shadow_tr
Tulanian Logo

Ask Why

June 21, 2007

Fran Simon
fsimon@tulane.edu
Michael DeMocker

The case against Enron and its culture of corporate corruption was driven by a single question.

Sean Berkowitz speaks with round, Midwestern vowels. The way he pronounces the "o" in the words "Enron," "dollars," "stock" and "confidence" suggests the rugged, big-shouldered dialect of his native Chicago. "Enron is now synonymous with the largest-scale corporate fraud scandal in history," Berkowitz (A&S '89) relates to a room filled with eager Tulane undergraduates. "Anytime you use that word, it's a dirty word -- 'Enron' and 'scandal' almost go together."

tulspring_07_enron1


Sean Berkowitz led the government's prosecution of Enron executives Jeff Skilling and Kenneth Lay.


Berkowitz knows what he's talking about. He served as director of the government's Enron Task Force and lead prosecutor of the 2006 trial of Enron chief executive Jeffrey Skilling and Enron chair Kenneth Lay. It was the trial of the fledging century and it put Berkowitz and his team of prosecutors onto the nation's stage.

But at this moment, Berkowitz is playing to a much smaller venue, delivering the dean's colloquium in Cudd Hall on the Tulane uptown campus.

It has been less than six months since the jury delivered Skilling and Lay a guilty verdict and Berkowitz has returned to his alma mater ostensibly to discuss the case with students, but more than anything it is to show his support of the students whom Berkowitz considers heroes because they returned to Tulane and New Orleans despite the grand discouragement of Hurricane Katrina.

In rapid-fire lawyerspeak, as though commanding a courtroom, Berkowitz ticks off the merits of Enron: The company was named Fortune magazine's "most innovative company in America" six years in a row. Enron was No. 7 of the largest companies listed as the Fortune 500 and its stock was listed as one of "10 Stocks to Last the Decade." Analysts around the world rated Enron stock a strong "buy" -- the "it" stock of the '90s. "In the mid-1990s until 2001, Enron was perceived as one of the finest companies in America," Berkowitz tells the students.

"What went wrong? What happened with this company that was so good and so wonderful -- which was thought of as an unbelievable company -- that caused it to be so onerously fraudulent?" There are no easy answers.

As the third and final lead prosecutor on the Enron case, Berkowitz, who had served as a federal prosecutor since 1998, picked up the investigation in 2003 and delved deeply into the corporate culture at Enron, interviewing hundreds of former Enron employees and executives, always asking "why?" "Enron was viewed as an unbelievably innovative company and it was held up as an example of what was right with America." Look around the room and you can see it has happened.

Just as he must have enthralled the jury during the trial, Berkowitz, with his broad face, open demeanor and straightforward manner, has captivated the students. And Berkowitz knows it. Now he can begin to walk them through the mistakes that brought down the paragon of corporate America. In the next hour, Berkowitz trots out anecdote after anecdote, character after character, as he draws a high-resolution image of both the Enron culture and the key information he and his team used to win the case.

It's a fascinating telling and you almost overlook the fact that Berkowitz has left himself entirely out of the tale. He's enigmatic that way -- a showman who away from the courtroom is more comfortable outside the glow of the spotlight. Berkowitz has gone on record describing Skilling and Lay as the brightest guys in the room. He could have been talking about himself. Not that he'd ever do that. He'll let you figure that out on your own.

Good decisions, bad decisions

To his embarrassment, Berkowitz became a media darling in the wake of the Enron case. Despite his disdain for the limelight you can find Berkowitz in a feature spread of Fortune magazine, along with two other lawyers of the prosecution team. The three were included in the magazine's "Portraits of Power" photo portfolio. If there is any irony in this, it is not the only instance.

tulspring_07_enron2


Kenneth Lay and Jeffrey Skilling spent more than $100 million on their defense, but the jury was ultimately persuaded by the prosecution's argument of the difference between truth and lies.


When he headed off from his home in Chicago to attend Tulane University, Berkowitz was set to go to business school, where the best and the brightest students were clamoring to go to work for companies like Enron.

Though initially fervent to pursue a business degree, in his freshman year Berkowitz was persuaded to change course by a faculty adviser who laid out the evidence that a liberal arts major would provide a broader skill set of reading, writing and learning how to analyze any issue.

It made sense to Berkowitz, who had an eye on ultimately getting a law degree. Later his liberal arts background proved helpful at Harvard Law School, where he graduated cum laude. Besides, Berkowitz doesn't seem to be a dollars-and-cents kind of guy. Rather, he seems the kind of guy who likes to understand the nuts and bolts of the human experience.

"Imagine sitting in a room with the CEO and CFO of Enron," Berkowitz tells the students in explaining the corporate culture of Enron. "They say to you, 'Two plus two is five.' You're sitting there and you think, 'My math isn't all that great, but I think two plus two is four.' But you're scared because you don't want them to think you're stupid ... so you sit in the room and you're getting paid a million dollars a year, and your stock options are worth hundreds of thousands of dollars, and they go around the room and they say, 'Two plus two is five, right?' People look at each other and nobody has the courage -- and there certainly isn't an attitude that encourages people to speak up. People feel if they speak up they will be viewed as stupid or dumb and moved out the door."

Berkowitz figures that although Enron seemed perfect on paper, the actual culture of the company was corrupt. "There was an arrogance and an attitude of not asking questions at the company that caused people to make decisions that were unbelievably bad decisions." If Berkowitz holds contempt for Skilling, Lay and the rank and file who for whatever reasons carried out the carefully planned accounting fraud that bilked shareholders out of millions of dollars, it doesn't surface in his straightforward manner as he hashes out key elements of the case.

Led by the innovative Jeffrey Skilling, Enron mastered creative accounting, manipulation of corporate law, and downplaying financial information to stakeholders. Kenneth Lay was beloved and trusted by his employees and applauded for philanthropy in Houston but he was not upstanding with his own workforce and the public. Paradoxically, Enron's company slogan was "Ask Why" but the Enron leaders discouraged employees from asking questions.

After poring through hundreds of thousands of documents, talking to hundreds of people who worked at Enron, and hearing the explanations of those who pled guilty to crimes, Berkowitz concludes that the poster child of corporate America was sullied by greed, arrogance, pride and hubris. All of which led to a degree of carelessness, too.

During the trial, Skilling and Lay relied on their memories of events, often saying, "I don't recall." In presenting the evidence, Berkowitz and the prosecution team took a different tack, meticulously scrutinizing electronic calendars, computers and tape-recorded phone conversations, looking for "digitrails" to show the jury that what the Enron executives did and what they said were diametrically different.

Black and white

Naomi Berkowitz, Sean's mother, sat proudly in the courtroom when her son made the closing arguments in the trial of Jeffrey Skilling and Kenneth Lay. Seeing her there was the highpoint of the trial, says Berkowitz, who brightens when he speaks of her. Berkowitz's parents divorced when he was 9, and while his father remained active in his life, Berkowitz respects the challenges his mother faced in raising three children while working full-time and earning an MBA. (More irony, if you're still looking.)

tulspring_07_enron3


Berkowitz knew he had to reduce the facts to black-and-white terms, so the jurors would focus not on the impossibly complex series of accounting maneuvers but simply on right or wrong.


Berkowitz says he admires his mother's work ethic and how she was devoted to instilling values in her children. Naomi made clear the importance of giving back to the community in which one lives. It was a lesson that was not lost on her son Sean.

As executive director of the American Brain Tumor Association, Naomi Berkowitz convinced her son to fundraise for the nonprofit organization, in addition to his other charitable work.

Today, he also is active on the board of the Chicago Area Project, a nonprofit organization that provides funding, resources and training for at-risk youth in the Chicago area. Berkowitz learned early to be a team player, being his older brother's advocate rather than reveling in sibling rivalry.

The trait is evident when he talks about his team of 10 talented federal prosecutors who are passionate litigators from across the country. It was a team that had spent years of painstaking investigation, obtained more than 20 convictions and negotiated more than $150 million in restitution orders for the victims.

The trial had consumed four months, with Skilling and Lay spending more than $100 million on their defense. And it all boiled down to closing arguments. Now, with the eyes of the nation -- and his mom -- looking on, it was time to summarize. Berkowitz knew he had to reduce the facts to black-and-white terms, so the jurors would focus not on the impossibly complex series of accounting maneuvers but simply on right or wrong.

To crystallize the issue, Berkowitz used black-and-white cardboard that displayed the word "TRUTH" on one side and "LIES" on the other. "You get to decide whether they told truth or lies, black and white," he told the jury. "Don't let the defendants, with their high-paid experts and their lawyers, buy their way out of this. I'm asking you to send them a message that it's not all right. You can't buy justice. You have to earn it." The jury decided Skilling and Lay indeed told lies and they were convicted.

The judge gave Skilling a minimum of 24 years in prison on 19 charges of fraud, conspiracy, false statements and insider trading, though there will be an appeal later this year. Lay, who was convicted of six counts of conspiracy and fraud, died before sentencing. Berkowitz told the media that the Enron case would send a clear message to business people: "You can't lie to shareholders. You can't put yourselves in front of your employees' interests. No matter how rich and powerful you are, you have to play by the rules."

Berkowitz says he is gratified by the partial restitution amounting to $45 million that will be doled out to shareholders if Skilling loses his appeal. "I was pleased that we were able to recover tens of millions of dollars for the victims through our prosecution," Berkowitz says. "If Jeff Skilling ultimately is left with very little assets at the end of the day, I think that's appropriate. It's important to focus on the victims and to make sure that we recover as much money as we could for the people who lost their retirements, though these people will never be made whole."

Following the historic trial, Congress passed sweeping reforms and stiffened penalties for white-collar crimes.

Back home in Chicagoland

The largest, most powerful law firms courted Berkowitz after the Enron trial, but he has chosen to return to his hometown of Chicago, where he is now working in the private sector in the local office of Latham & Watkins, an international firm with 24 offices worldwide. Having spent eight years as a federal prosecutor working on all sorts of cases, Berkowitz says it was time for him to move on.

Like Watergate, the quintessential political scandal of modern America, the Enron debacle and ensuing trial is bound to become a major motion picture one day. In a movie version, who would star as the third and final lead prosecutor? Ever the lawyer, Berkowitz refuses to take the bait. "I hope and believe that Enron will not be the pinnacle of my career," Berkowitz says with a smile. "I would prefer that my life not be made into a film. I think it's an unfinished story. I'm not yet 40. I have a lot left to do and to accomplish."

Fran Simon is managing editor in the Office of University Publications.

Tulanian
Spring 2007

Citation information:

Page accessed: Tuesday, July 29, 2014
Page URL: http://tulane.edu/news/tulanian/ask_why.cfm

Tulane University, New Orleans, LA 70118 504-865-5000 website@tulane.edu