Defense Says Doubt, Not Greed, Hurt Enron

Enron Corp.’s shocking 2001 collapse was caused by a crisis of confidence in the company’s financial prospects and not by a conspiracy involving Kenneth L. Lay and Jeffrey K. Skilling, lawyers for the former corporate chieftains said in the opening arguments of their federal trial here Tuesday.

The defense challenged the government’s contention that Lay, Enron’s former chairman, and Skilling, the company’s onetime chief executive, lied to the public to conceal the energy-trading giant’s shaky financial condition.

There was no need to do so, the lawyers said, because even after the bursting of the dot-com stock bubble and the 9/11 attacks, the company was fundamentally healthy.

“Enron was no house of cards, no crooked company,” said Daniel M. Petrocelli, Skilling’s lead defense lawyer. “It was a shining star.”

Both Lay and Skilling will testify, their lawyers said, setting up potentially dramatic confrontations with prosecutors in a trial expected to last four months. Lay, 63, and Skilling, 52, are charged with multiple counts of fraud and conspiracy and could spend decades in prison if convicted.

In his opening statement earlier in the day, prosecutor John C. Hueston previewed a trial strategy in which the government would pound away at the contrast between Lay’s and Skilling’s rosy public pronouncements about Enron and the much bleaker reports they were getting from subordinates.

Their greedy motive was to keep the stock price high so that they could continue to profit from their large salaries and share holdings, he told the jury of eight women and four men.

Despite the complexity of Enron’s businesses and financial structure, Hueston said, “This is a simple case. It is not about accounting. It is about lies and choices.”

Hueston, an assistant U.S. attorney from Orange County before joining the Justice Department’s Enron Task Force, gave the example of an Oct. 23, 2001, special meeting with employees. It was two months after Skilling’s surprise resignation as CEO, and the company’s stock price was skidding amid rumors and negative news reports.

At that moment, Hueston asserted, Lay knew that some of Enron’s assets were badly overvalued, its cash was draining fast, its borrowing costs were rising as banks grew nervous, and it faced the likelihood of having to publicly disclose further negative financial information.

Yet, Hueston said, Lay chose to tell employees: “The underlying fundamentals of our business are very strong, indeed the strongest they’ve ever been.”

Taking a bright penny from his pocket and placing it on the railing of the jury box, Hueston went on to tell jurors that Skilling pushed underlings to improperly manage the company’s accounting so that quarterly earnings per share would beat Wall Street’s expectations and boost Enron’s stock. Even a change of a penny a share could cause the stock price to rise, he said.

Petrocelli, in his two-hour opening argument, said Skilling “never stole a nickel” from Enron. He recounted Skilling’s rise from Harvard Business School to a high post at leading consulting firm McKinsey & Co. and to Enron, where he transformed the company into a high-tech middleman for all kinds of energy consumers and suppliers.

“He’s all about ideas, folks, and the government wants you to think he’s all about greed,” Petrocelli said.

Petrocelli and Lay’s lead defense counsel, Michael W. Ramsey, attacked the 65-page indictment that sets out the criminal charges, saying they would show that in charging Lay and Skilling with numerous counts of lying, the government repeatedly took their words out of context, omitting parts of statements that would tend to exculpate them.

Ramsey also told the jury that the testimony of many former Enron workers who would appear as government witnesses would be questionable because their cooperation was secured with threats of long prison terms.

He blamed Enron’s collapse in part on negative reports in the Wall Street Journal that he said were prompted by a short seller, an investor who profits when stocks drop.

The news articles fed into a climate of worry after 9/11 and a normal cyclical downturn that was hitting some of Enron’s businesses, Ramsey said. As a result, Enron’s partners in its trading business -- the company’s main profit engine -- suddenly stopped extending credit, prompting a “death spiral” into bankruptcy protection.

However, Ramsey added, “failure is not a crime. Bankruptcy is not a crime.”

U.S. District Judge Sim Lake, a stickler for punctuality, began the proceedings at 8:30 a.m. sharp and a couple of times prodded the lawyers to complete their remarks when they ran beyond the allotted time.

Lay took some notes during Hueston’s opening and several times nodded his head in agreement with remarks by Petrocelli or Ramsey. His wife, Linda, sat in the gallery.

Skilling sat quietly with his hands in his lap or folded in front of him for most of the day. When he first arrived in the courtroom with Petrocelli, Skilling smiled and gave a quick thumbs-up sign to his three teenage children seated near the front of the courtroom. Skilling’s first wife, Susan, the mother of the children, and his current wife, Rebecca, sat near each other in the same row.

The government’s first witness today will be Mark Koenig, Enron’s former head of investor relations, co-prosecutor Sean M. Berkowitz told Lake.

Koenig will be followed, probably Thursday or next week, by Kenneth Rice, former head of Enron Broadband Services, the division set up to trade bandwidth, or Internet data-transmitting capacity.