Top Enron Figures Head to Court

Times Staff Writer

The recipe for the defense in the long-awaited Enron Corp. trial opening in Houston next week appears to be one part denial and one part defiance.

In contesting federal conspiracy and fraud charges, former Chairman Kenneth L. Lay and Chief Executive Jeffrey K. Skilling are expected to deny that they knew of fraudulent schemes carried out by underlings and defy the government to prove that any of their own business decisions were illegal.

“It may be their only defense, but it’s probably not so bad,” said former federal prosecutor Robert A. Mintz, a securities lawyer in New Jersey. “Strategically, it’s a difficult case for the government to prove.”


At the heart of the government’s case are allegations that the two men who stood atop the Enron pyramid conspired to mislead the public about the energy-trading company’s financial condition; lied to employees, investors and credit-rating companies; and, in Skilling’s case, knowingly filed false financial reports.

Prosecutors are still honing their case as the Monday start of jury selection approaches. In court filings last Friday, they pared down the list of charges and spelled out what criminal lies they say the two defendants told in the run-up to Enron’s Dec. 2, 2001, bankruptcy filing.

Federal investigators believe that Enron used crooked finance and accounting schemes to hide debt and massage its reported profits. The goal was to please Wall Street and keep the company’s stock price flying high. But as the allegedly sham transactions came to light in the latter half of 2001, the company crumbled, wiping out thousands of jobs and a stock market value that had once topped $68 billion.

Many Enron workers saw their retirement savings wiped out. Meanwhile, Lay made profits of more than $217 million on the sale of Enron stock from 1998 to 2001, according to the government’s 65-page indictment, while Skilling netted more than $89 million.

Lay, 63, and Skilling, 52, are the ultimate targets of a four-year investigation by the Justice Department’s elite Enron Task Force. They could spend the rest of their lives in prison if convicted of all charges.

Of the scandals that engulfed corporate America in the early part of the decade, Enron wasn’t the biggest in dollar terms -- WorldCom Communications Inc. takes that dubious prize. But the reverberations from the collapse of the Houston-based energy company arguably have been the most profound, touching off a surge of regulatory reform unseen since the 1930s.


“This is the big enchilada of the white-collar corruption cases,” said Adam M. Gershowitz, assistant law professor at Houston’s South Texas College of Law.

Prosecutors so far have obtained guilty pleas from 16 people, including former Chief Financial Officer Andrew S. Fastow, 44, considered the architect of off-the-books partnerships at the crux of the alleged fraud. He is expected to be one of the principal witnesses against his former bosses.

“Fastow blatantly engaged in illegal conduct. Why would you let him plead out unless you thought you could make your case against Skilling and Lay?” Gershowitz said.

Prosecutors are so desperate for a conviction, Lay contends, that they have stooped to threats and intimidation.

Last month, Lay and Skilling’s codefendant, former Enron chief accounting officer Richard A. Causey, 46, abruptly switched his plea to guilty and agreed to cooperate with the government.

Lay reacted by quickly posting on his personal website ( a statement terming Causey “a victim of the government’s continuing abuse of power.”


“Most of his money was frozen when he was indicted,” Lay said, “thus limiting his ability to defend himself. He was told that he may be facing 35 to 40 years in prison with no hope of parole, and he did what he thought he needed to do to provide for his family.”

Lay had made similar allegations in a mid-December speech to an upscale crowd of 500 at the Houston Forum, a business group that sponsors talks by politicians, diplomats and corporate executives.

“It’s like a trial horse -- they’re trying it out to see how it plays,” said Houston attorney Dick DeGuerin, who worked with Lay’s lead defense lawyer, Michael W. Ramsey, to win the 2003 acquittal of Robert Durst, an eccentric New York millionaire accused of killing and dismembering an acquaintance in Galveston, Texas.

“I’d say they probably need a better focus group than the downtown businessmen’s club,” he added, referring to the grudge that Houston-area residents appear to hold against Lay and Skilling. In pretrial questionnaires sent to hundreds of potential jurors, some 80% of respondents held negative opinions about the defendants, DeGuerin said.

The defense teams, which declined to be interviewed for this article, have repeatedly called for the trial to be moved to another city, but U.S. District Judge Sim Lake has rejected their entreaties, most recently in a ruling issued late Monday.

Lay’s main defense is that despite possessing a doctorate in economics, he was a true figurehead in the last few years of his tenure. Skilling, a former McKinsey & Co. consultant with a master’s of business administration degree from Harvard, took over as president and chief operating officer in early 1997 and basically ran the company from then until his surprise resignation Aug. 14, 2001, barely six months after he’d become chief executive.


Most of the charges against Lay stem from the period after Skilling resigned and Lay had to resume the CEO’s role. He is accused of lying on several occasions, including a Sept. 26, 2001, online conference when Lay assured Enron employees that “the third quarter is looking great. We will hit our numbers.” He said this, the government alleges, despite knowing that the company’s finances were unraveling.

Lay gave another hint of his strategy in the Houston Forum speech when he said he and Skilling had trusted Fastow, “and sadly -- tragically -- that trust turned out to be fatally misplaced.” Lay contended that Enron was in sound health and would have survived Fastow’s treachery except that its exposure spooked the company’s creditors and trading partners into a kind of “run on the bank” that ultimately led to the bankruptcy filing.

Skilling’s defense is trickier because he is accused of direct knowledge of suspect transactions, dating back to 1999. He also is accused of lying to Wall Street analysts and credit-reporting companies and filing false financial statements.

Skilling has not been as talkative as Lay, but in a series of recent interviews, he and his chief defense lawyer, Daniel M. Petrocelli of the Los Angeles firm O’Melveny & Myers, have contended that the government is trying to criminalize legitimate business decisions.

Skilling also will emphasize that he was advised by phalanxes of outside lawyers and auditors, who approved the accounting transactions in question.

“Not one lawyer has been charged,” Houston defense lawyer Joel M. Androphy noted. “If none of the lawyers committed criminal acts, then how can the clients who followed their advice be guilty?”


Still, the presence of the affable Causey as a potential witness is a problem for Lay and Skilling. He could support Fastow’s testimony and make a better impression on the jury, Androphy said.

The prosecution, led by Enron Task Force director Sean M. Berkowitz, has yet to include Causey on its witness list but may file an amended list before the trial begins. Causey also could be used as a rebuttal witness to counter statements by Lay or Skilling if they take the witness stand as expected, legal experts said.

Assistant U.S. Atty. John C. Hueston, one of the four Enron Task Force members who will try the case, declined to comment on the government’s strategy.

But recent court filings indicate that the government plans to focus more on the defendants’ allegedly false statements than on potentially stupefying accounting details. In that approach, prosecutors may have learned from the trial of five former employees of Enron Broadband Services, the company’s Internet division. That case ended in a mistrial last summer. Some experts criticized the government for burying jurors in a blizzard of technical testimony.

“Even with a lot of the accounting stuff out, they’ve still got to make the jury understand the underlying fraud, and that’s where I think Sean will shine,” said Chicago inspector general David Hoffman, a friend and former colleague of Berkowitz in the U.S. attorney’s office in Chicago.

Hoffman said Berkowitz once used purely circumstantial evidence to obtain the conviction of a Chicago podiatrist for murdering a former patient who was poised to testify against him in a Medicare fraud case.


Despite the lack of a weapon, an accomplice or an eyewitness, Berkowitz was able to pile detail upon detail to create a seamless narrative that convinced the jury, Hoffman said.

“The best trial lawyers have a gift for making things understandable,” he said, “and Sean has that.”



Who’s who in the Enron trial

Presiding judge

* U.S. District Judge Sim Lake

Regarded as tough on white-collar crime, this former environmental lawyer and Army veteran was appointed to the federal bench in 1988 by President Reagan. He gets high marks for fairness and efficiency from Houston-area lawyers. Lake, 61, attracted controversy two years ago for sentencing former Dynegy Inc. executive Jamie Olis to 24 years in prison for his role in an accounting fraud. An appeals panel later found the sentence -- derived from federal sentencing guidelines in force at the time -- unreasonable and threw it out.


* Kenneth L. Lay, former Enron chairman

The son of a Baptist minister who grew up in rural Missouri, Lay, 63, worked his way up to the chairmanship of Houston Natural Gas and oversaw its 1985 merger with the Nebraska-based pipeline company InterNorth. The merged firm was dubbed Enron. A Bush family friend and major Republican political donor -- Enron has contributed more than $550,000 to George W. Bush during his political career -- Lay and his wife, Linda, also gave millions to charitable causes, mostly in Houston.

* Jeffrey K. Skilling, former Enron chief executive

Skilling, 52, a Pittsburgh native with a Harvard MBA who joined Enron in 1990 from the elite consulting firm McKinsey & Co., is regarded as the force behind Enron’s transformation from a staid gas pipeline company into a high-tech energy-trading giant. Intense and sharp-tempered, Skilling became Enron’s chief executive in February 2001. His resignation a few months later shocked Wall Street and intensified scrutiny of Enron’s mounting financial woes.

Potential witnesses

* Andrew S. Fastow, former Enron chief financial officer

Skilling hired Fastow in 1990 and made him his protege. Fastow, now 44, orchestrated partnerships that did deals with Enron that prosecutors say enabled the firm to hide debts and boost reported profits. The partnerships also enriched Fastow personally. He faced 98 counts including fraud, conspiracy, insider trading and money laundering until he pleaded guilty to two counts of conspiracy in January 2004 and agreed to cooperate with prosecutors. He forfeited nearly $30 million in cash and property and agreed to serve the 10-year maximum prison sentence.


* Richard A. Causey, former Enron chief accounting officer

Originally a codefendant with Lay and Skilling, Causey, 46, pleaded guilty to securities fraud in late December and signed a cooperation agreement with the government. A former senior manager at the now-defunct Arthur Andersen accounting firm, Causey joined Enron in 1991. He was fired in February 2002, after Enron filed for bankruptcy protection.

* Sherron S. Watkins, former Enron vice president

Watkins, a Fastow subordinate, wrote a famous Aug. 15, 2001, memo to Lay warning that accounting irregularities at Enron could blow up in scandal. After resigning from Enron, she co-wrote “Power Failure: The Inside Story of the Collapse of Enron,” detailing her experiences at the company. Named one of Time magazine’s Persons of the Year for 2002, Watkins, 45, is a familiar face on the nation’s public lecture circuit.

* David B. Duncan, former chief outside auditor for Enron

Duncan was a 16-year veteran at Arthur Andersen when he became head of its Enron auditing team in 1997. Duncan pleaded guilty to obstruction of justice in April 2002 in connection with the shredding of Enron records. With Arthur Andersen’s jury conviction overturned by the U.S. Supreme Court and prosecutors declining to retry the case, Duncan’s plea and the charge against him were withdrawn in December. He appears on the defense’s witness list but could still be reindicted, so he is expected to invoke the 5th Amendment if called to testify about Enron’s accounting.

Defense lawyers

* Michael W. Ramsey, chief attorney for Lay

Ramsey, 65, may be best known for teaming up with fellow Houston defense lawyer Dick DeGuerin to win the 2003 acquittal of eccentric New York millionaire Robert Durst, accused of shooting and dismembering his elderly neighbor, dumping the body parts in Galveston Bay and later jumping bail. The lawyers said they won by getting the jury to focus on the moment of the killing -- which Durst said was in self-defense -- rather than on the incriminating aftermath.

* Daniel M. Petrocelli, chief attorney for Skilling

Enron is the first criminal case for Petrocelli, a 52-year-old civil litigation specialist at O’Melveny & Myers in Century City. In 1997 he won a $33.5-million verdict -- still largely unpaid -- for the family of murder victim Ron Goldman in a wrongful-death suit against O.J. Simpson. Petrocelli’s O’Melveny clients include Guess Inc. and Walt Disney Co., for which he won a decade-long legal battle over merchandising rights to Winnie the Pooh.


* Sean M. Berkowitz

The director of the Justice Department’s elite Enron Task Force joined the task force in 2003 from the U.S. attorney’s office in Chicago, where he was deputy chief of the criminal division and a veteran of many trials. A Chicago native and rabid Bears and Cubs fan, Berkowitz, 38, graduated first in his class at Tulane University and went on to Harvard Law School. Friends say he is smart and funny and connects well with juries.


* Kathryn H. Ruemmler

A former associate counsel in the Clinton White House and assistant U.S. attorney in Washington, Ruemmler, 34, joined the task force in September 2003. Ruemmler was among the trio of prosecutors who won convictions in November 2004 of four former Merrill Lynch & Co. executives and a former mid-level Enron executive for participating in a scam to disguise a loan as a sale so that Enron could post bogus profits.

* John C. Hueston

A federal prosecutor in Orange County, Hueston, 41, joined the task force in January 2004. His prosecutions include a $20-million fraud scheme in which the former finance chief of Anaheim-based computer luggage maker Targus Group International pleaded guilty to 15 counts of wire fraud. Before he joined the Justice Department, Hueston was in private practice at O’Melveny & Myers, the same law firm representing Skilling.

Sources: Times research, Associated Press