HOUSTON – At its heart, the biggest criminal case to emerge from the largest corporate scandal of recent years comes down to whether Enron Corp.’s top two former executives lied.
Enron founder Kenneth Lay and his hand-picked successor as CEO, Jeffrey Skilling, go on trial Jan. 30 as alleged purveyors of deceit more than four years after the company became synonymous with corporate greed and wrongdoing.
The question for a dozen jurors to answer is whether Lay and Skilling knew of Enron’s rot when they repeatedly declared publicly that all was well or would improve.
“The crimes alleged at Enron were not the acts of a few greedy senior executives, but truly was an indictment of almost the entire corporate culture,” said Robert Mintz, a former federal prosecutor who has followed the Enron saga since the energy company went bankrupt in December 2001.
The government alleges that Lay and Skilling conspired with minions to mislead investors, analysts, auditors and employees through false or sanitized financial statements, empty hype and shady accounting maneuvers in finance, broadband, trading and retail energy units.
The indictment alleges Skilling knew that Enron’s business units turned to accounting tricks to please Wall Street, while he pocketed millions from sales of inflated shares.
Skilling faces 35 counts of conspiracy, fraud, lying to auditors and insider trading. Lay faces seven counts of conspiracy and fraud, focusing mostly on his actions after Skilling quit. Both have pleaded not guilty and have said repeatedly they were not involved in any wrongdoing.
In a recent interview, Skilling said he’s convinced Enron wasn’t rife with corruption, as it’s been portrayed in the last four-plus years.
“I loved Enron. I loved that company. I built that company,” he said.
The case, expected to last about four months, could be an endurance test for jurors and a challenge for prosecutors to keep it simple, said Ross Albert, a former federal prosecutor.
“If the government cannot explain what happened at Enron and why it was wrong in terms a jury of 12 lay persons can understand, then the government will likely fail to obtain convictions,” Albert said.
But Samuel Buell, a former federal prosecutor with the Justice Department’s Enron Task Force who now teaches at the University of Texas School of Law, said the complex financial maneuvers spread across business units lead to the same conspiracy.
“Once you put all these transactions together and you understand how they work together to further an objective – that was designed to present a picture of the company that did not match reality – it’s not that complicated,” Buell said.
In a speech in December to Houston business and academic leaders, Lay indicated that the defense teams will try to exonerate the company, along with its clients, saying Enron wasn’t rife with corruption and the deals, partnerships and financial structures outlined in the indictment were legitimate.
Gary Brown, former special counsel for the Senate Committee on Governmental Affairs during its investigation of Enron’s collapse, said such a defense approach could be risky.
Sixteen former Enron executives have pleaded guilty to crimes, including securities fraud, insider trading and conspiracy, Brown noted.
And Merrill Lynch, JP Morgan Chase, Citigroup and the Canadian Imperial Bank of Commerce have paid the SEC nearly $400 million to settle allegations that they helped Enron manipulate financial statements and mislead investors.
JP Morgan, Citigroup and CIBC also have paid $6.6 billion to settle similar allegations in a conglomerate of Enron shareholder lawsuits.
Lay says he will testify. Skilling’s lead trial lawyer, Daniel Petrocelli, won’t say if his client will testify, though Skilling said at two congressional hearings in early 2002 that he resigned believing Enron was healthy.
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