Editor: Mr. Pollack, would you tell our readers something about your professional experience and how you came to Kelley Drye Collier Shannon?
Pollack: I am a litigator, and my practice is primarily in the area of white collar criminal defense. I also do some work in related areas, such as SEC enforcement work or False Claims Act cases, which tend to result from the same conduct giving rise to the criminal investigation.
I was with Collier Shannon Scott in Washington, DC. In April of this year, Collier Shannon merged with Kelley Drye. While Kelley Drye had a Washington presence, it did not have the range of practices to offer its clients that Collier Shannon had, so the merger was an opportunity to expand its services in a very important market. At the same time, Collier Shannon was a single-office firm, and the merger made it part of a firm with a national practice.
Editor: Speaking of your litigation practice, how has it evolved over the course of your career?
Pollack: My litigation practice has always been heavily oriented toward criminal defense. I began my career with a small litigation boutique that specialized in this area. I would have to say that my practice has evolved over time largely in reaction to the changing focus of the Department of Justice. At one time that focus was on fraud in the defense procurement area. Then came a time when health care fraud received a great deal of attention. Next computer fraud came to the fore. In recent years I have spent a great deal of time handling cases involving financial accounting improprieties at public companies, including financial statement misreporting.
I should mention that I was a CPA before going to law school. That background is particularly valuable in many of the matters I am handling at present. It has given me the ability to assess many of the issues from both a financial accounting and a legal perspective and, at the same time, to communicate that assessment to a lay jury. It is important to be able to understand the issues in all their complexity and then reduce them to language that a jury understands.
Editor: In connection with this specialized expertise, I understand you have represented a former Enron Corp. executive in both a criminal prosecution and an SEC action.
Pollack: When Enron went into bankruptcy, the court decided - in the interests of economy and efficient case management - to appoint a single firm to represent the Enron employees who were witnesses in the investigation. If, however, the status of one of those clients then changed - if he or she became a target of the investigation - the firm could no longer represent them and their case had to be referred elsewhere. Based on my background and experience, the firm referred to me the representation of a former Enron accountant with respect to a very complex ac-counting transaction.
My participation in this matter is largely at an end. My client was tried in a three-month trial in Houston which ultimately ended in a mistrial. He was then retried in a trial that lasted a month. In that trial he was acquitted on all counts.
Editor: The big news of the moment is the six-year sentence that U.S. District Judge Kenneth Hoyt has imposed on ex-Enron CFO Andrew Fastow under a plea deal worked out with the prosecutors.
Pollack: Under the plea agreement Andrew Fastow reached with the government, the worst sentence he could have received was 10 years. By pleading guilty to a single charge with a maximum sentence of 10 years, he managed to cap his exposure at that level.
Absent the plea, Mr. Fastow might have gone to trial and been acquitted. He would have run the substantial risk, however, of such a trial ending with a conviction and a sentence of significantly more than the six years he has received or the maximum of 10 years he could have received under his plea deal.
Editor: How do you square Andrew Fastow's sentence - and I am thinking of the image he projects of a very astute, sophisticated and in-control financial executive - with the rather hapless 65-year old Bernie Ebbers, ex-CEO of WorldCom, who is in prison for effectively the rest of his life?
Pollack: Mr. Fastow entered a plea agreement, and in consideration of that agreement the government was willing to cap his exposure and did not object when he was given a sentence of under 10 years. In the WorldCom case something quite similar occurred. Scott Sullivan, the CFO of MCI WorldCom agreed to cooperate and ended up with a sentence of five years.
Of course, Mr. Ebbers chose to exercise his constitutional right to contest the charges in trial and ended up with a sentence of 25 years. To me, this is a troubling result. It serves as a tremendous impediment to a person's right to defend himself at trial. Rational people will enter a guilty plea even if they are convinced of their innocence in order to avoid the worst case scenario. The disparity between the sentence one receives after contesting the charges and what one receives with a guilty plea should not be as great as it is.
Editor: What lessons should be drawn from the six-year sentence imposed on Andrew Fastow?
Pollack: There are any number of lessons. First of all, I think that the Ebbers sentence was extreme and unnecessary. Particularly when compared with that of Andrew Fastow. David Delaney, another defendant in the Enron case whose involvement was minor compared to Fastow, entered a guilty plea and cooperated with the government. His sentence? Three years, which means that his potential sentence was reduced, but not by nearly the same magnitude as the reduction in Fastow's sentence. All of this is to say that there is a great deal of unpredictability in the process. People plead guilty in order to minimize their exposure or at least to gain some certainty as to outcome, but even that can be elusive. So the principal lesson, I think, is that giving up the right to contest the charges does not always lead to a predictable, and bearable, result.
Editor: What do the criminal prosecutions say about the role of accountants and lawyers in the collapse of Enron?
Pollack: There is an interesting and, I think, rather glaring distinction in Enron between how the accountants have fared and how the lawyers have fared. There is no question that the Department of Justice was much more aggressive in pursuing the accountants than in pursuing the lawyers. Enron carries a perception of the books being cooked, and a number of Enron accountants were charged with criminal offenses. Richard Causey, Enron's chief accounting officer, wound up entering a guilty plea, possibly as a consequence of the huge disparity between the sentence he most probably would have received had he been convicted at trial and what he believed would result from his guilty plea. This result, of course, reinforces my unease with the disparity between the sentences resulting from a conviction after trial and those resulting from a plea deal. The point here, however, is the number of accountants charged in the Enron case, in contrast to the number of lawyers charged. No in-house lawyers or external counsel were charged in the case. The Enron Task Force believed, apparently, that the accountants had some sort of special expertise or knowledge that the lawyers did not possess.
Editor: Corporate law in almost all jurisdictions has permitted corporate insiders to rely on the expertise of accountants and lawyers. Is that changing as a consequence of the corporate scandals?
Pollack: To the extent that the Department of Justice has become more skeptical about accountants and lawyers, I think it has changed. The government has always been able to bring a case alleging that the business person knew that his conduct was unlawful irrespective of having obtained expert advice.
Nevertheless, the business person continues to be in a better position to defend himself if he sought and then followed expert advice. And the more experts he involved in this process, the better off he is because of the difficulty of then proving a criminal conspiracy. The common perception is that a conspiracy is, by its nature, secretive and limited to a few people. The more people who know the underlying facts and agree on moving forward, the more difficult it is for the government to show fraudulent intent.
Editor: In the KPMG case, the court has ruled that it was unlawful for the government to dissuade KPMG from paying attorneys' fee for its partners and employees. What impact would a similar ruling have had in Enron?
Pollack: In Enron, only a few people had their legal fees paid by the company. Pursuant to the bankruptcy court's order, only witnesses in the investigation were covered. To be sure, many of those charged had substantial resources and were well positioned to put on an effective defense. Many of the lower-level executives, however, were not so positioned. Putting on an effective defense with one's own resources was, for some, sufficiently daunting as to make the prospect of a guilty plea the only practical way out. That, in turn, encouraged the government to use creative legal theories in their plea agreements that may not have prevailed if tested in court. Indeed, some of the government's legal theories were rejected by appeals courts in those cases that proceeded to trial.
There is a palpable unfairness that runs through much of the Enron case, and in many other cases, that would not have been present had the company paid the legal fees of the executives charged.
Editor: How will the KPMG case affect future cases?
Pollack: It remains to be seen what is going to happen legally with the KPMG case, but it is already having an impact. Whether it becomes the law of the Second Circuit or not, it has changed attitudes. In recent years, companies have been very reluctant to pay individual legal fees. No one wishes to get on the wrong side of the government, let alone become the next Arthur Andersen. Judge Kaplan's decision has given companies more backbone and more cover, and this is occurring at a time when a movement is underway to try to alter the equation between the business community and the government. With widespread resistance to government coercion to waive the attorney-client privilege, the willingness of companies to pay individual legal fees in the face of government displeasure is on the increase. I think this is a direct consequence of the KPMG decision. General counsel for the company is now in a position to tell a prosecutor to look at that decision and ask how the company can possibly not pay individual legal fees.
Editor: Is it your view that Judge Kaplan's decision is likely to stand on appeal?
Pollack: I certainly hope Judge Kaplan's decision is upheld, but I do not know what the Second Circuit is likely to do. The decision is well reasoned, and it achieves the right result. The judicial process is best served when individuals are adequately represented and when the government's legal theories of prosecution are tested, not when defendants succumb because they lack the financial resources to mount a defense. In the end, it is to the government's benefit - in addition to that of everyone else - to have a process that is both fair and perceived to be fair. The integrity of the judicial process is something in which we all have a stake.