First he went to bat for Charles Keating, the savings-and-loan cheat. Then came Michael Milken, the junk-bond criminal. Now Chicago’s Daniel Fischel is taking on the case of Enron Corp.’s Jeffrey Skilling.
In hiring Fischel as an expert witness for the landmark Enron criminal trial slated to open Monday in Houston, the indicted energy executive is banking on a heavyweight law professor who has made a fortune helping big shots in big trouble.
Unlike academics who stick to research and education, Fischel has guided one of the nation’s top litigation consultancies for years, parlaying his University of Chicago connections into $1,000-per-hour fees for professional testimony.
Along the way he has shaken up the ivory tower with megabuck business deals, conflict of interest allegations and a love affair that ended his tenure as dean. Fischel has no problem going against public opinion when he concludes the facts support more charitable interpretations of the most vilified corporate conduct, as his backing of Keating and Milken suggests.
Skilling will be counting on Fischel and other hired guns to help defuse the prevailing view of Enron as a fraud-riddled house of cards.
“You need careful and lucid explanations,” said Randy Oppenheimer, one of Skilling’s attorneys. “People like Dan have the capacity to explain some pretty important information to the jury. He’s a great teacher.”
U.S. District Judge Sim Lake has yet to rule on what role Fischel can play in the trial, and prosecutors have sought to limit his testimony, or exclude it altogether.
Court filings indicate that Skilling wants the 55-year-old legal scholar to cast a positive light on Enron’s off-balance-sheet transactions, its public disclosure to investors and its once-vaunted business model. Those opinions would support Skilling’s contention that federal prosecutors are, as Oppenheimer put it, “attempting to criminalize business behavior.”
It’s a tall assignment, even for a practiced witness who lists on his resume some 200 cases in which he has served as an expert, involving such giant companies as Philip Morris, Tyson Foods and Sunbeam. The federal government has repeatedly hired him, and Tribune Co., owner of this newspaper, has used his services as well.
Fischel is known for an unflappable courtroom demeanor, and a knack for applying the free-market, anti-regulation principles of the University of Chicago to myriad business disputes. He is particularly sought-after for economic modeling, in which he estimates financial damages from corporate wrongdoing in securities cases.
“Dan is in some senses a professional expert witness and one of the best,” said John C. Coffee Jr., a Columbia University law professor. “He usually does financial models that show much less in financial damages than the plaintiffs claim.”
In the recent Enron criminal case involving a manipulated sale of power-plant barges in Nigeria, for instance, Fischel pegged investor losses from the scheme at $120,000, disputing a government expert’s estimate of $43.8 million. At sentencing the judge came closer to Fischel, putting the loss at $1.4 million.
Although Fischel’s principles align him with the conservative “Chicago School” of law and economics, earlier this month he joined the rival Northwestern University School of Law. And while he remains an emeritus professor at the University of Chicago and has made large donations, the school’s current administration would not discuss him.
At least one former colleague said he is glad to see Fischel move on.
“I don’t think you can do what he’s doing and be of good character,” said Gary H. Palm, a retired University of Chicago law professor who is suing over his dismissal in 2000 when Fischel served as dean. “His point of view is that greed is good. You can’t be of good character and defend greed no matter how big it is.”
Not everyone who considers Fischel a defender of corporate misconduct believes his character is flawed. “Dan’s a man of strong views, but I respect him,” said Lawrence J. Fox, an attorney and sometime expert witness who once debated Fischel about the regulation of lawyers. “He believes in what he says. He’s a man of integrity in that sense.”
Fischel, who declined to comment for this story, arrived at the University of Chicago as a law student after earning degrees from Cornell and Brown. He worked closely with influential legal scholars Richard Posner and Frank Easterbrook, who now serve on the 7th U.S. Circuit Court of Appeals. He joined the faculty for good after a brief teaching stint at Northwestern.
Fischel began testifying as an expert in the early 1980s, and a few years later took on a top management role at the Lexecon consulting firm, which currently employs about 200.
His contrarian opinions won him enemies, including Bill Lerach and Mel Weiss, the kingpins of securities class-action lawsuits. Their law firm sued him in a case related to the savings-and-loan industry, prompting Lexecon’s gun-shy corporate clients to flee.
Fischel countersued, accusing the pair of running him out of the expert witness game maliciously, and against all expectations won a mammoth $50 million settlement.
That vast financial windfall came in the midst of a moneymaking streak beyond the imaginations of most professors.
Just one month after being promoted to dean in January 1999, Fischel cashed in his stake in Lexecon when a company controlled by Milken, who had been a client since the 1980s, snapped it up for $58.8 million.
Milken book
The deal came several years after the debut of Fischel’s book, “Payback: The Conspiracy to Destroy Michael Milken and His Financial Revolution,” which attacked prosecutors, the press and entrenched corporate executives for supposedly persecuting the financier–despite the fact that Milken pleaded guilty to six felonies, apologized for his crimes and won a reduced prison sentence by testifying against a former colleague.
The deal’s timing prompted cynicism about whether the wealthy Milken was paying back Fischel for his “Payback” book. “It looks that way,” said Palm, the former professor suing over his dismissal. “Everything he’s done, he’s done for big bucks.”
More controversy followed. In May 1999 Fischel and other high-profile academic colleagues invested in another business deal with Milken using the university’s name to promote a for-profit online education firm known as Unext Inc. The move sparked complaints from fellow academics who believed conflicts of interest had blinded the dealmakers to the university’s proper role.
“There were all sorts of dollar signs in people’s eyeballs,” recalled Rick Shweder, a professor of human development who raised concerns at the time.
Conceived at the peak of the dot-com boom, the venture failed to live up to lofty expectations. Likewise, the consulting gambit produced less than the expected bonanza for Milken, who unwound it by selling Lexecon, which was thriving, to another firm in 2003. With that second sale, Lexecon funneled nearly $20 million in a single year to Fischel, who signed a long-term employment contract with the firm’s new owner.
Fischel’s tenure as dean ended in February 2001, when the university moved to force out a consultant who worked as one of his top administrators even though she had become his fiance. The pair later married, and now Fischel and Sylvia Neil, who serves as an adjunct faculty member, will be professionally reunited at Northwestern.
NU Law School Dean David Van Zandt, whose wife, Lisa Huestis, is on the faculty as well, sees no problem with the new arrangement. “He’s a fabulous scholar,” Van Zandt said of Fischel. “It’s a great coup.”
Fischel will teach just one or two courses a year, Van Zandt said, allowing plenty of time for testifying on behalf of corporate titans in trouble.
Enron’s Skilling is expected to face 31 counts of fraud, conspiracy and insider trading in the trial opening Monday. His legal team, headed by Dan Petrocelli of O’Melveny & Myers, has sought approval for 10 expert witnesses to explain various elements of Enron.
In public statements the team has suggested that its defense will draw lessons from corporate civil cases, where business judgment is at issue, to answer the key criminal question of whether Skilling intended to commit fraud.
While Skilling co-defendant Kenneth Lay has said he had no idea of any wrongdoing at Enron, and blames chief-financial-officer-turned-governmen t-witness Andrew Fastow for deceiving him, Skilling is more openly defiant. He has vowed to prove that Enron was a solid, innovative enterprise right up until its 2001 collapse.
That has skeptics wondering if any number of experts, Fischel included, can turn the tide of opinion.
Defining the issue
“The narrow issue is whether the defendants defrauded people. The ultimate merits of Enron as a corporation is a much larger and irrelevant question,” said University of Texas law professor Samuel Buell, a former prosecutor with the Enron Task Force. “It strikes me as an uphill battle. The rest of the world has concluded it was substantially misled.”
Jim Parkman of The Cochran Firm, an Alabama trial lawyer who led the successful defense of former HealthSouth Chief Executive Richard Scrushy, said the disadvantages can be overcome. The use of expert witnesses was a help in Scrushy’s trial, he said. “They showed the rest of the story.”
Skilling may well be on the right track with his plan to bring in Fischel, Parkman said. “You’ve got to chip away at the government piece by piece,” he said. “Never concede anything.”
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gburns@tribune.com
