Archive for Monday, August 23, 2010

U.S. Supreme Court ruling led to charges being dismissed in Wittig, Lake cases

August 23, 2010


— A recent U.S. Supreme Court ruling requiring proof of kickbacks or bribes in prosecutions involving the theft of so-called honest services left prosecutors with "little choice" but to dismiss charges against two former Westar Energy executives, the U.S. attorney's office said Monday.

"The law no longer supported our position," U.S. Attorney Barry Grissom said in a statement. "We were duty-bound not to go forward with the prosecution."

Former Westar Chief Executive David Wittig and his top strategy officer, Douglas Lake, were charged in 2003 with conspiring to inflate their compensation from the Topeka-based utility and taking steps to hide their actions.

U.S. District Judge Julie Robinson dismissed all charges against them on Friday at the request of federal prosecutors.

That prompted Jim Ludwig, Westar Energy's executive vice president, to issue a statement late Friday saying the company disagreed with the Justice Department's decision and planned to pursue civil claims in an arbitration proceeding that had been put on hold pending the criminal case. He noted that investors, who had borne the damages and expenses, had not received any restitution.

"We are extremely disappointed that the Department of Justice has given up pursuing justice against Wittig and Lake because we believe our investors still deserved an opportunity, after this long ordeal, to see whether a jury would hold them accountable for their actions," Ludwig said.

A third trial date for the men, who were forced out of Westar in late 2002, had been pending. Their first trial ended in a hung jury and a conviction in their second was overturned.

In June, the U.S. Supreme Court narrowed the scope of the "honest services" law, which made it a crime to "deprive another of the intangible right to honest services." The high court's ruling in the case against former Enron CEO Jeffrey Skilling found that theft of honest services is only relevant in cases involving bribes and kickbacks.

"A great deal of consideration was given to this decision, both here and in Washington" Grissom said.

The government had been forced to return a more than $7 million settlement to Wittig after the 10th Circuit overturned the last conviction.


Clickker 7 years, 2 months ago

What exactly did Wittig do to Westar except be a very poor manager? What criminal act?

Sigmund 7 years, 2 months ago

I doubt this very sincerely. How exactly did they lose everything in their 401k? If they bought Westar stock at the 10 year high of $28/share and it closed today at $23.50. Add the dividend that was paid and evn after taxes you would be it pretty fair shape. Most of that loss was do to the market crash and certainly nothing that Wittig and Lake were accused of. If on the other hand you had bought in 2003 at the low of $10/share during this "scandal" you would have more than doubled your money and add the taxable dividend and you are doing very well.

Still I am glad these two crooks are no longer employed by Westar.

KS 7 years, 2 months ago

Good decision. Had they gone forward, the Judge would have screwed it up, "again". The Feds should go after the Board of Directors. They watched and apparently said nothing while all of this was happening. Wittig and Lake were responsbile to them. Not a fan of either one of them, but they did not deserve this. BTW, I had stock in the company too.

Horace 7 years, 2 months ago

The judge didn't screw it up, the 10th circuit did.

ModerateOne 7 years, 2 months ago

Correct -- the stock price went down. But how did they bilk the investors? What was the criminal act?

terrapin2 7 years, 2 months ago

Thanks for pointing that out. Answer. There wasn't one hence 8 years of trying, but not getting a conviction to stick.

Sigmund 7 years, 2 months ago

Those convictions have been voided. But just how did your friend lose their entire 401k again?? For your information a million dollars in inflated compensation didn't cause a company with close to 2 billion in revenues annually did not cause anyone to lose their entire 401k.

staff04 7 years, 2 months ago

Without reading the Supreme Court case, anyone wanna place bets on who on the court found a way to make it easier for millionaire criminals to get away with their crimes against the common people in this country?

whynaut 7 years, 1 month ago

"The Supreme Court weakened a key anticorruption law today, ruling 9-0 that the law against 'honest services' fraud is too vague to constitute a crime unless a bribe or kickback was involved."

"All nine justices agreed the law against 'honest services' fraud swept too broadly. The majority agreed to narrow it to cover only schemes where a public official or corporate executive enriches himself at the expense of the public or the shareholders.

Justices Antonin Scalia, Anthony M. Kennedy and Clarence Thomas would have gone further and struck down the law entirely, even when bribes or kickbacks were involved."

staff04 7 years, 1 month ago

Yep, I read it too quickly and jumped to a conclusion. My bad.

Sigmund 7 years, 2 months ago

staff04 (anonymous) says… "Without reading the Supreme Court case.."

Just read the first sentence of the article, since when is "requiring proof of kickbacks or bribes in prosecutions involving the theft" is so unusual? I suppose you also know lots of people whose 401k's were supposedly wiped out. Bottom line, if you did not own Westar stock, nothing was "stolen" from you, and if did be assured that Westar can still pursue civil claims to recover any monies they think they are still owed.

BTW the decision was unanimous. Even the wise Latina Justice agreed, and yes I looked because I like to know the facts before I comment. In the opinion by Justice Ruth Bader Ginsburg, the Court said the government simply stretched an anti-fraud law too far when it prosecuted Skilling and others. This decision cut directly to the heart of the case against Wittig and Lake.

Clickker 7 years, 2 months ago

".......the government simply stretched an anti-fraud law too far when it prosecuted Skilling and others. "

This should be the most scary thing of all. Whenever business men and boards of directors make bad business decisions ( even greedy decisions that arent illegal) and the masses do not get rich....well, you see what happened with Enron.

There were alot of employees who claimed they "lost everything" with Enron. They were not diversified, and were loving life when the Enron stock went from $10 to $80. They felt 'rich". Then when the stock went from $80 to $10....they claimed they "lost everything". The public loves this type of stuff.

Sigmund 7 years, 2 months ago

The Government's willingness to prosecute people who are unpopular but have not broken the law by "stretching" statutes isn't scary? But the most scary thing, for me, is how many people don't bother to educate themselves and remain intentionally ignorant so as to not allow their outrage to be tempered by the facts.

I think it is safe to say that I am the only one posting who had both Enron and Westar shares and who also happened to know a few tangential players close to the KCC (Kansas Corporation Commission), so I may have some insight that others don't. Many Enron employees lost their entire 401k's in the Enron collapse but nobody even came close to losing everything in the Westar case, with the possible exceptions of Wittig and Lake who have likely paid far more in attorney's fees (two trials and associated appeals) than they profited from their schemes.

Sigmund 7 years, 2 months ago

edjayhawk (anonymous) says… "So schemes are not illegal? Is that what you are saying?"

It is not what I am saying that is important. It is what various trial courts, appelate courts, and the US Supreme Court have said, and why they said it, that is important. Lake and Wittig had several schemes. One was meant to increase their compensation at Westar (formerly Western Resources) and another was to get low interest loans from a bank.

A particularly concise account was published by the New York Times and details the history from the very beginning, "Wittig, 54, and Lake, 60, are two former Wall Street investment bankers who first worked together at Salomon Brothers in the late 1980s. In 1995, Warren Buffett took control of Salomon in the wake of a scandal involving Treasury securities, and decided to cut the exorbitant compensation of the firm’s managing directors." Take a few minutes and read it, your outrage will be validated. What Happened at the ‘Enron of Kansas’?, By William D. Cohan, July 22, 2010.

So why don't I have the same outrage as you at Wittig and Lake? Why was the Supreme Court unanimous in their opinion with Enron's Skilling and by implication Wittig's and Lake's cases?

This one little line from Wittig's and Lake's appeal says it all; "With respect to the substantive counts of wire fraud and money laundering, we held that the government had failed to produce sufficient evidence (actually, any evidence) of an essential element. We therefore ordered the defendants acquitted of those offenses." (Look closely and you will find Christine E. Kenney, former Douglas Count DA on the brief).

You see the prosecution failed to prove each and every element beyond a reasonable doubt. It is the government and the prosecutors, not the Supreme Court, who I am outraged at. Proving this case and getting a conviction that stand on appeal was their job and they failed us. They neglected to produce any evidence at trial of a essential element, none, nada, zip, nothing. I have reserved my outrage for the government and others like the Board of Directors at Westar who allowed this kind of crap to go on for years.

Bottom line, no one in Wetar's 401k was wiped out, Westar's new management has done better considering the hole that the Board of Director's allowed Wittig and Lake to dig, and Westar will still pursue a civil action. "Westar Energy Inc. said it will continue to pursue civil claims in arbitration against two Westar Energy Inc. executives who were accused of looting the Kansas utility, despite criminal charges being dropped." Westar to pursue civil case against former execs, Associated Press, August 23, 2010.

whynaut 7 years, 1 month ago

It's really not that outrageous that the prosecution would move forward based on a an existing corruption law. The S.C. simply said it was too vague. The function of the S.C. is to interpret written law. If it's too vague, they define it more clearly, as is the case with the law regarding "honest services" fraud.

If fact, does it not somewhat validate the legitimacy of the prosecutions' arguments that it took a S.C. ruling to dismiss them?

Sigmund 7 years, 1 month ago

edjayhawk (anonymous) says… "Yes and those lower courts use the Supreme Court ruling. What about the conspiracy and money laundering charges?"

The 10th Circuit ruled that "With respect to the substantive counts of wire fraud and money laundering, we held that the government had failed to produce sufficient evidence (actually, any evidence) of an essential element."

The Government failed to produce any evidence of an essential element. It is like saying "Mr. Mustard did it in the Living Room with a candlestick" and then not providing any evidence of any candlestick in court. The jury may have convicted but on appeal that conviction must be reversed.

As to the impact on the conspiracy and remaining charges the 10th Circuit sent it back to the trial court for possible retrial, "The government's error on the substantive wire fraud counts (above), we found, also implicated the adequacy of the instructions given the jury on the remaining charges against the defendants: circumvention of internal controls and conspiracy. Accordingly, we reversed the defendants' convictions on those counts as well, but because the basis of our reversal had nothing to do with the sufficiency of the evidence, we remanded the case for a possible retrial."

Any possibility of a retrial was taken away by the US Supreme Court ruling in Enron/Skilling.

Commenting has been disabled for this item.