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The Chickenshit Club

Why the Justice Department Fails to Prosecute Executives

About The Book

Winner of the 2018 Excellence in Financial Journalism Award

From Pulitzer Prize–winning journalist Jesse Eisinger, “a fast moving, fly-on-the-wall, disheartening look at the deterioration of the Justice Department and the Securities and Exchange Commission…It is a book of superheroes” (San Francisco Review of Books).

Why were no bankers put in prison after the financial crisis of 2008? Why do CEOs seem to commit wrongdoing with impunity? The problem goes beyond banks deemed “Too Big to Fail” to almost every large corporation in America—to pharmaceutical companies and auto manufacturers and beyond. The Chickenshit Club—an inside reference to prosecutors too scared of failure and too daunted by legal impediments to do their jobs—explains why in “an absorbing financial history, a monumental work of journalism…a first-rate study of the federal bureaucracy” (Bloomberg Businessweek).

Jesse Eisinger begins the story in the 1970s, when the government pioneered the notion that top corporate executives, not just seedy crooks, could commit heinous crimes and go to prison. He brings us to trading desks on Wall Street, to corporate boardrooms and the offices of prosecutors and FBI agents. These revealing looks provide context for the evolution of the Justice Department’s approach to pursuing corporate criminals through the early 2000s and into the Justice Department of today, including the prosecutorial fiascos, corporate lobbying, trial losses, and culture shifts that have stripped the government of the will and ability to prosecute top corporate executives.

“Brave and elegant…a fearless reporter…Eisinger’s important and profound book takes no prisoners” (The Washington Post). Exposing one of the most important scandals of our time, The Chickenshit Club provides a clear, detailed explanation as to how our Justice Department has come to avoid, bungle, and mismanage the fight to bring these alleged criminals to justice. “This book is a wakeup call…a chilling read, and a needed one” (


The Chickenshit Club Chapter One “THERE IS NO CHRISTMAS”
ON A GRIM DAY IN september 2003, with hurricane Isabel brewing off the East Coast, federal prosecutor Kathy Ruemmler prepared for the government’s third interview with an Enron witness. The investigation into the top officers at the collapsed energy giant was stalled. Ruemmler knew the prosecutors had to flip someone.

She had just joined as the youngest member of the Enron Task Force, the special SWAT team the Justice Department had assembled to dig into what had been one of the richest and most admired companies in the world. Now it had been revealed to be one of the biggest frauds in American business history. At a passing glance, the thirty-two-year-old assistant US attorney looked fresh faced and friendly, with her shoulder-length blond hair and clothing that was a step up from the typical government servant’s. But she had a steeliness that she could wield at will. Her warm blue eyes hardened when she was deposing a witness.

Her teammate in those days was Sam Buell. Before joining the task force, Buell, thirty-nine, had prosecuted Boston mob cases. He was tall and clean cut. His short, reddish hair framed a wide, gentle face that sat above broad shoulders. Buell, the son of schoolteachers, had grown up in Milton, Massachusetts, outside of Boston. Self-deprecating and easygoing, he looked like a favorite high school math teacher. Witnesses liked him in spite of themselves. Buell and the task force had been laboring over the case for months now. They were going after Jeff Skilling and Ken Lay, Enron’s top officers. Ruemmler and Buell spent most of their time shuttling from DC to Houston, where the two of them would drive from their dingy government-rate hotel rooms to an abandoned space at the top of Houston’s run-down federal courthouse, a 1960s-era squat white cube in the middle of downtown Houston.

They passed through building security unencumbered. Here it was already 2003, and they still didn’t even have BlackBerrys. Upstairs, their clunky computers balanced on cardboard boxes atop chipped metal desks. The whole place was so run-down that it was fodder for jokes. A defense attorney bringing a tony client for an interview once cracked, “It looks like an OSHA violation in here!” During the first winter, most of them had come down with miserable respiratory infections. Were the offices infecting them? Or was it just the pressure of their task? They had no document management system and no way even to email the FBI agents assigned to the investigation, who were just a few blocks away. With this pathetic setup, they were taking on an infernally complex company in the most important corporate fraud case in memory, against a legion of defense lawyers from the best firms in the world.

The country had invaded Iraq six months earlier. Madonna kissed Britney Spears and Christina Aguilera on the MTV Video Music Awards show. The American tennis star Andy Roddick won what would be the only major tournament of his career: the US Open championship. But Ruemmler barely noted outside events, significant or trivial. She had no time for anything but the case. During these eighteen-hour days, when she could only sneak in a frozen pizza and a shower, Ruemmler would sometimes marvel that she had ended up here. She had grown up in Richland, Washington, a rural corner of the Northwest, where both of her parents worked at the giant Hanford nuclear facility on the Columbia River, her father as a computer engineer and her mother in a toxicology lab. Unlike most of her Justice Department colleagues, Ruemmler hadn’t gone to an elite eastern college. She’d been thrilled to get into the local University of Washington, and before she left to attend Georgetown University Law Center, she had been out of the Northwest only three times.

Yet Ruemmler had landed a plum job: assistant US attorney; a federal prosecutor in the DC office. She’d been handling violent crime and narcotics cases when Leslie Caldwell, head of the Enron Task Force, reached out. Ruemmler hadn’t had much experience prosecuting financial fraud. She’d been reading the papers and coming across the same phrase: if normal financial fraud was “algebra,” the articles intoned, Enron was “advanced calculus.” She felt intimidated. But Caldwell assured her the Enron Task Force would be only a six-month detail.

• • •

Twice, the Enron prosecutors had brought in one of their most promising witnesses, Dave Delainey, the head of Enron’s energy trading division. He’d stuck with his story, brushing aside questions from the prosecutors and the FBI agent assigned to this part of the investigation. They weren’t giving up, though, and that morning they felt certain they had discovered a dangling thread that might help them unravel his story.

As Ruemmler and Buell went through the many emails Delainey had sent to his head trader, they found a huge gain the company had made trading in California’s energy markets in the late 1990s. Enron didn’t want to tell shareholders it was a volatile trading shop. Instead, the company line for Wall Street had been that Enron was a stable, fast-growing operation. CEO Jeff Skilling had downplayed Enron’s trading, once saying on CNBC that it was “just a small portion” of its business.1 Enron was just a “logistics” business, he’d say, meaning that Enron helped speculators but wasn’t one itself. A big trading gain, such as the one Ruemmler and Buell discovered, hinted at the reality. Speculation dominated the company’s culture and contributed an outsized portion of its profits. Once, after a trader had lost close to a half billion in one day, Skilling came down to the trading floor and exhorted the traders to “man up.” Get back out there and make more trades. Win it back.

Instead of having Enron disclose those trading profits, Delainey and his executives hid them. They stashed the millions of dollars of earnings and created a cover story: it was setting aside those profits for a possible legal settlement.

Ruemmler and Buell had figured out that this reserve, this “cookie jar,” was a lie. Poring over the company’s intentionally complicated and messy financial statements one more time, they’d noticed that a year after creating the reserve, Enron had lost millions in another division and dipped into that money—reserved for legal costs—to cover the losses and make it look like it had made money that quarter. That accounting hocus-pocus was illegal, and Delainey and his top trader had emailed about it. But they’d used a lot of trader jargon, and the emails were vague enough that a jury would need them decoded. The prosecutors understood how the scam had been pulled off but believed they couldn’t prove it yet.

Delainey could explain that little scam, but that’s not why they needed to flip him. Complex white-collar investigations required finding “rabbis” to guide you through the transactions. Even the smartest outsiders couldn’t rely on the documents. They were conducting an old-fashioned investigation. They needed someone on the inside. If they could flip Delainey, they could take the prosecution all the way to the top. They could begin to build a case that Jeff Skilling had lied to investors and the public.
That led them, in the middle of the hurricane, to haul Dave Delainey and his expensive lawyers into a windowless conference room in the Bond Building in Washington, DC, for a third time.

Buell and Ruemmler and their expert FBI agent had new verve; they took command of the interview from the start. Buell had a hunch Delainey wanted to cooperate. Getting him over to their side, however, required breaking down his instinct to deny and minimize his culpability. Delainey had long been an Enron true believer. A clean-cut Canadian, he’d been awed by the testosterone-flooded Enron trading culture. Hard-charging, sure, but they weren’t—couldn’t be—criminals.

Few corporate white-collar fraudsters—not egregious Ponzi schemers or boiler room operators but perpetrators at large, respectable companies—start out thinking they will commit a crime. As one academic study, “Why Do They Do It?: The Motives, Mores, and Character of White Collar Criminals” put it, most white-collar criminals are “individuals who find themselves involved in schemes that are initially small in scale, but over which they quickly lose control.”2

They tell themselves, “I’ll just do it this quarter so we don’t miss the number, and then I’ll stop it and undo what I’ve done.” They don’t think of themselves as crooks. It’s just a short-term fix. Then they use the device again and again until they have no choice but to keep up the charade. They start rationalizing what they’re doing. It may be aggressive, but it’s not wrong. It’s not theft. The bad guys aren’t lying just to prosecutors. They are lying to their shareholders, their colleagues, and their families. And they are lying to themselves.

The prosecutor’s job is to crack through that self-justification and self-delusion. That’s what Ruemmler and Buell were going to do that morning, in that room, with Delainey.

The two stuck with their plan to stay calm, to both be the good cops, and keep asking questions about the emails. They would reason with him, confronting him with the evidence, though selectively, to test his credibility. Their advantage was that Delainey didn’t know exactly which documents interested the prosecutors, as well as who else from Enron was talking and what they were saying. As Ruemmler and Buell ground him down on the emails, his story began to collapse. A couple hours into the conversation, it happened: Delainey glanced over and signaled a silent plea for help to his lawyers: John Dowd of Akin Gump and a promising young associate named Savannah Guthrie, who would later coanchor the Today show.

Dowd was a legend, one of the premier defense lawyers in the country. Big and aggressive, he’d vow to fight the government from every rampart in Washington. He had some quirks. Using just two fingers, he’d bang out his emails in twenty-eight-point purple Comic Sans font. “Who He?” he’d email-bellow to his associates. He toned it down for Buell, who saw a familiar character in Dowd, a brash and street-smart working-class Bostonian. They would chat about the Red Sox. Dowd was no intellectual, but he was savvy and knew how to help his clients. Buell and Ruemmler made it clear where the email evidence was taking Dowd’s client. The attorney understood it perfectly.

Dowd asked if he and Guthrie could confer with their client and then left the room.

They were gone for about fifteen minutes. When they came back in, Ruemmler noticed that Delainey’s demeanor had changed. He now slumped in his chair. A moment passed in silence. He then spoke—mumbled, really: “It was all bullshit.”

As Kathy Ruemmler snuck a quick a look at her partner, she saw the smallest of smiles on his face.
When Enron filed for bankruptcy in December 2001, the implosion devastated a major US city, Houston, both economically and psychologically. Fortune magazine had named Enron “America’s most innovative company” six years straight for having changed the way that gas and electricity moved around the country. The magazine CEO had named Enron’s board one of the top five in America.3 Former secretaries of state Henry Kissinger and James Baker had lobbied for the company. Nelson Mandela had come to Houston to receive the Enron Prize for Distinguished Public Service.

The Enron scandal reached all the way to the president and vice president of the United States. George W. Bush and Dick Cheney had run in the same business and social circles as the Enron executives. Bush’s family had made its money in Texas energy; Cheney, only a few years earlier, had been the CEO of the energy services giant the Halliburton Company, then based in Dallas. Ken Lay, Enron’s founder, was a longtime Bush family friend and major Republican donor. Bush, as is his way with intimates, had given Lay a nickname: “Kenny Boy.” Lay had once hosted a fund-raiser for Senator John Ashcroft, a Republican from Missouri, who was expected to make a bid for the 2000 presidency. Now Ashcroft was Bush’s attorney general, the top law enforcement officer in the United States.4

The country fell into recession in late 2000. It was reeling from the bursting of the biggest stock market bubble the world had seen, which had inflated through most of the 1990s before collapsing mercilessly in March 2000. Over the next few years, new companies reported accounting problems with alarming regularity: Tyco, Adelphia, HealthSouth, WorldCom. But Enron’s collapse was the most spectacular. The pandemic of corporate greed and criminality felt so consequential that it wasn’t outlandish to think that Enron’s failure might be the seminal financial event of a generation.

Enron’s significance would recede, however, and the lessons it holds for white-collar enforcement would be forgotten. Despite Enron’s political might, the US government aggressively investigated the fraud at the energy trading company and prosecuted dozens of individuals, including the top officers of the company. Lay, Skilling, and Andrew Fastow, the chief financial officer, were all found guilty. Skilling and Fastow went to prison; Lay would have gone, too, but he died of a massive heart attack in 2006, just three months before his sentencing. In all, the government charged thirty-two people associated with the Enron frauds, including Wall Street bankers who’d facilitated the deceptions.5 The government did indeed take down rogue executives not that long ago.

Many people look at the crimes at Enron, WorldCom, Adelphia, Tyco, and the generation of post-stock-market-bubble-bursting prosecutions and think the crimes were so egregious that the prosecutions must have been easy. But that’s only with the benefit of hindsight. What Kathy Ruemmler, Sam Buell, and the rest of the Enron Task Force did was not simple and never inevitable. If the task force hadn’t had resources, time, intelligence, and patience, Lay and Skilling may not have been prosecuted at all or could have easily been acquitted. The prosecutorial team went up against the best defense lawyers in the country. The public brayed for faster action. The team had its share of stumbles, blowing some of its trials. Lay didn’t use email; Skilling rarely did. So the government lacked direct, incriminatory evidence of their guilt. But in the big cases, the task force prevailed. These were not accidents. The Enron prosecution team made smart strategic decisions, secured necessary resources, learned from their mistakes, used aggressive tactics, and ran the major trials well.

Despite this success, the Justice Department took the wrong lesson from Enron. Over the next decade, the task force’s legacy, at least for the subsequent leaders of the Justice Department, lay more in its mistakes than its successes. Courts reversed the government in key cases. The defense bar and Justice Department officials came to view the Enron prosecutors as reckless and abusive rather than sufficiently aggressive to meet the prosecutorial challenge. Today it’s an open question whether the Justice Department would be capable of taking on Enron the same way the task force did.
In the early years of the George W. Bush administration, its Department of Justice compiled a sterling record of corporate prosecutions. Larry Thompson, Bush’s first deputy attorney general, understood that the DOJ had to respond assertively to the unfolding crisis. Thompson joined the administration in 2001, just as the corporate accounting scandals were breaking. Stock markets were collapsing. The public was furious. By the end of its run, the early Bush-era Department of Justice had prosecuted almost every major accounting fraud from the early 2000s. Not just Enron but also WorldCom, Adelphia, Global Crossing, and Qwest Communications among them. At the state level, the Manhattan district attorney prevailed in cases against the top corporate officers of Tyco.6

Prosecutors took losses, too. They weren’t taking on the easiest cases and juicing their stats with easy victories. One of the more unfathomable losses was the acquittal of Richard Scrushy, the head of hospital and rehab clinic operator HealthSouth. Prosecutors charged him with thirty-six counts, including securities fraud and conspiracy in connection with a $2.7 billion accounting fraud. They flipped multiple former employees against Scrushy, including the HealthSouth CFO, but a hometown jury found him not guilty.7 A year later, in a separate case, a federal jury found Scrushy guilty of bribery.8 Thompson understood the risks and tolerated losses. In his view, they were the price of ambition.

A fair and lifetime law-and-order man, Thompson conferred with Michael Chertoff, the head of the criminal division at “Main Justice,” as the Washington headquarters of the Department of Justice is known. They both emphasized the public need for “real-time” prosecution for white-collar cases. They believed the public deserved action and defendants deserved speedy resolutions. But the strategy was also practical. White-collar cases could languish for years, a poor way of conducting any investigation. The evidence trail grows cold, memories fade, and defense lawyers have time to formulate their client’s stories and tactics. Prosecutors needed to maintain momentum. Thompson and Chertoff understood that with the Enron debacle, the public would be bothered with slow justice. That there might be no justice—no prosecutions at all—never even occurred to anyone.

In early 2002 Thompson and Chertoff feared that the Enron case was already a mess. Several US Attorney’s Offices had separate pieces of the investigation. Main Justice oversees the other offices but does not direct each about its investigations. The criminal division in Washington also conducts its own investigations into securities fraud, antitrust violations, public corruption, and civil rights. Prosecutors coordinate probes but do not conduct them. Every investigation has agents, usually from the FBI. Often other government regulators, including the SEC, have only civil enforcement powers. For criminal matters, they work with the Justice Department. Since the Southern District of New York took on most of the corporate and securities fraud matters, it had the closest relationship with the SEC. In early 2002 the Southern District vied to take all the Enron cases for itself, but Thompson and Chertoff wouldn’t allow that. The Southern District, in a pique, removed itself entirely.

With the Southern District out of Enron, nobody seemed to know who was in charge of what. The government’s document requests deluged the company. Robert Bennett, the Washington power lawyer, then with Skadden, Arps, Slate, Meagher & Flom, which represented Enron, called up Larry Thompson’s office and told them he wanted to cooperate but didn’t know with whom he should deal.9

Main Justice realized that the Houston office of the Justice Department had too many professional and personal conflicts of interest and had to recuse itself from prosecuting the company. Thompson, FBI Director Robert Mueller, and Chertoff mulled the problem. Should they assign a special prosecutor to head up all the cases? Do nothing and let the US Attorney’s Offices work the cases on their own? Chertoff had been a US attorney in New Jersey and had worked under Rudolph Giuliani when Giuliani was the US attorney in Manhattan. Chertoff likened US attorneys to ship captains: they mapped their own courses. Chertoff knew that US attorneys felt free to heed or ignore distress flags from shore. He’d done it himself. They were not autonomous, but they took direction from Main Justice reluctantly. Top Justice Department officials in Washington were political appointees. The responsible ones took care in offering direction in order to not be seen as meddling politically in investigations.

Chertoff argued to Thompson that these cases were too important for Main Justice to leave them up to individual US attorneys. When he was the US attorney in Atlanta, Thompson had overseen a drug task force with another US attorney, the future Alabama Republican senator Jeff Sessions, who would become the US attorney general in 2017. He believed task forces worked, though not by magic. They shared information and investigative techniques. A task force focused prosecutors and gave them clear priorities. After that, it was pick-and-shovel work on the case, flipping low-level soldiers to get to the capos.

All the officials in the conversation understood that a task force with prosecutorial powers had some inherent weaknesses. It faces enormous pressure to emerge with some kind of charge, leading to abuses. (Similar problems plague independent prosecutors.) The public has made up its mind. Prosecutors need courage not to bring cases as the spotlight shines. The more cases a task force can bring, the better. It’s difficult to wind up the operation. Worse, a task force has few checks and balances. A US Attorney’s Office has institutional knowledge and a decision-making structure; a task force operates in a vacuum.

But Thompson thought he might ward off those bad outcomes with his gentle persistence. The top officials created the President’s Corporate Fraud Task Force to supervise the efforts of the various offices around the country. They identified approximately ten big cases for it to oversee. Thompson made weekly calls to the heads of the offices to make sure prosecutors were working them and to make it clear that he cared. Thompson had a soft and inviting disposition. He didn’t direct anything. He just let them know he wanted to hear the status. His bedside manner was deceptive. He would “stay on their asses,” as one Department of Justice official put it.

Main Justice also created the elite operation to go after Enron specifically. In early 2002 Chertoff got to work on forming the Enron SWAT team. Mueller recommended the stoic Leslie Caldwell to head the team. He had worked with her in the San Francisco US Attorney’s Office, where she led the securities fraud unit. Caldwell, then in her early forties, maintained a soothing calm. She carried an air of someone who’d had years of practice cracking jokes that only she might hear or get. Her formative prosecutorial experience had been in the US Attorney’s Office in Brooklyn, the Eastern District of New York, where she had overseen mob prosecutions. She liked to say that back then the rooftops of Brooklyn were for stashing bodies, not kale gardens.10 Eastern District prosecutors liked to think they were scrappier than those in the Southern District in Manhattan. Eastern District “mafia”—prosecutors loved to identify themselves as mafiosi from certain offices—dominated the Enron investigative team. Caldwell brought in Andrew Weissmann as her deputy. In many ways, he was her opposite: loud, aggressive, flamboyant. “Your client is a lying sack of shit!” he’d yell at defense lawyers. Caldwell, who had worked with Weissmann in Brooklyn, admired his trial brilliance.

Caldwell then turned to Sam Buell, with whom she’d worked in the Eastern District. Buell was then working up in Boston, having spent three grueling years on the Whitey Bulger case, the notorious Boston mobster wanted in connection with nineteen murders, among other crimes. He’d been on the lam for sixteen years before being captured in 2011. Caldwell had attended Buell’s wedding. When she called about the task force job in early 2002, Buell didn’t have to think about it. He knew he was in. His wife, a corporate lawyer who had left the workplace to raise their children, encouraged him. Buell had little white-collar experience. He’d done only some low-level corporate fraud work—a money-laundering case or two. But he understood that prosecutors couldn’t shy from difficult cases. After attending law school at New York University, he had clerked for Jack Weinstein, a legendary federal district court judge famous for resolving mass tort cases involving Agent Orange and asbestos. From Judge Weinstein, Buell drew the lesson that nothing is too complex or too big. These people committing the crimes weren’t smarter than you; they, too, had to learn it all at some point.11

But it always helped to have some expertise on hand. So Caldwell recruited Tom Hanusik from Main Justice. Hanusik, an SEC enforcement lawyer in the mid-1990s, had a knack for financial investigation. He loved combing through complicated documents and identifying dodgy deals. With the addition of one other prosecutor, the team—smart, young, ambitious, and energetic—was set. They were all intimidated to take on a fraud so sprawling and complex. Eventually the Enron Task Force would have about forty FBI agents and an average of ten prosecutors assigned to it full-time, bringing cases over the next half decade.

At least to the public, the task force didn’t get going fast enough. The prosecutors anticipated that Enron’s defense lawyers would argue the company may have been aggressive but had technically adhered to the law. The defense would point out that lawyers and accountants blessed the company’s actions. Indeed, that was true. Prosecutors needed to move cautiously. They had to sift through the complexities to find the potential crimes. However, the public and the press did not understand or sympathize.12 The press assailed the government for moving too slowly and letting the perpetrators walk. CNN’s Lou Dobbs, then one of the most influential business journalists, started running an Iran-hostage-like daily count noting there hadn’t been Enron indictments. The CNBC show Kudlow & Cramer would ask, Who is in the pokey? Buell saw cohost Larry Kudlow spout some nonsense about how this case should be as easy as locking up someone for dealing drugs on a street corner. Jeffrey Toobin, CNN’s legal analyst, swung the other way. Explaining how difficult it was to make white-collar cases, he predicted that neither Skilling nor Lay would go to prison.13 Tom Daschle, the Senate majority leader, called on the Justice Department to explain why it hadn’t indicted anyone.14

When prosecutors turned lower-level executives or pressed seemingly tangential cases, the media would report as if the investigations into Skilling and Lay had stalled. But the talking heads misunderstood what was going on. The prosecution team was moving deliberately, moving the lower-level cases to build the evidence to go after the top Enron officers. Privately, team members wondered, Would they get there?

They would. Though the trials were long, arduous, but full of good breaks, prosecutors won guilty verdicts against the key architects of the Enron fraud through working three main witnesses: Delainey, Fastow, and company treasurer Ben Glisan Jr. They were the government’s best witnesses, its Virgils through the labyrinthine off-balance-sheet deals and accounting shenanigans. The investigators and prosecutors would rely on dozens of executives, victims, experts, witnesses, and countless documents to prove their cases beyond a reasonable doubt. But the government needed Glisan, Delainey, and Fastow. Without all three, the Enron Task Force likely would have failed.

Prosecutors took a different path to work each of the three: Delainey cooperated in a traditional fashion, in exchange for leniency; Fastow reached a nontraditional agreement in which he cooperated without receiving a reduced sentence; Glisan cooperated reluctantly but voluntarily while serving time.
The outside world was helping the government, providing a road map for the prosecutors. Journalists were breaking stories. The Enron board of directors had ordered an internal investigation into what had caused the collapse. The three-person panel of independent directors, headed up by William Powers Jr., the dean of the University of Texas Law School, came out with its report on February 1, 2002, only two months after the bankruptcy. The report detailed the self-dealing at Enron, the dubious transactions, and the lax oversight, blistering top management.

The first big case the Enron Task Force brought, in March 2002, was against Arthur Andersen, Enron’s accounting firm, for obstruction of justice. The case consumed Caldwell, Weissmann, and Buell. Meanwhile, Tom Hanusik could work in relative peace to start building Enron cases. In the Powers report, Hanusik saw an intriguing reference to how a British investment bank, NatWest (National Westminster), had helped in a suspicious Enron transaction. He retrieved the emails behind the deal and saw right off how damning they were. They outlined NatWest’s effort to help Fastow and Michael Kopper, his young right-hand man, create an off-balance-sheet entity to hide Enron debt.

By the summer of 2002, he had charged three NatWest bankers with wire fraud in the first of many Enron cases, seeking their extradition. To outside observers, it seemed tangential. But Hanusik understood he was essentially publishing a banner headline in a newspaper meant for one man. His message came through. The young Kopper read where Hanusik’s investigation was leading. Just three weeks later, Kopper came in. Hanusik had scored the first Enron cooperator. Kopper would help the Enron Task Force start building its case against Fastow. But there was another important signal from the case, a message sent by the indictment of Arthur Andersen as well: prosecutors weren’t going just after Enron executives. They were going after the bankers and accountants who enabled Enron. These prosecutors understood the ecosystem of corporate fraud.

On August 21, 2002, Kopper entered into a plea deal for up to fifteen years. (He was later sentenced to three years and a month.) The deal created a way to get to Fastow, the most obvious target for initial investigation. Fastow had been a wunderkind, rising to become Enron’s CFO in his thirties. He was the mastermind behind the most troubling aspects of the Enron frauds: its off-balance-sheet vehicles. In October 2002 the task force indicted Fastow. He pleaded not guilty.

Larry Thompson, the deputy attorney general, and Robert Mueller, the FBI director, held a press conference to celebrate the accomplishment. Thompson laid out his approach in clear and simple terms, not heard often in the constipated confines of an official Washington media gathering. “Our strategy is really straightforward. We aim to put the bad guys in prison and take away their money,” he said.15

Skilling and Lay were blaming Fastow for the corporation’s fraud and collapse, like parents who leave the keys to the liquor cabinet when they go away for a weekend and then blame the teenagers for getting drunk. The task force scoffed. But the executives’ position helped them. They knew Fastow’s cooperation would be necessary to get Skilling and Lay.

Over the course of the next several months after they indicted him, Fastow stayed as mute as a mob soldier, despite all the damning evidence the task force had assembled on him. The government needed to bring more pressure. Weissmann, with Caldwell’s nod, metaphorically put a drill to his knees. On May 1, 2003, the task force indicted Fastow’s wife, Lea, charging her with filing a false income tax return. Both Fastows faced the prospect of being in prison and away from their young children. Lea came from a prominent Houston family. She had lost her reputation and standing. Now she stood to lose her liberty.

Fastow wasn’t so insensate that he didn’t care about his wife. He came in. His lawyer John Keker was a profane and argumentative legend who ran his own boutique practice. Keker sometimes screamed and swore at the prosecutors. True to her style, Caldwell remained calm and let him run on like a three-year-old until he tired himself out. Keker proclaimed he never allowed any of his clients to cooperate. Of course, if it served their interest, he would. For Fastow, it did.

On January 14, 2004, more than two years after Enron declared bankruptcy, prosecutors struck an uncommon deal. Both Fastows pleaded guilty. Andrew pleaded guilty to one count of conspiracy to commit wire fraud and one count of conspiracy to commit wire and securities fraud. He pledged to forfeit tens of millions of dollars and to no longer seek the millions in compensation he claimed Enron owed him. Vitally, Fastow stated that other top executives shared his culpability:

I and other members of Enron’s senior management fraudulently manipulated Enron’s publicly reported financial results. Our purpose was to mislead investors and others about the true financial position of Enron and, consequently, to inflate artificially the price of Enron’s stock and maintain fraudulently Enron’s credit rating.16

Fastow agreed to a ten-year sentence. The agreement stipulated he would not request a reduced sentence, even if he were particularly cooperative with prosecutors. To impugn the prosecution’s witnesses, defense attorneys highlight the leniency deals witnesses have received to persuade the jury they are likely self-serving liars. Caldwell, Weissmann, and Buell’s agreement with Fastow blunted the defense’s ability to argue that Fastow was lying about Skilling and Lay in order to get off more easily. Eventually the judge would sentence him to only six years in prison.
Kathy Ruemmler, the young up-and-coming star, joined the task force after Fastow’s indictment but before his plea deal. Getting the CFO was great, but they needed much more evidence to bring Skilling and Lay to justice. She and Buell flipped Delainey in September 2003. When he stopped lying and came around, they worked his information for a month before he pleaded guilty. She and Buell reached a traditional cooperating witness arrangement with him: He did so in exchange for a deal to keep the charges minimal. Ruemmler could worry that the defense would attack the deal later. For now, she and Buell had to drain Delainey of everything he knew, which was plenty about Skilling. The key for the Enron prosecutors—for prosecutors of any white-collar crime—was to keep the pressure on. Nobody knew who the Feds were interviewing. Nobody knew who was talking and who wasn’t. The day Delainey pleaded, Skilling transferred $10 million to O’Melveny & Myers, his defense firm.

“Good,” thought Ruemmler. “He understands exactly how much danger he’s in.”

The final one of the big three, Enron treasurer Ben Glisan, cooperated in a different fashion: reluctantly. On September 10, 2003, Glisan pleaded guilty. He went straight to prison for his five-year sentence, the first former Enron executive to be locked up. Glisan wouldn’t cooperate. He wanted no agreement. Instead, he said he would do his time. He made a decision that his children were young, and if he had to be sent away, he wanted to serve now rather than after a protracted legal battle.

Glisan’s position at Enron was so important, he could be a font of damning evidence—if he wanted to be. So prosecutor Andrew Weissmann gambled. Just a few months into his sentence, Weissmann brought Glisan from prison to put him in front of the grand jury. Ruemmler marveled. All the young team members did. It was ballsy, because Weissmann had no indication that Glisan would be helpful. The move carried a huge risk: Glisan might offer testimony exonerating Skilling or Lay. And it would all be on the record for the grand jury.

A Houston Chronicle reporter guarded the grand jury every day. Prosecutors didn’t want Glisan’s presence before the grand jury to leak. US marshals snuck him in through a back door in his green jumpsuit. Weissmann immunized him from further prosecution, but that was the extent of the deal. He would have to serve his prison time no matter what he said. Then the task force deputy director started in with his questions, right in front of the grand jury. Would Glisan understand all he had to do was tell the truth? He did. He was candid. Weissmann put him on the stand for days. Glisan was fantastic.

Each evening after the sessions, the team went out to dinner. Ruemmler couldn’t believe what Glisan was saying in court. He understood every deal. He could place Skilling and Lay in the room during crucial conversations. “Shit, I have to go talk to this guy,” she said. Weismann beamed. Glisan would later be a star witness in both the Ken Lay trial and Ruemmler’s other trial against Merrill Lynch executives who had allegedly helped Enron disguise a loan as revenue, known as the Nigerian barge trial. (The deal had taken place off the coast of the African country.) Glisan would be immunized at both.

The Nigerian barge trial was delayed till the fall of 2004. Ruemmler and an FBI agent rented a cheap Buick to go see Glisan in prison. Kathy had never seen a car with chillers on the seat to keep the driver cool in the Texas summer. Bastrop Federal Correctional Institution, a low-security prison, sits a couple hours from Houston. When she approached the gray, sprawling compound, surrounded by barbed wire and huge floodlights, Ruemmler thought, “Every prosecutor should spend a lot of time in prisons.” They should know where they were sending people and how serious it was to strip them of their liberty.

Prisoners don’t want to be snitches. Ruemmler’s meeting with Glisan had to be secretive. The prison concocted a cover story to get the former Enron executive out of his cell and sneak him into the warden’s office. Dressed in his olive drab prison garb, he was nervous. But the former company treasurer soon relaxed and became introspective, though never bitter. He wasn’t overly helpful or ingratiating, nor too eager or vindictive. Ruemmler and Buell came to respect him, impressed by his recall and command of detail.

Glisan was a patient teacher. He had kept careful notebooks of all of his meetings and deals. Ruemmler went through every entry with him. It was trial gold. He corroborated everything. Glisan would go over a certain Enron off-balance-sheet vehicle. It was maddeningly complicated. Finally, Ruemmler would exclaim, “I get it!” The next morning, she’d wake up and realize she no longer understood it anymore. She’d need another session. She knew she’d never have to go into this level of detail at trial, but the defense team had their knives at the ready for evisceration if her jury-friendly version was so dumbed down that it was even slightly wrong.

Glisan had damning information on Skilling. But more important, he had damning information about Lay. He made the Enron Task Force feel confident enough to bring a case against Enron’s founder. On July 7, 2004, the Enron Task Force indicted Lay, charging him with eleven counts, including securities fraud and making false statements. He pleaded not guilty, calling a press conference to proclaim his innocence and portray himself as a victim of the fraud. Andrew Fastow had betrayed his trust “and betrayed it very, very badly,” he said. “There is no CEO that I’m aware of” who could possibly know about every decision lower-level employees make. They rely on the advice of lawyers, bankers, and accountants. “Now, there may be some superman somewhere that thinks they know everything going on in their company in every department, in every level, in every country, and every employee. But I think that would be very unrealistic.”17

Top corporate executives would continue to make versions of this argument for the next decade, especially in the wake of the 2008 financial crisis. Ignorance equaled innocence. Lay’s defense might have worked if prosecutors had charged him with masterminding Enron’s accounting frauds. But they were too smart and built a different case.
By the second half of 2004, the young prosecutors of the Enron Task Force faced tough times. Leslie Caldwell had left the team in the spring. Sam Buell left as well. He had never moved from Boston, getting on a plane every week for two years. His second child was born while he was working the case. He regretted barely seeing her.

Disarray started to cost the team. Sean Berkowitz, a prosecutor on the team, and Ruemmler were exhausted. Sometimes they doubted they would ever be able to bring the big cases. There were no smoking guns. Would juries buy their theory? They both entertained leaving the task force. Then, in mid-2005, Weissmann beat them to it, announcing his resignation. Berkowitz was appointed director. He asked Ruemmler to be his deputy. The two were stuck in the task force and stuck with a mess. For all of his brilliance and gutsiness, Weissmann had been no manager. Roles weren’t defined. The task force had no focus as it was trying to prepare for the big trials of Skilling and Lay. The prosecution teams weren’t even set.

Berkowitz had joined in December 2003, shortly after Ruemmler came on board. Thirty-six at the time, he had been going through a bad patch. A graduate of Harvard Law School, he had spent the last five years working in the Chicago US Attorney’s Office, most recently for US Attorney Patrick Fitzgerald. But he was getting divorced from his wife, a prosecutor in the same office. Desperate to get out, he went to Fitzgerald to see if there was anywhere he could go. Fitzgerald recommended him for the Enron team. Berkowitz had little familiarity with Enron or the investigation, but he had some corporate prosecution experience. He took it.

Weissmann had resigned during the trial of executives from Enron’s broadband unit. It wasn’t going well. Enron had created a division to market broadband Internet service. It was unsuccessful in reality but profitable on paper, because Enron booked revenue and earnings right when it signed a deal, long before the actual money came through. Early on, the task force had devoted significant resources and people to probing the broadband unit. That expenditure of money and time looked good on July 30, 2004, when Ken Rice, the CEO of the unit, pleaded guilty to one count of securities fraud. The next month, the chief operating officer of the unit pleaded guilty.

The task force had also charged five executives of its broadband unit for overstating the strength of the division’s business. On April 18, 2005, the trial of the five executives began. It dragged on for months. Members of the prosecution team—which didn’t include Berkowitz or Ruemmler—clashed. They got bogged down in debates about the viability of the technology.

In July the jury acquitted the executives on some counts and got hung on the rest. The judge declared a mistrial.

Now director, Berkowitz, normally calm and congenial, felt spooked. Cases that had looked like fortresses began to appear vulnerable. The sprawling defense teams kept filing motion after motion, loosing their catapults. He and Ruemmler realized they didn’t have enough people and help. The resource deprivation was inexplicable. How could the department have set up this team with such public celebration but not given them the tools to win?

The FBI had an ancient document management system. Task force prosecutors had to call up the FBI, ask it to search a term, and wait. Three days later, they’d get the documents—usually. Enron was both the first massive electronic discovery investigation and the last of the old style, with paper discovery, manual searches, and files in cabinets. After one such failed search, Ruemmler reamed out the FBI agents and then came into Berkowitz’s office and slumped in a chair.

“What’s the matter? Why can’t they handle it, Berko?”

All Berkowitz could think was, “When is this going to end?”

They needed to alert the higher-ups. Berkowitz and Ruemmler went over to Main Justice to meet with John Richter, the acting head of the criminal division. They sat in a windowless conference room. Sean and Kathy beseeched him.

“We are going to lose this case and lose it spectacularly,” Ruemmler warned.

“Okay, okay, I hear you,” Richter said. “What do you need?”

“Everything,” Berkowitz said.

They rattled off their requests: document support, graphics support, trial support. They needed a jury consultant. They needed more bodies to deal with all the defense motions. The defense would motion to change the venue, citing experts and polling data. Were they supposed to stand up there with nothing in response and say, “That’s wrong. Trust us, Judge”?

Berkowitz and Ruemmler also analyzed what had gone wrong with the broadband trial. A defense attorney summed it up: “Never prosecute a complex, overreaching 192-count case in midsummer in Houston, Texas, against a passel of good lawyers.”18 From now on, the task force would keep it simple. Prove everything and drop anything you can’t. Try to prevent the defense from getting down into the detailed muck that puts jurors to sleep. They were such common, obvious mistakes but so easy to make. Prosecutors did it all the time.

Berkowitz focused the task force. The priority was the big trials. Weissmann had wanted to do everything, to take every case, to bask in the publicity. Now they just needed to focus on bringing Skilling and Lay to justice.
The government had less evidence against Lay than Skilling and had brought lesser charges. Ruemmler and her team headed up the cases against Skilling and Richard Causey, Enron’s chief accounting officer. She didn’t want the Lay case stapled to it. The Causey and Skilling cases cohered. The two executives had engaged in a conspiracy to commit securities fraud between December 1998 and December 2001. The problem was that Lay wasn’t CEO for the entire period. He had founded the company but then ceded the operation to Skilling in February 2001. He had come back in August 2001, when the company turned from darling to joke, the stock was dropping, and the business was crumbling. In the period before that, Lay had been the chairman of the company, but he wasn’t an engaged leader.

Finally, the team realized Skilling and Lay had to go together. The cases had many of the same witnesses. The prosecutorial strategy would be to show how senior management conspired, as Lay took over the lies from his protégé. Berkowitz brought Ruemmler around. They planned to try the top three officials at the same time.

Worried about the weakness in the Lay case, the Enron Task Force layered on the charges against him. In doing so, they made a small mistake that would have significant consequences for corporate white-collar prosecutions in the coming years. The prosecutors wanted to explain to the jury that Lay had lied to his employees. It was an easy-to-understand charge: he was saying one thing publicly but another privately. When he made a big show of buying Enron stock for his own account, he told the public he was a net buyer of the stock. But he had an undisclosed plan to sell portions of his Enron shares on a regular basis. And he was selling more than he was buying. Lay had committed securities fraud.

Prosecutors charged Lay with another crime in addition to securities fraud. Public officials have a duty to provide citizens with their “honest services.” They deprive the public of their honest services when they take bribes or kickbacks or engage in deals to enrich themselves. In the 1970s and 1980s, prosecutors had begun to apply the same standard to executives of publicly traded companies. The honest-services charge, a part of the mail and wire fraud statutes, was useful. In basic frauds, the criminal steals from the victim. But there are whole categories, such as bribery or kickback schemes, in which criminals might enrich themselves that don’t involve direct theft. The victim is the employer or the public, which has an intangible right to honesty. Prosecutors liked the charge because juries grasped it easily. They could explain that executives had a duty to do their best for their shareholders, to take the best deal they could and not to enrich themselves at the shareholders’ expense.

The government charged that Lay, in pumping up morale with his deceptions about the state of Enron’s health while selling secretly, had deprived Enron’s employees and shareholders of his honest services. Adding honest-services fraud was overkill. The government’s other charges were sufficient. But the prosecutors sought to bring overwhelming force, which would ultimately expose the government to mistakes.

Adding the honest-services charge to Lay meant adding it to Skilling, too. They had no way of knowing, but the gamble would later cost the Department of Justice. In 2010 the Supreme Court would reverse that part of the sentence, determining that the government used the honest-services charge too broadly. In doing so, the highest court stripped prosecutors of a significant weapon for battling corporate fraudsters.
On May 27, 2005, for his thirty-eighth birthday, Sean Berkowitz ran a ten-mile race. As he ran, he reflected on the crazy year, but he could see the finish line. By the time his next birthday came, the trial would be done. “We will have won or lost, but either way, it will be over,” he thought.

The weeks up to the trials were tense. The prosecutors moved to Houston and lived in cheap corporate apartments. They barely slept. One day, an exhausted Ruemmler walked over to ask an FBI agent to join a meeting the next day. He said he couldn’t do it because he had firearms practice. What? What?!? Ruemmler walked over to the bullpen, where all the FBI agents were piled on top of each other in their cramped cubicles. She stood at the hinge of their L-shaped room so everyone could see her. Color rose on her neck.

“Everyone listen the fuck up!” she yelled. The agents looked up.

“You think this is a big fucking case? Do you? This is the biggest fucking case of your lifetimes! This is the biggest corporate fraud in US history! The whole fucking world is watching this trial. There are no dentist appointments. There is no Christmas. There isn’t firearms training, okay?” Ruemmler asked if they would like her to call Bob Mueller, the head of the FBI, to see what he thought of their firearms training. If any of them left any thread unexplored and lost, she warned, that person would regret it for the rest of his life.

Berkowitz sat there smiling. It was Ruemmler’s Glengarry Glen Ross moment. The FBI agents, tough guys, were cowed and impressed. The head of the group screamed back, “This is bullshit! We are working our asses off, Kathy, and you know it!” But no one took off for firearms practice or anything else until the trial was over.

Berkowitz and Ruemmler figured the defense strategy would be to argue that prosecutors were criminalizing aggressive business decisions. The Enron refrain was that the government was attacking the company for its innovations and risk taking. Executives liked to say, “You can always tell who the pioneers are, because they’re the ones with arrows in their backs.”19

They also understood that the defense would want to drag them into the boring arcana during the trial. The defense team longed for nothing more than long debates between expert witnesses about accounting standards. To counter the my-eyes-glaze-over defense, the team focused on the Big Lie. The stories Skilling and Lay told about Enron publicly were different from reality. They used everything—every witness, every piece of evidence—to reinforce that narrative of duplicity. Even the trial graphics reflected the distinctions between what the executives told the world and what they knew to be the truth.

Berkowitz and Ruemmler and the team set about ridding the trial of anything debatable. They reduced the witness list to sixty-two from seventy-nine and trimmed counts against Skilling.20 If something Enron had done smelled wrong but could be depicted as just a bad business decision, they excised it. They concentrated all their energy on the gut punches—actions everyone would agree were wrong. Berkowitz, in one of his highest moments, had discovered a perfect example. During the crucial second quarter of 2000, Enron had been a penny short on the earnings-per-share estimates. Missing by a penny would be a calamity for the stock. Shareholders expected Enron to outdistance estimates by miles, not fall short. Berkowitz had gone to Enron headquarters to look at the corporate ledger. Sure enough, right in the corporate books was a reserve that had been whited out after the close of the quarter. A $21 million reserve had been changed to $14 million and then to $7 million. Skilling had needed the earnings to make the number. Berkowitz had found a key piece of evidence of crimes.

The cases were going well now. On the eve of the trial, they got a big break: Causey, the former chief accounting officer, capitulated, pleading guilty. Berkowitz and Ruemmler celebrated. The case against Causey, while crushing, was full of detail and arcana. Now they could drop a ton of material from the trial. They met for six hours and went through everything they could. They cut out evidence, mourning the loss of some of their favorite pieces of research. They had a perfect, clear fraud with an off-balance-sheet entity called Mariner Energy. To meet earnings estimates one quarter, Enron had raised the value of the asset even though nothing had changed with the underlying business. It was just a pure accounting maneuver.

“Can we tie this to Skilling and Lay?” Berkowitz asked.

“No,” sighed Ruemmler.

“It’s gone,” he said.

Then Ruemmler and Berkowitz and the prosecutors asked an audacious question: Could they get away with not even putting Andrew Fastow on the stand? Fastow could be expected to deliver damning accounts of Skilling’s and Lay’s complicity. No one knew the dodginess of the off-balance-sheet arrangements better than the former chief financial officer. Who better to refute that Fastow was the sole mastermind than Fastow? On the other hand, he came across as a creep. That mop of hair and boyish insouciance! Ruemmler couldn’t stand being in the same room with him. The defense team would find him so easy to attack. He was an admitted liar; the principal schemer. It was so easy to imagine a jury turning against him. Then again, if they didn’t put him on the stand for at least a bit, it might look strange—as if they were hiding something. They finally decided to have him testify but briefly, reducing his role at trial to the minimum.

After that meeting, what would have been a seven-month trial became a four-month trial. Crucially, the Enron Task Force had stripped out any evidence or testimony that didn’t involve Lay and Skilling. Had Berkowitz and Ruemmler left that material in the trial plan, the defense would have been able to argue that if Lay and Skilling didn’t know about that, how could the jury be so confident that the top officials knew about the other bad deals?

Even with all their preparation, they had to worry about the jury. Every jury is a fickle beast. Lay was a friendly old grandpa, with a goofy smile, godliness on his sleeve, and as Texan as they come. Skilling was everyone’s idea of a businessman in a country that worships tycoons. On the other side, Berkowitz was a northerner, a bulldog, with a big, prominent brow set in a scowl. And he was named Berkowitz. The other lead prosecutor who would be doing the trial with them, the ramrod John Hueston, just seemed to have a way of pissing off everyone. Ruemmler had a better shot with that room. She was a Texas-approved blonde and favored high heels. But would that Houston jury go for a lady lawyer grilling Lay?

On January 30, 2006, more than four years after Enron had collapsed, the Lay and Skilling trial began. In late February, about four weeks into the trial, Dave Delainey took the stand. Ruemmler had known him for years now. She knew he would be calm and credible. Skilling had viewed him as a candidate to be CEO of the company at one point.21 As she hoped and predicted, he was the strongest government witness yet. He admitted his own wrongdoing. He told the jurors that Enron played “fast and loose” with the accounting rules, testifying that Skilling attended meetings where they hid losses and rigged the numbers. He told them how when he had objected to one attempt to hide losses in an executive meeting, Skilling fixed on him and asked, “What do you want to do?”

The judge in the trial had allowed the lawyers to roam around the courtroom. Ruemmler got close to the jury box, almost touching the bar. She asked, “What did you take that to mean?”

“Get in line,” Delainey said. It was the worst thing he’d ever been a part of, he said. “I wish on my kids’ lives I could have got up and stepped away from the table that day.”22

Ruemmler paused, sneaking a look at the twelve jurors, so close to her. Having listened to so much complexity and tedium, they grasped it. She had her black-and-white, right-and-wrong moment. Delainey might as well have said, “That’s when I knew we were committing a crime.”

Enron was not a volatile trading shop, Skilling had told the public. Ruemmler brought on Delainey to destroy that notion, and he did. He testified that Enron’s wholesale energy unit’s trading gains and losses swung wildly. The unit had lost $551 million in one day in late 2000, a sum that exceeded the unit’s entire profits from the previous year. Earlier that same month, it had made $485 million in a day.23 In what may have been the most damaging anecdote, Delainey testified about the time he told Skilling that his retail energy trading unit had created up to $300 million in “reserves”: money stashed away for future use. Skilling, Delainey said, came over and hugged him.24 Delainey fingered Lay as well, telling jurors he had told the chairman about how he was hiding losses of its retail energy line in its wholesale division.

As Ruemmler expected, Delainey stood up well on cross-examination. Skilling’s defense lawyers tried to emphasize that no one had used the word fraud; that these business decisions were inherently ambiguous and subject to judgment. Delainey wouldn’t have it. “Everyone in that room knew exactly what was going on,” he insisted.

John Hueston took the lead in the Lay trial. He had rescued the Lay investigation, shifting toward examining the CEO’s misleading statements as Enron faced the crisis of shareholder confidence in the summer and fall of 2001.25 Still, the case against Lay was weaker, leading to tension on the trial team. Hueston and the other prosecutor working the case weren’t getting along. Some on the team felt Hueston didn’t take direction or suggestions well. He had a chin-up bar in his office and a sign that read “Play like a champion today.” As he left his office, he’d jump up and hit it.

During the trial, even the judge seemed to take an open dislike to Hueston. He was a crack trial lawyer and had built a convincing case, but people on the team worried about the Lay case. The agents often teased Ruemmler that she was obsessed with Skilling and neglected Lay. Now an FBI agent came up to Ruemmler to beg, “Can you please mention Mr. Lay?” during one of her rounds with another witness. After she did, the FBI team sent her flowers, in sympathy for how tough it must have been for her. Ruemmler and Berkowitz prayed that good evidence and Hueston’s intelligence and skills would triumph over any irritation the jury might feel.

The cornerstone of a successful white-collar defense is putting the accused on the stand. The jury wants to hear from defendants, to take their measure. The team knew they would have to crack Lay’s and Skilling’s manicured personas. The Lay PR team was rolling. To generate sympathy, Lay’s wife, Linda, went on the Today show. Weeping, she told America that she and Ken had “lost everything” and were “fighting for liquidity.” The Lays were still living in a $7 million Houston penthouse and owned $20 million in other real estate at the time.26

Lay had the better shot of beating the government. Not only had he been removed from the details and not been active at the company at the time the bulk of the crimes were committed, but he had also been charged with fewer crimes. The prosecutors and the media expected Skilling to be short-tempered, easily rattled. He had a bullying streak. One time in the hallways, he passed Ruemmler and snarled, “Figured out the business yet, Kathy?”27

But the jury didn’t see that Jeffrey Skilling. On the stand, he was authoritative and precise, parrying prosecutors calmly. The trial ordeal wore more on the older man. When Lay took the stand, he was arrogant and querulous. At one point, he even barked at his own lawyer, George McCall Secrest Jr., “Where are you going with this, Mr. Secrest?”

On cross-examination, Lay was even worse. Hueston raised his conflicts of interest. Lay hadn’t disclosed an investment in a company owned by an ex-girlfriend of Skilling’s. He had unloaded tens of millions of shares of Enron stock. His defense was that he was meeting margin calls, but Hueston showed he could have met those in other ways. And Hueston homed in on how Lay had called government witnesses, accusing him of tampering.28 Lay was infuriated. The jury took note.

In late March 2006, about eight weeks into the trial, Ruemmler brought on Ben Glisan, the former treasurer, as her closer. All of the prosecutors suffered frayed nerves and little sleep. Right before Glisan’s testimony, one of Hueston’s team came up to Ruemmler to request that she ask the witness about some complicated accounting issues. She had enough to handle as it was. It had taken her months to master the accounting material she was planning to cover. Now this? But Glisan was the Christmas tree: all the team members wanted to hang their last piece of evidence on him.

“Are you fucking kidding me?” she screamed.

“It’s no big deal!” yelled the other prosecutor.

“You are out of your mind.”

Berkowitz, ever calm, mediated. They decided she would ask him some limited questions about the topic.

As Ruemmler expected, Glisan was an excellent witness. He put Lay and Skilling in damning meetings, identifying their incriminating admissions. Glisan buried Lay. He said he told Lay and the company’s finance committee that the company’s liquidity was “strained”—that Enron was having trouble funding its ongoing operations. The next day, Lay told employees at a companywide meeting that Enron’s fundamentals were the “strongest they have ever been” and that liquidity was “strong.” Glisan testified that Fastow warned Lay that the company would need to be restructured or sold. Five days later, Lay told BusinessWeek magazine that the company was “probably in the strongest and best shape it’s ever been.”

Ruemmler looked over at Lay and saw him seething, redder than a sunburned rancher. Lay’s lawyer would deride Glisan as a “trained monkey,” but the jury was siding with the monkey.

Berkowitz’s mother came to visit and to watch the closing arguments. In the evening, after the defense’s summation, she came to his office. He noticed that she was following him around.

“Sean,” she said, “they made a lot of good points today.”

“I know, Mom.”

“Sean, there’s a lot riding on this,” she said.

“Yes, I know, Mom.”

“Sean,” she said. She paused. “I’m worried.”

“Mom, I’ve got this!”

His mother needn’t have worried. The government had put on a devastating trial. It was easy for the jury. After jurors deliberated for six days, Lay was found guilty on all counts against him; Skilling was convicted on nineteen of twenty-eight counts.

Lay was self-righteous to the end, declaring his innocence, wrapping himself in the mantle of religion. He also told the press and supporters gathered outside the courtroom, “I have a very warm and loving and Christian family . . . Most of all, we believe that God, in fact, is in control, and indeed, he does work all things for good for those who love the Lord. And we love our Lord.”

• • •

Enron was the most spectacular corporate implosion of the period. The government had, in fits and starts, done its job. The Justice Department had made the case a priority, allocating just enough money, resources, and people to the task. The team knew it had to flip executives and not rely solely on documents. Prosecutors came and went from the team, but the team’s focus stayed the same, so it could weather departures. The team members had investigated aggressively, keeping maximum pressure on the targets such as Fastow. They took risks, as with Glisan. They were persistent, not giving up when Delainey stonewalled them in the first two meetings. They went after not just Enron executives but also their enablers on Wall Street and the company’s accountants. The task force overcame losses, learning to run trials better. It focused on simple and clean story lines, and created a model for complex white-collar investigative and prosecutorial work. Houston’s economy recovered, and American corporate accounting had a period of relative cleanliness.

But the Enron prosecutions led to a weaker Justice Department. After the Enron prosecutions came a backlash against aggressive government action, led by corporations and the defense bar. The courts overturned several Enron verdicts. The Justice Department began to lose the institutional knowledge necessary to bring such complicated corporate cases successfully. The DOJ would turn against task forces, forgetting the Enron successes. It would not centralize decision making. Prosecutors began settling with corporations. The Justice Department steered away from going after the enablers of corporate fraud: bankers and accountants. By 2016, the Justice Department did not approach cases the way it had with Enron. Its ability to hold corporate executives accountable for their actions suffered as a result.

The most unfortunate lesson learned from the Enron Task Force experience came from its first success. The team’s first victory in court was its most consequential. The business lobby, the defense bar, and even today’s Justice Department came to believe that the government had made a grave mistake. It had convicted Arthur Andersen.

About The Author

Elena Seibert

Jesse Eisinger is a Pulitzer Prize–winning senior reporter at ProPublica. His work has appeared in The New York Times, The Atlantic, and The Washington Post. Previously, he was the Wall Street Editor of Conde Nast Portfolio and a columnist for The Wall Street Journal, covering markets and finance. He lives in Brooklyn with his wife and their daughters.

Product Details

  • Publisher: Simon & Schuster (July 17, 2018)
  • Length: 400 pages
  • ISBN13: 9781501121371

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Raves and Reviews

"...brave and elegant...a fearless reporter...Eisinger's important and profound book takes no prisoners..."The Washington Post

“An absorbing financial history, a monumental work of journalism… a first-rate study of the federal bureaucracy. It’s also an expansive parable: of righteousness and compromise, overreach and underreach, excess, deceit, greed—the whole American show.”—Bloomberg Businessweek

“Smart, deeply sourced, and full of insider tidbits about legal stars like Comey, judge Jed Rakoff, and former SEC chair Mary Jo White.”—Fortune

"A well-reported tale..."The Financial Times

"That the Wall Street titans who blew up the financial system suffered little more than slight reductions in their bonuses only reinforced the perception that the “system” is 'rigged'—with the consequences we know only too well. Many people simply want to live in a world that is fair. As Eisinger shows, this one isn’t."—James Kwak, The New York Times Book Review

“The book is as alarming as it is comprehensive, but it's also gripping. The unfolding of the financial crisis makes for thrilling drama in Eisinger's hands, heightened by the anxiety still felt by all who survived it. He's even able to make white-collar courtroom proceedings and investigations into tax shelters sparkle.…This book is a wakeup call, delivered calmly yet with no shortage of well-reasoned urgency, to a nation whose democratic traditions are being undermined by backroom dealing, deregulation, and the consolidation of corporate power. It's a chilling read, and a needed one.”—

“Jesse Eisinger is a master journalist. Revelatory, maddening, and engrossing, the book draws on vivid characters and immersive narratives to chart the rise of the corruption and the inertia within the Justice Department."—Bryan Burrough, co-author of Barbarians at the Gate and author of Days of Rage

“Pulitzer Prize–winning journalist Eisinger does a masterful job of assembling this riveting dossier of the legal scholars, jurists, and elected officials who played a role in turning the U.S. into a nation in which white-collar criminals are celebrated for their cunning instead of incarcerated for their offenses.”—Booklist, Starred Review

“In a spare, elegant and unrelenting narrative, Jesse Eisinger's The Chickenshit Club tackles one of the biggest remaining mysteries about the 2008 financial crisis: Why the American justice system failed miserably in its responsibility to hold Wall Street accountable for its unforgivable behavior in exacerbating the near-meltdown of the global banking system. It's a surprising story of cowardice and greed that will get your blood boiling all over again.”—William D. Cohan, author of Why Wall Street Matters

"This magisterial work is vital reading for everyone concerned by the untrammeled influence of financial institutions and corporations on American society and the nation's political life. Its grim details form a picture of how a system to hold to account the titans of boardrooms has been rendered toothless. Eisinger writes with clarity and style, delivering a story that is by turns fascinating, disturbing, and—dare I say it?—hugely entertaining."—Zia Haider Rahman, author of In the Light of What We Know

“Jesse Eisinger takes us inside the world of federal prosecution with the same detail and doggedness as in his Pulitzer Prize-winning journalism. He carefully tracks the decline in capacity, will, and guts among prosecutors. If you want to see, hear, and understand why no senior executives did jail time after the financial crisis, read this book.”—Frank Partnoy, George E. Barrett Professor of Law and Finance and Director of the Center on Corporate and Securities Law, University of San Diego

"The Chickenshit Club is a fast moving, fly on the wall, disheartening look at the deterioration of the Justice Department and the Securities and Exchange Commission, written sympathetically, thoroughly, but mostly—engagingly. It is a book of superheroes."The San Francisco Review of Books

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