Blame the Lawyers

The prosecution in the Enron case is about to call several rebuttal witnesses for its case against Ken Lay and Jeffrey Skilling. A significant amount of the evidence against them shows that they were knowledgeable of the fraud that was being perpetrated against the stockholders and the public by Andy Fastow creating offshore accounts which assumed Enron’s debt. However, Lay and Skilling are not the only ones who should be held responsible for these actions; the lawyers need to be held accountable too.

Lawyers created offshore corporations and gave them names like Death Star and Chewbaca. The lawyers certainly knew what the purpose of the corporations was – to assume the debt of Enron in order for Enron to show profits on the books and keep its stock price high. There was no other purpose. There were no board of directors, business plans or products created by any of these corporations. The lawyers had to know this in order to create these shells.

In New York and New Jersey, it is unethical for attorneys to engage in activity that perpetuates a fraud. Engaging in unethical behavior can result in an attorney being suspended from the practice of law for specific periods of time or in extreme cases disbarred and precluded from ever practicing law again. A suspension is a significant punishment for an attorney. A lot of money can be lost in three or six months or clients could decide to move to different firms as a result of having a lawyer deemed to be unethical.

The actions of the attorneys who created the corporations that assumed the Enron debt knew they were creating corporations to perpetrate a fraud. Yet they have gotten off scot free regardless of their violation of ethical. No news articles or stories have indicated that any lawyers have been held accountable for their complicit acts in the fraud that we call Enron. No information has been forthcoming that the lawyers have been held accountable as Arthur Anderson, the accountants, were. Yet, they are as culpable for the fraud as the accountants. Why should a major accounting firm disappear and the lawyers all get to continue billing hundreds of dollars an hour.

The lawyers who created the offshore corporations need to have ethical violations brought against them immediately. They should not receive a free pass for their intentional blindness to the purpose of their actions. Until the lawyers are suspended or disbarred, the Enron case will not be closed. Rather, only some of the guilty parties will have been held accountable.