The Most Dishonest 'Journalists' in the Room
On May 25, the federal courtroom in Houston, Texas, was electric as the jury read the guilty verdicts against Ken Lay and Jeffrey Skilling, the chief officers of the disgraced Enron Corporation. Bethany McLean and Peter Elkind of Fortune Magazine also were there, and their dispatch was gleeful:
Guilty! ... Guilty! ... Guilty! Judge Sim Lake's reading of the jury's findings had a staccato rhythm to it. Lay, who was standing not with his lawyers but in the front row of spectators close by his wife, Linda, clutching her hand, turned red, his face strained. Skilling responded with a peculiar smirk. The prosecutors remained impassive, but celebrated later that evening at a Houston tapas restaurant, clearly relieved to have won.
The verdict, they wrote, clearly was justified if for no other reason than investors lost money:
Let's acknowledge some unambiguously positive implications of the Enron verdict. First, it finally offers a measure of consolation — or retribution — for those employees who lost everything in Enron's bankruptcy. And it reinforces a critical notion about our justice system: that, despite much punditry to the contrary, being rich and spending millions on a crack criminal defense team does not necessarily buy freedom.
Not everyone in Houston was rejoicing, but for McLean, it was a special moment, for she was a journalist who actually had a vested interest in this verdict. You see, McLean had a secret "romantic" relationship at the time to the lead federal prosecutor, Sean Berkowitz. After the trial but before the sentencing hearing, the two became engaged and married a while later, and the guilty verdict meant a financial payday for the happy couple. (Immediately after the guilty verdict, McLean went to Chicago for Berkowitz's birthday party.) Berkowitz, now a "star," would leave the Department of Justice for a partnership with the wealthy and high-powered law firm of Latham & Watkins in Chicago. McLean parlayed her Enron success to a new position at Vanity Fair, where she has written that Fannie and Freddie really were the good guys in the latest financial meltdown.
Granted, McLean and Berkowitz did not make their relationship public, but it might have been less-than-surprising that McLean's dispatches read like DOJ press releases. She wrote:
In the beginning it seemed such a simple story, demanding swift justice: A highflying company disappeared almost overnight; a CEO bolted before the collapse; top executives sold tens of millions of dollars worth of stock — some of it secretly — while employees and investors were left with nothing.
McLean never left the government's narrative, its "simple story." It was her story, too, and even though the defense shredded a number of the prosecutionâ€™s theories, it was clear from the start that Judge Sim Lake and the Houston media were not going to be happy with anything less than full convictions, and the jury dutifully complied. However, McLean also left out this little part involving her then-boyfriend and future husband (from the Houston's Clear Thinkers blog):
(Andrew) Fastow testified at trial that he told Skilling about the Global Galactic agreement, which purportedly documented a series of illegal "side deals" between Fastow and former Enron chief accountant Richard Causey that guaranteed Fastow would not lose money on certain special purpose entities that he was managing. Skilling denied any knowledge of the purported agreement.
After Skilling's conviction, the Skilling defense team discovered Fastow interview notes that the Enron Task Force had failed to disclose to the Skilling team prior to trial. Among other things, those notes revealed that Fastow had told the Task Force lawyers that he didn't think he had told Skilling about the Global Galactic agreement. The Fifth Circuit characterized the Task Force's non-disclosure as "troubling" in inviting Skilling to file a motion for new trial with the District Court. (Emphasis mine)
This is what the ancients once called subornation of perjury. That is a felony. The prosecution team lied to the defense, lied to the judge, and lied to the jury. Nothing will happen to them, because nothing ever happens to federal prosecutors who break the law, and who flout the system and lie even as they claim they are basing their criminal cases on "lies" told by the defendants. While her husband will skate through having committed this real-live crime, McLean also is having a happy ending, writing a book on the current meltdown that has come with a hefty advance.
Lest one think I only am picking on McLean, there is an even bigger conflict of interest looming in the "reporting" by Jacob Zamansky on the current trial involving Ralph Cioffi and Matthew Tannin, as case about which I wrote last year. Zamansky is a New York attorney who also moonlights as a financial writer and appears on a number of business shows on the cable networks like CNBC.
Here is what Zamansky had to say about the opening day of the Cioffi-Tannin trial in Forbes:
My own view is that the government did an excellent job of keeping the case simple and focused, stressing that "the defendants are not on trial because the hedge funds collapsed or because of the market meltdown. The defendants are on trial because they lied to investors."
The defense, on the other hand, chose to educate the jury on hedge funds, leverage and CDOs. Their strategy appears to be to blame their clients' behavior on the fog of war.
We saw similar strategies in the Enron trial. In that case, prosecutors kept it simple by pounding home the idea that former bosses Ken Lay and Jeffrey Skilling lied to investors; the defense focused on off-balance sheet partnerships and other financial complexities.
He made similar statements on a CNBC program, except to almost guarantee a conviction. What Zamansky did not say was that the defense went to the heart of the government's "insider trading" accusations against Cioffi, and clearly is not presenting a "fog of war" case. The New York Times reported about how the government's narrative fared in the testimony of one of its early witnesses:
It is a maxim of trial advocacy that a lawyer should never be surprised by his own witness.
In the criminal fraud trial of two former Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin, prosecutors have appeared to run afoul of that rule. On cross examination on Friday, the government's second witness, Steven Van Solkema, a former Bear Stearns credit analyst who worked for the defendants, gave testimony that softened, if not eviscerated, the impact of what was thought to be a "smoking-gun" e-mail. (Emphasis mine)
It seems that Zamansky has missed that little segment, but there is a reason why he is willing to ride the government's false narrative into the wall: he stands to make millions of dollars if the federal jury in Brooklyn convicts Cioffi and Tannin. Besides playing "journalist," Zamansky is representing clients in a suit against the defendants' former employer, Bear Stearns.
While Forbes disclosed that Zamansky has a lawsuit against Bear, CNBC said nothing. Now, even if there were disclosure, Zamansky has no business even making public comment on this case, let alone be writing for one of the supposed top business publications in the country.
As I read the articles from the Times, I am amazed at how well the defense is doing against the government witnesses. Yet, even as their attorneys take apart the case bit by bit, the government sticks with its narrative, one that worked well in Houston, but very well might not impress the judge and jury in Brooklyn.
However, if these men are acquitted — and I sincerely hope that is the case — I have my doubts that either Jacob Zamansky or Bethany McLean will be in the room. When a "journalist" believes his or her job is to write press releases for the prosecution, then it is time for them to change jobs and go to work for the government. At least their dispatches, while still dishonest, would reflect the views of their employers as opposed to now, when they are falsely portrayed as the writings of "objective" journalists instead of self-serving and state-worshiping lies.
William L. Anderson, Ph.D. [send him mail], teaches economics at Frostburg State University in Maryland, and is an adjunct scholar of the Ludwig von Mises Institute. He also is a consultant with American Economic Services. Visit his blog.
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