Enron Leaders Found Guilty

[Snowden]

Enron Leaders Found Guilty
Massive Fraud Pinned to Lay, Skilling

By Carrie Johnson
Washington Post Staff Writer
Friday, May 26, 2006; A01



HOUSTON, May 25 -- A federal jury found former Enron chairman Kenneth L. Lay guilty of every one of the half-dozen counts with which he was charged and convicted his protege Jeffrey K. Skilling of 19 more on Thursday, pinning them with responsibility for one of the era's biggest and most damaging business frauds.

Jurors deliberated for less than six days over a trial that took almost four months and was more than four years in the making. As they filed back into the courtroom, jurors avoided eye contact with the defendants and their families. Skilling rose first and stood impassively, holding his hands pressed together in front of him and exchanging words with his brother, while the judge read aloud "guilty" after "guilty."

Lay, who sat beside his weeping wife and daughter, bowed his head at Skilling's predicament, then stood and braced himself as the judge handed down a rapid-fire series of guilty verdicts against him. Relatives and friends of both men buried their heads in their hands and murmured "no" as individual jurors affirmed their ruling.

Moments after the verdicts, U.S. District Judge Simeon T. Lake III asked Lay to stand for a second time, finding him guilty of four counts of bank fraud and making false statements in a separate trial, related to personal loans. The judge then demanded that the once-powerful executive who had dominated this city's business and cultural circles surrender his passport and fork over a $5 million bond. At the bond hearing, Lay's wife and three of the couple's children pledged their homes on the promise that he would not abscond before he is sentenced.

"I am not going to let him leave this building until his passport is surrendered," Lake said firmly. The judge ordered both men to return to the building for sentencing on Sept. 11, the fifth anniversary of the terrorist attacks that the defense blamed for contributing to Enron's misfortunes.

Skilling's lawyer Daniel M. Petrocelli appeared at microphones set up on the courthouse steps just minutes after the verdict was read and vowed a "full and vigorous" appeal.

"We have just begun to fight," he said, standing beside his client, who appeared composed. Skilling, whose wife and three children were not present for the verdict, was among the first to race out of the courtroom when the judge left the bench. Skilling was heckled by a few members of the public who camped outside the courthouse alongside scores of cameramen and reporters. Two police officers on horseback patrolled the area, trying to keep order, stopping traffic so Lay and a phalanx of relatives could cross the street and make their way home.

Skilling, 52, and Lay, 64, once stood near the pinnacle of American business, as the energy trading powerhouse they created out of a stodgy pipeline company grew to become the nation's seventh-largest public company. But much of their fortunes collapsed in a heap along with the business in December 2001.

Now the two men, who together invested close to $70 million in their defense, face the possibility of spending the rest of their lives in prison and living in history as the ringleaders of a fraud at a company whose name became synonymous with accounting tricks and rule-breaking.

"Certainly, we're surprised, and it's probably more accurate to say we're shocked," Lay told reporters outside the courthouse. Earlier in the day, he held hands with a circle of family members and prayed alongside his pastor inside the courtroom well. "I firmly believe I'm innocent of the charges against me. . . . Most of all, we believe in the fact that God is in control."

Jurors, on the other hand, said they believed Lay and Skilling were firmly in charge as the company veered into financial problems, rejecting the defense that Enron fell victim to a market panic fueled by skeptical news reports; the terrorist attacks; investors who bet the stock price would drop; and concerns about the ethics of Andrew S. Fastow, then Enron's finance chief.

"Both defendants said they had their hands firmly on the wheel," said juror Freddy Delgado, an elementary school principal. "To say you didn't know what was going on in your company . . . was not the right thing to do."

Enron's bankruptcy filing cost thousands of workers their jobs, spooked investors into doubting the integrity of the stock market and spurred lawmakers to enact the most significant changes to corporate practices in more than 70 years.

Another jury member, payroll manager Carolyn Kuchera, said panelists managed to do their jobs at nights, on weekends and during breaks in the long case. "We were responsible, we were always accountable, we tied up the loose ends, and I think those [Enron] employees were entitled to the same thing."

Both Lay, who once mingled with members of the Bush family and earned the nickname "Kenny Boy" from the president, and Skilling, who during boom years convinced Wall Street analysts of Enron's genius and his own, took the witness stand in an effort to deploy their legendary salesmanship on their own behalf. But, in 14 days of testimony, neither man proved convincing, jurors said.

The eight-woman, four-man jury issued its verdict after hearing evidence over 16 weeks from 56 witnesses, including eight insiders who pleaded guilty and testified against Lay and Skilling. None, however, mattered more than the defendants themselves.

In contrast to his grandfatherly, genial public image, Lay angrily attacked prosecutors for deigning to investigate his $77.5 million of stock sales back to Enron in the months before its demise, an issue that did not form the basis of criminal charges but nonetheless struck juror Don Martin as a "disgrace," he said later. Skilling suffered memory lapses about key events and tried to outwit the government by spinning long explanations for such things as problems in Enron's retail and broadband units.

Federal prosecutors prevailed despite the lack of documents that directly linked the men to a scheme to boost earnings and conceal billions of dollars in debt. From the start of the trial Jan. 30, government lawyers signaled they would skim over arcane business issues and instead focus on whether the defendants misled analysts and investors in a series of optimistic public statements designed to prop up Enron's stock price.

"The jury has spoken, and they have sent a powerful message," said Justice Department Task Force Director Sean M. Berkowitz. "You can't lie to shareholders. You can't put yourself above employees' interests. . . . No matter how rich you are, you have to play by the rules just like anyone else."

Skilling, whom prosecutors characterized as the mastermind of the fraud, resigned abruptly in August 2001, passing the torch back to his mentor. He faced a total of 28 charges of insider trading, conspiracy, securities fraud and making false statements. Jurors acquitted Skilling of nine of the 10 insider-trading charges because, they said, they did not have sufficient evidence. Forewoman Deborah Smith, a human resources manager, explained the move by saying: "Not guilty equals not proven. It does not equal innocent."

Lay faced six more-narrow charges based on his leadership of the company after he stepped in upon Skilling's departure, a decision that he testified he grew to regret bitterly. Prosecutor John C. Hueston told reporters that Lay had a "golden opportunity" to come clean about Enron's problems but instead chose time and again "not to tell the unvarnished truth."

The Enron investigation has been the most sophisticated and painstaking white-collar criminal probe in history, Justice Department officials said, producing convictions of 18 people. Enron's collapse also helped topple accounting firm Arthur Andersen LLP, convicted of obstructing justice for tampering with documents related to Enron in 2002. The U.S. Supreme Court unanimously overturned the verdict last year because of faulty jury instructions -- one of many issues Lay and Skilling are likely to argue in their own extensive appeals.

Enron's implosion in late 2001 put substantial pressure on the Bush administration, which had developed close ties to Lay, to distance itself from business malfeasance. Within months, President Bush mobilized federal agencies and launched a corporate-fraud task force that has convicted more than 1,063 people, including 167 corporate presidents and chief executives and 36 chief financial officers.

"This was the most important corporate scandal of our lifetimes," said securities-law historian Joel S. Seligman. "It was one of the immediate causes of the Sarbanes-Oxley Act, the governance reforms of the New York Stock Exchange and NASD, and the most consequential reorientation of corporate behavior in living memory."

Lay and Skilling have yet to resolve civil lawsuits filed by former shareholders who seek billions of dollars. But they may have to stand in line behind the federal government, which is seeking the forfeiture of Lay's $4 million penthouse apartment and Skilling's $5 million Mediterranean-style mansion, among other assets.


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