Former Enron lead prosecutor John Hueston tells his court tale

Oakland Tribune, Oct 14, 2008 by Dana Guzzetti

CORRESPONDENT

DANVILLE -- John Hueston, former lead prosecutor in the Enron trial, talked to a riveted crowd Tuesday morning about how to spot ethical pitfalls in business

Regaling his audience with details of the now infamous collapse of energy giant Enron, Hueston revealed the connection between Enron's business culture and its demise, comparing its downfall to current institutional failures in the financial markets, such as that of Lehman Brothers.

When Thomas Loarie, of Catholics at Work, booked Hueston as a speaker months ago, he had no idea how apropos the topic of big business in trouble would be this week.

Speaking before about 60 business people at Crow Canyon Country Club early Tuesday, Hueston told the tale of how Enron leadership took fraud and conspiracy to a new level, dragging down the Arthur Andersen accounting firm and countless stockholders and employees with them when the company failed.

Former CEO Jeffery Skilling was sentenced to 24 years and four months in jail this spring after being found guilty on 19 of 28 charges. Enron founder and chairman Kenneth Lay died of a heart attack before he could be sentenced.

"The company should still be here today," Hueston said about Enron. He described the winds of a perfect storm of ethical failures that ruined the company and inflicted horrific financial losses for nearly everyone involved.

The story begins with the brilliant, charismatic, Harvard- educated CEO Skilling whose world view and lust for success captivated and controlled Enron's upper management, creating an atmosphere of arrogance.

"The last year they were in business, Enron changed its motto from 'The World's Best Energy Company,' to 'The World's Best Company,'" Hueston said.

Hueston said department heads knew Skilling did not want to hear bad news, and it seems they set about giving him good news, whether it was true or not.

Hueston told of an energy meeting in San Francisco before the California energy crisis where Skilling reportedly said, "The only difference between California and the Titanic is that the Titanic had the lights on when it was going under."

When Andrew Fastow, the company's chief financial officer, was given the authority to do stock deals for the company and also in his own account, Hueston says that should have been a red flag. Reportedly Fastow made $7 million on the side in one year.

"People may ask how the board of directors missed the signs. The dean of the Stanford School of Business was on the board." Hueston said. "They were engaged in trust."

But a board has the duty to go beyond trust to verification and an elevated level of due diligence at times of elevated risk, Hueston said.

"Look at what plagues the competition and see if it applies to you. Pay attention to the setting and release of reserves," Hueston told his attentive audience

Not all those convicted in the Enron fiasco felt comfortable with ill-gotten market victories. Mark Koenig, Enron's former director of investor relations, is an example of a good person slowly drawn into illicit dealings, Hueston said.

"They have a moral compass inside, and it is usually a gut feeling," Heuston said. "Some people ignore it. Koenig knew the moment in time when he had crossed the line."

Heuston recounted Koenig's words: "'He (Skilling) told me to cross out a key line in the press release, knowing it would be wrong."

Hueston had his own ethical challenge when it was time to sentence Kenneth Lay. The Department of Justice said he could not submit his observations of the remorse, repentance and rehabilitation Lay had exhibited during years of prosecution.

Having fought hard for Lay's conviction, Hueston felt compelled to tell the whole truth to the sentencing judge. He defied the DOJ and took heat for it later.

Hueston is a partner in the Los Angeles law firm of Irell & Manella LLP.

and advises clients on handling ethical issues. "Ethical business practices are more profitable in the long run," he said.