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Enron Task Force prosecutors prevailed against five defendants and lost to one in their first attempt to persuade a jury to convict criminally former employees and bankers for the infamous Houston energy company. The prosecutors’ partial victory after a more than one-month trial sets the stage as the Enron Task Force prepares for an upcoming trial against former high-ranking Enron executives Ken Lay and Jeff Skilling. After less than a week of deliberations, a jury in U.S. District Judge Ewing Werlein’s court in Houston returned a verdict on Nov. 3 that acquits former Enron accountant Sheila K. Kahanek, but found another former Enron employee, Daniel O. Boyle, and four former Merrill Lynch employees guilty of fraud and conspiracy charges in connection with a transaction known as the Nigerian Barge deal. Most of the convicted Enron employees and bankers, who were indicted in October 2003, now face 15- to 30-year prison terms. Former Enron vice president Boyle was convicted of conspiracy and two counts of wire fraud as well as a charge of lying to a congressional investigator. A former Merrill managing director, James A. Brown, was convicted of conspiracy, two counts of wire fraud and of lying to and obstructing an Enron grand jury. Three other Merrill executives, Daniel Bayly, William Fuhs and Robert Furst, were convicted of conspiracy and two counts of wire fraud each. Boyle’s lawyer, William G. Rosch III, a partner in Rosch & Ross of Houston, did not return a telephone call seeking comment before presstime on Thursday. Lawrence J. Zweifach, a partner in Heller Ehrman White & McAuliffe of New York, who represents Brown, said through a firm spokesman that he would not comment until after the sentencing-related hearing scheduled for Thursday. Thomas Hagemann, a partner in Gardere Wynne Sewell in Houston, who represents Bayly, did not return a telephone message before presstime. David Spears, a partner in Richards Spears Kibe & Orbe in New York, who represents Fuhs, did not return a call. Nor did Ira Lee Sorkin and Daniel Horwitz, partners in Carter, Ledyard & Milburn in New York who represent Furst. Houston criminal defense attorney Philip Hilder, who sat through some of the trial testimony and is the lawyer for Sherron Watkins, the former Enron executive who warned Lay about possible accounting irregularities, says the jury’s verdict represents a “big win” for prosecutors and will help in future prosecutions, such as the upcoming trials against Lay, the former chairman, Skilling, the former chief executive officer, and Richard Causey, the former chief accounting officer. “It was a very difficult case, one that could have gone either way, and I think that the prosecution will probably feel emboldened to continue on,” Hilder says. “I do think the cases build upon themselves, and it’s a steppingstone that some of the [alleged] activities that were subject to the conviction will be certainly be brought up as part of the prosecution of those three [Lay, Skilling and Causey.] And I think a conviction surely doesn’t help them.” DOJ’S TWO-PRONG APPROACH But the acquittal of Kahanek, former senior director in the Enron Asia Pacific/Africa/China (APACHI) Division, may help the defense attorneys. “I’m just glad that the jury had the balls to do what they did,” says Houston lawyer Dan Cogdell, Kahanek’s criminal defense attorney. “There were a lot of things that helped her case. She testified and did a really good job of testifying. The fact that she was charged and some other people [from Enron] weren’t charged was pretty significant. She wasn’t a speed bump on the Enron superhighway of greed. She was nothing, … but I was concerned there was so much swill, so much venom at Enron, that it wouldn’t matter.” Andrew Weissmann, head of the Enron Task Force, did not return a telephone call before presstime on Thursday, but Assistant Attorney General Christopher A. Wray of the U.S. Department of Justice’s Criminal Division said in a statement that the verdict signals that executives who commit corporate fraud will be vigorously investigated and prosecuted. “This second Enron-related trial is a milestone in bringing both an Enron executive and Merrill Lynch executives who aided and abetted the fraud at Enron to justice. Today’s verdict is part of the Department of Justice’s two-prong approach: First, the verdict metes out individual justice as to the five defendants convicted today; second, the verdict goes hand-in-hand with the sweeping reforms mandated by the government’s deferred prosecution agreement with the Merrill Lynch firm. That agreement includes strong, systematic measures to deter the kind of income manipulation that Merrill Lynch employees and executives aided and abetted, so that others won’t be hurt again by this type of criminal conduct,” Wray said in the statement. In United States of America v. Daniel Bayly, et al., the government brought criminal charges in connection with a December 1999 deal in which Merrill Lynch bought some electricity-producing Nigerian barges from Enron. The indictment alleges Enron parked the barge assets with Merrill, promising to buy them back within six months at a profit, to “enhance fraudulently” its 1999 financial reports. The indictment alleged that Merrill Lynch’s purchase of the barges allowed Enron to record improperly $12 million in earnings and $28 million in funds flow during the fourth quarter of 1999. Cogdell says Kahanek testified that she knew nothing about an “oral side agreement” that prosecutors allege called for Enron to buy the barges back from Merrill within six months at a profit. The jury in the Nigerian Barge trial had been deliberating since Oct. 28 after hearing six weeks of testimony. The trial began on Sept. 20. It was only the second trial for the Enron Task Force, which was formed after Enron collapsed and declared bankruptcy in December 2001. The first trial ended in June 2002 with a guilty verdict for former Enron accounting firm Arthur Andersen on a charge of obstruction of justice for destroying Enron financial records. Cogdell, of Cogdell Law Group in Houston, says Kahanek has spent much of the last year assisting in her defense, but now will have time and opportunity to look for a new job. He notes, “She will survive.” Contributing reporter Miriam Rozen contributed to this article.

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