As 2005 ends, trial of ex-Enron chiefs Lay and Skilling approaches
HOUSTON » Simpler scandals have come and and gone since Enron Corp.'s spectacular flameout ushered in an era of white-collar perp walks and investor outrage illustrated by the disgraced company's name.
Now, the defining chapter in Enron's sprawling saga is approaching. On Jan. 17, Enron founder Kenneth Lay, his CEO successor Jeffrey Skilling and the company's former top accountant, Richard Causey, will finally go to trial more than four years after the company that made them multimillionaires crumbled, leaving the trio with shattered reputations under a cloud of alleged crimes.
"This era of corporate fraud was essentially defined by Enron and it's really not surprising that it's taken the government this long to bring this case to trial given its level of complexity," said Robert Mintz, a former federal prosecutor.
Other high-profile convictions involved relatively uncomplicated schemes such as fallen WorldCom head Bernard Ebbers' orchestration of an $11 billion fraud by moving operating expenses off the books to inflate profits or former Tyco International Ltd. CEO Dennis Kozlowski siphoning millions from the company to fund his high-flying lifestyle.
The epic Enron battle stems far beyond basic book tampering or robbing the company till.
"I often say Enron was really quite sophisticated and analagous to working with a scalpel while in WorldCom it was more of a meat-ax approach," said former U.S. Attorney General Richard Thornburgh.
Skilling and Causey each face more than 30 counts of fraud, conspiracy, insider trading and other charges for allegedly knowing about or being in on various schemes to doctor Enron's books over several years and across multiple business units. The government alleges the two men lied to investors, signed fraudulent regulatory filings and knew of sophisticated off-the-books structures that hid debt and inflated profits in an overall effort to prop up a wobbly company's facade of success.
"WorldCom could occur in any era, it's more traditional book cooking. It's hard to think of another one of these cases really is like Enron in the sense that it raises fundamental questions of accounting and financial reporting," said Sam Buell, a former federal prosecutor with the Justice Department's Enron Task Force who teaches at the University of Texas School of Law.
"The deepest, most complex, most system-related case would be the last one to be resolved in all of this," Buell said.
The narrower conspiracy and fraud case against Lay alleges he took over the ruse when Skilling abruptly resigned less than four months before Enron careened into bankruptcy in December 2001.
But Lay faces another hurdle. When jurors in the case against the trio begin deliberating, a separate case alleging that he lied to banks about his intention to use their loans to buy Enron stock on margin will be tried directly by a judge, without a jury.
Lay broke his lawyer-imposed silence upon being indicted last year, speaking publicly about the case on several occasions, and offering a glimpse into his and his co-defendants' defenses. He consistently insists he knew of no skullduggery and trusted Andrew Fastow, the former finance chief who awaits a 10-year prison sentence upon admitting he masterminded convoluted financial schemes that fueled Enron's crash and skimmed millions in company dollars for himself.
Fastow, who answered to Skilling and Lay and was Causey's peer, is expected to be the government's star witness.
Both sides can anticipate a lengthy, bloody fight with no guarantees as to the outcome, as exemplified by the Enron Task Force's mixed record so far, said Jacob Frenkel, a former federal prosecutor.
This year, the U.S. Supreme Court overturned the 2002 conviction of former Enron auditor Arthur Andersen LLP on obstruction of justice charges, citing vague jury instructions. Andersen was accused of a mass effort to destroy Enron-related documents in late 2001 as investigators loomed.
A three-month trial of five former executives from Enron's broadband unit ended in July with a handful of acquittals for some and a hung jury on dozens of remaining charges. Prosecutors split the five defendants into three separate, simplified cases to be retried in May, June and September next year.
But four former Merrill Lynch & Co. executives and a former midlevel Enron finance executive reported to prison this year to serve terms ranging from 2 1/2 years to nearly four years after a jury in late 2004 convicted them of taking part in a sham deal to disguise a loan from the brokerage as a sale of Enron's power plants mounted on barges. A former in-house Enron accountant was acquitted in that case.
"These cases are not a slam dunk," Frenkel said. "The biggest challenge for the government, if it wins, is to make the win stick."