After four years, Enron’s Lay, Skilling to face jury

By Matt Daily

HOUSTON (Reuters) – Four years after the dramatic demise of
Enron Corp., former chiefs Ken Lay and Jeffrey Skilling will
enter a federal courtroom in Houston on Monday to face charges
linking them to one of the biggest business disasters in U.S.
history.

The case against Lay, 63, and Skilling, 52, hinges on
whether the two executives, who once enthralled Wall Street by
creating a company that became the nation’s seventh largest,
were aware of Enron’s financial shell game that pumped up
earnings while hiding billions of dollars in debt.

The Enron Task Force, a special unit created by the U.S.
Department of Justice to investigate wrongdoing at the
Houston-based company, will parade several former Enron
executives who have struck plea agreements in front of jurors
to try to tie Lay and Skilling to criminal acts of fraud and
conspiracy.

The government’s case got a boost last month when Enron’s
former chief accountant, Richard Causey, who was due to go on
trial with Lay and Skilling, struck a deal that will send him
to prison for seven years and likely put him in the witness
stand.

“I think the only (thing the defense) has to stand on is
that Skilling and Lay had no knowledge of this, and that may
have been easier before Causey’s deal,” said Henry Pontell,
criminology professor at the University of California-Irvine
and co-author of the white collar crime book “Profit Without
Honor.”

FIRST CORPORATE SCANDAL

Enron had been widely hailed as an energy market innovator
before it imploded in 2001 after its illicit use of off-balance
sheet partnerships to hide billions of dollars in debt and pump
up earnings was unveiled.

After that, Enron and its crooked “E” logo became a symbol
of corporate malfeasance that would soon be joined by scandals
at other blue chip companies, such as HealthSouth, WorldCom,
Global Crossing and Adelphia.

The energy trader’s bankruptcy filing left thousands
jobless and wiped out billions of dollars in workers’
retirement accounts — a factor that will make choosing an
unbiased jury in Houston a tricky affair.

Lay faces seven charges, including conspiracy and fraud,
all of which stem from the few months when he returned to the
chief executive post vacated by Skilling before the company’s
bankruptcy.

Prosecutors have lodged 31 charges against Skilling,
including conspiracy, fraud, lying to auditors and insider
trading for his stock sales.

Both men have denied their guilt, and Lay has gone directly
to the public on several occasions, including in a speech last
month where he said he was a victim of prosecutors’ “wave of
terror.”

Pontell said it is a common defense tactic of trying to
blame over-zealous prosecutors for the charges.

“It’s not only used by white collar criminals, it’s used by
juvenile delinquents,” he said.

But that strategy has been used successfully before.

“It worked for HealthSouth. They’re hoping it will work as
well as it did for Richard Scrushy,” said Linnea McCord,
associate professor of business law at Pepperdine University’s
Graziadio School of Business and Management, referring to CEO
Scrushy’s acquittal on all criminal charges linked to that
accounting scandal.

Causey, as well as Enron financial mastermind Andrew
Fastow, who also struck a plea deal that calls for him to go
prison for up to 10 years, are expected to be key witnesses
against Lay and Skilling in the trial expected to last four
months.

Defense lawyers have blamed Fastow and his finance team as
the culprits behind the crimes at Enron, but said Causey only
made his plea deal because he was threatened with a long prison
sentence if convicted.

Many of the crimes alleged involve complicated accounting
issues, which could make it difficult for prosecutors to keep a
coherent story line going for the jury, and open up
opportunities for defense lawyers.

“That’s where the skill of the attorneys really comes into
play,” McCord said.