By JOHN C. ROPER
Copyright 2006 Houston Chronicle
An appeals court has tossed out the convictions of conspiracy and wire fraud against four ex-Merrill Lynch executives who were found guilty in a 1999 scheme to improperly boost Enron’s earnings.
The 5th U.S. Circuit Court of Appeals in New Orleans announced late Tuesday that the charges of fraud against former Merrill Lynch executives James Brown, William Fuhs, Daniel Bayly and Robert Furst were “flawed” and vacated their convictions.
The panel upheld, however, a conviction of perjury and obstruction of justice against Brown.
“The Justice Department is reviewing the decision and considering our options,” said spokesman Bryan Sierra, declining to comment further on the blow to the first case the Enron Task Force tackled.
Attorneys for the former Merrill Lynch employees could not be reached for comment.
The 5th Circuit is considered one of the most conservative appeals courts in the nation, and lawyers who have tried cases there say it is stunning when a reversal occurs.
“When you get a reversal in the 5th Circuit, you have truly climbed Mount Everest,” said Brian Wice, a Houston appellate attorney who has argued several times at the New Orleans appeals court.
The ruling was written by Judge Grady Jolly, who is known to be conservative in his decisions.
“For Judge Jolly to overturn a conviction, it must not have passed the smell test,” Wice said.
Bayly, Furst and Fuhs were released on bond earlier this year as they awaited the decision from the appeals court, a move that many observers believed was a sign that their convictions would be overturned.
In November 2004, a jury found the Merrill workers — as well as their colleague, executive Dan Boyle, who did not appeal his conviction — guilty.
The case focused on a 1999 deal for Enron to sell three electricity-generating barges off the Nigerian coast to Merrill Lynch. The government claimed the sale was a sham designed to create $12 million in revenue for Enron to help it meet earnings targets.
The key problem with the deal, according to prosecutors, was a verbal promise that Enron’s former chief financial officer, Andrew Fastow, made to buy the barges back at a profit from Merrill Lynch within six months.
The side deal means it wasn’t really a sale, as Enron claimed, prosecutors said, but simply a loan.
The appeals court found that the government failed to prove that the executives were striving solely for personal gain as the indictment had alleged.
“All were driven by the concern that Enron would suffer absent the scheme,” Jolly wrote, adding that the “only personal benefit or incentive” for the executives “originated with Enron itself — not from a third party as in the case of bribery or kickbacks.”
Judge Harold DeMoss agreed.
“In my view, both parties acted to maximize mutual benefits in a clear effort to solidify business relationships,” he wrote in the ruling.
Bayly, of Connecticut; Furst, of Dallas; and Fuhs, of Denver, were found guilty of wire fraud and conspiracy.
Bayly was accused of taking part in a telephone conversation in which Fastow made assurances that the barges would be bought back in one year.
Bayly was released on bond in June from a low-security prison in Petersburg, Va., where he had been serving a 30-month sentence.
Furst, also released in June, was serving a three-year, one-month sentence at a low- security facility in Seagoville, near Dallas.
Prosecutors say Furst had a summary drawn up of the proposal for Merrill Lynch to temporarily buy Enron’s interest in floating power plants.
Fuhs, a Denver resident and the lowest-ranking of the Merrill employees involved in the Nigerian barge deal, was released on bond in March.
Brown, a Connecticut resident, was found guilty of perjury and obstruction of justice in addition to the same conspiracy counts as his fellow banking executives.
Boyle, of the Clear Lake area, was accused of lying to a congressional investigator and is completing a prison sentence of three years and 10 months.
The sixth person tried in the case, Sheila Kahanek, an accountant for Enron, was acquitted of all charges against her.