Prosecuting the Enron accounting scandal

First-year students in Professor Carrie Hempel's Criminal Law class last week got some insight into the real world of criminal prosecution as they listened to a lecture by David Z. Seide, an assistant U.S. attorney in Los Angeles.

Seide, an 11-year veteran of the U.S. attorney's office who specializes in white-collar crime, discussed how prosecutions are handled at the federal level, from the initial investigation through the trial phase. Using the Enron accounting scandal as an example, Seide said federal prosecutors tend to focus on prosecuting major crimes because of limited resources.

As with many investigations, Seide said, the Enron case began after media reports suggested that the energy company's stock was vastly overpriced. Then, in late 2001, The Wall Street Journal reported that Enron had inflated its profits since 1997 by $586 million.

"When an article like that appears in The Wall Street Journal, the SEC wakes up," said Seide, who emphasized that he is not personally involved in the Justice Department's investigation of Enron. "You can't just forget where you put $586 million."

Eventually, the government filed a criminal complaint in federal court against former Enron chief operating officer Andrew Fastow, charging that he used outside partnerships to manipulate the company's finances, among other alleged crimes.

Seide, a 1983 graduate of New York University Law School, said Fastow will likely use the defense that he was acting upon the direction and the approval of Enron's board of directors, its in-house counsel, and outside attorneys and accountants.

"The issue is whether he knew what he was doing was wrong," Seide said. "Prosecutors will try to prove that he was not open and honest with everyone, and that he had criminal intent."