How the mighty fell in Enron

Ken Lay

UNITED STATES - The bosses of Enron, the energy company whose collapse came to define an era of corporate excess, face the rest of their lives behind bars after a jury decided that fraud at the company went right to the top.

Former chairman Kenneth Lay and chief executive Jeffrey Skilling perpetrated the lie that Enron was a healthy, growing company, when in fact it was unravelling. They then hid the fact through a web of complex financial deals.

The verdict is the denouement of a corporate scandal that shocked America and changed the way businesses would have to be run.

It sealed the humiliation of Kenneth Lay, friend and adviser to President George Bush, and a man who built Enron into the seventh-largest corporation in America only to see it crumble under hidden debts.

Lay was found guilty on six counts of fraud and conspiracy. Skilling was convicted on 19 counts of fraud, conspiracy and insider dealing.

"God's got another plan right now," Lay could be heard telling each of his five children and other family members.

About an hour after the verdict, Lay, 64, gathered his group of supporters in a corner of the nearly empty courtroom to hold hands in a circle and pray, led by a pastor from the Baptist church he has long attended.

The jury of four women and eight men took just five days to decide that Skilling drove his subordinates to commit fraud in order to inflate Enron's profits, while Lay deliberately turned a blind eye.

Skilling also indulged in insider dealing when he sold half his stake in Enron 10 weeks before its bankruptcy at a time when employee shareholders were barred from moving pensions and savings into other stocks.

Daniel Petrocelli, Skilling's lawyer, said: "We will continue to fight the good fight. We will have a full and vigorous appeal."

Skilling and Lay had claimed that Enron was a basically healthy company until a conspiracy of Wall Street Journal reporters and hedge funds triggered a crisis of confidence, causing a "classic run on the bank". Jurors did not buy it. Crowds gathered at the courthouse in Houston, Texas, to catch a glimpse of Lay, once one of the city's best-loved grandees, reduced to an icon of corporate greed. Defence lawyers had argued the men could not get a fair trial in Houston, where thousands of Enron employees lost their livelihoods and their pensions when the company went under in 2001. After the verdict, jurors said Lay's arrogant and frequently testy demeanour on the stand made them question his character.

Prosecutors seized on Lay's comment under cross-examination that "rules are important, but you should not be a slave to rules, either", as an example of the out-of-control corporate culture at Enron, which prized a soaring share price over all ethical business standard.

Skilling, by contrast, had put on a humble performance on the witness stand that belied his reputation for arrogance and rage. He was found not guilty on nine minor counts of insider trading. Lay was found guilty on all the counts, plus a further four decided by Judge Sim Lake, who decided he had also broken the terms of personal bank loans. The two men will be sentenced on September 11.

Paul McNulty, assistant attorney-general, described the verdict as a tremendous win for the Justice Department: "The message is that our criminal laws will be enforced just as vigorously against corporate executives as they are against street criminals. No one, including directors of Fortune 500 companies, is above the law."

The result vindicated the federal Enron taskforce, which had pursued the company for four years and had been accused of bullying lower-ranking Enron officers into guilty pleas, forcing them to choose between years of costly legal battles and agreeing to testify against their bosses.

Andrew Fastow, Enron's former chief financial officer, agreed to a 10-year jail term and told the court how Skilling had told him to "squeeze as much juice as you can" out of the unpublicised side deals that were propping up earnings.

Another star prosecution witness was Sherron Watkins, whose memo to Lay in August 2001 had warned him that Enron's accounting practices could be illegal. After the verdict she said that if Lay had taken her allegations seriously he might have averted not just his indictment, but perhaps Enron's collapse: "Leadership also entails a lot of responsibility and people will be accountable for their actions - or their lack thereof."

The key players

Kenneth Lay, 64: The Chairman

Ambitious son of a Baptist minister, he became one of the United States' highest-paid directors at Enron's peak. He had grown the company from a small pipelines business through a series of acquisitions. His avuncular manner and role as cheerleader for Texan business initially shielded his reputation after the collapse, but his refusal to testify at Senate hearings lost him sympathy. He maintains a website protesting his innocence.

Sherron Watkins, 46: The Whistleblower

As a vice-president of the finance department, her memo to Lay in August 2001 asked: "Has Enron become a risky place to work?" and warned the company "could implode in a wave of accounting scandals". As the first person to draw attention to the shaky Enron, she was named Time's Woman of the Year and has a new career as a writer and speaker on good corporate governance.

Jeffrey Skilling, 52: The Chief Executive

Nerd and a "former loner" Skilling did more than anyone to foster Enron's testosterone-fuelled culture. Prone to outbursts against subordinates and for being one of "the smartest guys in the room". With that came huge arrogance. He got into Harvard and was in the top 5 per cent. His 2001 resignation was the first outward sign all was not well.

Andrew Fastow, 44: The Chief Financial Officer

Accounting wizard whose plea bargain was the most important breakthrough for the Justice Department. Masterminded transactions that kept profits high even when there was little cash. Infamous because his deception meant his wife went to jail for a year because she told the taxman the money was a gift. He agreed to serve 10 years for fraud, but his appearance for the prosecution was judged a risk. However, he implicated his bosses.

- INDEPENDENT, additional reporting REUTERS