Risk & Compliance

At Enron Trial: Let the Charges Begin

Fierce opening statements set the stage for unrestrained blame game.
Stephen TaubJanuary 31, 2006

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U.S. Justice Department lawyer John C. Hueston told jurors that the case against former Enron Corp. Chairman Kenneth Lay and former Chief Executive Jeffrey Skilling is a simple one. “It’s not about accounting. It’s about lies and choices,” he said, according to Bloomberg.

In his opening statement to the jury of eight women and four men, Hueston said he would prove that the two former executives lied about the company’s financial condition at the same time that they were selling millions of their own shares, said the wire service.

Lay and Skilling “told lie after lie about the true financial condition of the company,” Hueston reportedly said. “Those lies propped up their stock holdings and deceived investors”, he asserted.

Skilling faces 31 counts of fraud, conspiracy and insider trading while Lay faces seven counts of fraud and conspiracy, reported Bloomberg. Another four counts of bank fraud will be tried separately after this trial is completed.

In elaborating on his case, Hueston said that subordinates told Lay and Skilling about problems at several Enron subsidiaries in 2001, including its Internet and wholesale energy units, according to the report. He then said that instead of being honest about the problems with the investment community, Skilling delivered “fiction” when he discussed the units’ growth potential.

“It was good news and sunshine for investors,” Hueston reportedly said after playing tapes of Skilling’s comments during conference calls with analysts, which did not include anything about the losses.

Daniel Petrocelli, Skilling’s lead defense lawyer, promised in his opening statement that his client would tell his story on the witness stand. Skilling will “tell you in his own words that he never” committed any of the crimes the government alleges,” Petrocelli said, noted Bloomberg.

Hueston also pointed out, said the Associated Press, that Lay received a memo from Enron vice president Sherron Watkins—widely credited as the key whistle-blower in the case—on Aug. 15, 2001, warning him that the company could “implode in a wave of accounting scandals.” The prosecutor noted that just five days later, Lay was quoted in a Business Week article as saying that there were “no accounting issues” at the company, and “no other shoe to fall.”

For his part, Petrocelli accused prosecutors of trying to criminalize normal corporate practices and see conspiracies where there were none. He also contended that Skilling, “didn’t know about any criminal conspiracy, didn’t see any criminal conspiracy and didn’t hear any criminal conspiracy. And the same for Mr. Lay.”

The defense attorney attributed Enron’s plunge into bankruptcy to an “unexpected liquidity crisis” caused by its trading partners. “It wasn’t a crooked company,” he added, comparing Enron’s failure to a bank run. “It suffered a tragedy.” In fact, he pointed to former Chief Financial Officer Andrew Fastow as the crook in the case. “There is a man who stole a nickel—stole $25 million in nickels—and his name is Andrew Fastow,” Petrocelli reportedly said.

Petrocelli also charged that Fastow and two other former Enron finance executives—Ben Glisan and Michael Kopper—”ripped off Enron” via special partnership deals. Glisan, Enron’s former treasurer, and Kopper, an executive in the finance division, earlier pleaded guilty to fraud charges and agreed to serve five years in prison each.

“What they stole was hidden from Jeff Skilling, hidden from Ken Lay and hidden from” Enron’s board, Petrocelli asserted. “I put them in the crook category.”

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