Jurors who convicted the four former Merrill bankers and a former Enron finance executive on Wednesday heard from experts Thursday regarding investor losses stemming from the 1999 barge deal.
If the jury agrees with the government's contention that the loss exceeded $40 million, the defendants could face a dozen years or more in prison. If they side with a defense expert who places any loss at less than $1 million, the defendants - all first-time offenders - could serve a matter of months.
Fastow pleaded guilty to two counts of conspiracy in January and agreed to serve a decade - a year and a half of which could be shaved off for good time.
Jurors were to return Friday to hear attorneys present closing arguments on loss and other factors that can enhance a sentence, such as whether a crime had more than one victim. Then they will deliberate the issues and advise U.S. District Judge Ewing Werlein of their findings, which he will take into account when he sentences the defendants in March.
The amount of investor loss tied to a crime can dramatically kick up prison sentences under federal sentencing guidelines.
Jamie Olis, a former Dynegy Inc. finance executive convicted of helping push through an Enron-like deal in 2001 where debt was disguised as cash flow, is serving a 24-year prison sentence because the loss from that deal was determined to exceed $100 million. Without that determination, Olis would be serving less than a decade.
The Enron jury is hearing testimony on whether there was a loss from the barge deal in an unusual sentencing phase prompted by an unresolved challenge to the constitutionality of federal sentencing guidelines.
That dispute arose from a June Supreme Court decision in a Washington State case that only juries, and not judges, should decide when to consider increasing sentences because of harm or aggravating factors. That decision came after Olis was sentenced in March.
Justice Antonin Scalia said in a footnote to the June decision that federal sentencing guidelines were not at issue in the Washington state case. But dissenters argued that the ruling would undercut or even wipe out the federal system, created to increase uniformity in sentencing.
The Supreme Court heard arguments Oct. 4, and U.S. District Judge Ewing Werlein expected the high court to rule on the issue before a verdict was rendered in the barge case he was hearing. Since that didn't happen, he summoned the jury to keep working and consider the same factors he will consider - primarily loss, if any - when sentencing the defendants.
The government's expert, New York University finance professor Anthony Saunders, said the bogus $12 million pretax profit Enron booked from the barge deal was a penny of the energy company's fourth-quarter 1999 earnings of 31 cents per share.
"The basic thing here is, earnings from this deal inflated the stock," he said, so he determined investors who bought shares in the first three months of 2000 overpaid by $43.8 million.
Enron's shares dipped 87 cents to $56.37 when Enron announced its fourth-quarter 1999 earnings on Jan. 18, 2000, and dropped another $2 the next day. But on Jan. 20, shares shot up $13 when Jeffrey Skilling, then Enron's chief operating officer, wowed analysts with cheerleading over the company's new broadband unit.
The defense expert, University of Chicago law professor Dan Fischel, said it was a "fundamental economic error" to assume the penny per share attributed would translate into steady earnings later.
The convicted defendants in the barge case are Daniel Bayly, former head of investment banking for Merrill; James A. Brown, former head of Merrill's asset lease group; William Fuhs, who worked for Brown; Robert S. Furst, the brokerage's former Enron relationship manager; and Dan O. Boyle, the former Enron finance executive.
All five were convicted of one count of conspiracy and two counts of wire fraud. Brown was also convicted of perjury and obstructing a grand jury, and Boyle was convicted of lying to Senate investigators about the deal. A sixth defendant, former in-house Enron accountant Sheila Kahanek, was acquitted.
The government contended the men knew the barge deal was a loan disguised as a sale because Enron promised to resell or buy back Merrill's investment in six months, meaning the brokerage was never at risk of losing its money.
By Kristen Hays