved in the alleged improprieties, he turns to the gray area: Did my client know that what he was doing was wrong?
“Accounting is not a black-and-white science,” says Schertler. “If you’re embezzling money, you know it’s a crime. If you’re dealing drugs, you know it’s a crime. But what we’ve always focused on in accounting fraud is: Is this really a crime?” Adds Keker: “You want to show that matters of judgment are not matters of criminality. What’s happened in the last few years is that people have used hindsight to label as criminal things that at the time were considered cutting-edge.”
For example, in the 2004 “Nigerian barge” trial — regarding a 1999 agreement by Merrill Lynch to buy Enron’s stake in three power-generating barges on the condition that Enron would buy them back at a price that would mean a profit for Merrill Lynch — Keker, who was not directly involved in the case, says executives at both companies had extensive discussions about whether the transaction was legal, decided it was, and proceeded. At trial, the court decided otherwise, and prison sentences for four former Merrill Lynch bankers and a former Enron vice president followed.
When Things Go Wrong
Of course, even the best lawyers occasionally come up short in the courtroom. Strategies backfire, facts prove flimsy, outside influences play a decisive role. Weingarten says he is still “grieving” the outcome of the Ebbers trial, which he tried unsuccessfully to have moved to Mississippi, a location he believes would have been more sympathetic than the New York stage on which Tyco CEO Dennis Kozlowski and CFO Swartz were also convicted. A hometown location (Birmingham, Alabama) provided a tremendous advantage to Richard Scrushy, points out Weingarten. He had also hoped for success with a jury that was not Wall Street savvy, having won an acquittal for former Tyco general counsel Mark Belnick with a similar jury. “This one didn’t work out so well,” says Weingarten.
Countering government charges that Swartz had looted Tyco for his own gain, attorney Stillman argued that his client did not intend to cover up the millions of dollars in bonuses he received — and that since there was no criminal intent, there was no fraud. Stillman says Tyco’s board of directors knew of and sanctioned the sums. “There was no indication to Swartz that anything was crooked. You have directors who, when something bad happens, all of a sudden have very bad memories,” says Stillman. But the jury rejected the argument. The verdict is under appeal.
In the case of former Adelphia finance chief Timothy Rigas, Grand tried to make the case that his client did not know about any wrongdoing at the cable operator. He maintained that the CFO’s expanded role at the company following the cancer diagnosis of his father, CEO John Rigas, prevented him from closely monitoring the transactions that were at issue. But again, the jury rejected the argument.