SOMEONE had left the courtroom microphone on, so Ken Lay’s words were caught as he stood waiting for the verdict in the corporate-crime trial of a generation. He turned to his lawyer Michael Ramsey and asked if his wife Linda could stand next to him for the verdict. Witnesses said Ramsey testily said no. “It’s as much her life as it is mine,” said Lay.
Minutes later, at 11am Houston time, the jury filed in. Witnesses said they didn’t look at Lay, the founder of the collapsed energy giant Enron. Nor would they catch the eye of Lay’s co-defendant and Enron’s former chief executive Jeffrey Skilling. Such signals are usually a bad sign for defendants and so it proved for Lay and Skilling.
It had taken five years of investigation and 16 weeks of testimony to bring the trial of the two Enron executives to a conclusion. It took the jury less than six days to find both guilty of crimes that could mean they will spend the rest of their lives behind bars.
They will be sentenced on September 11, an ominous date that marks the fifth anniversary of the terrorist attacks on America in 2001 — attacks that triggered a market crash that uncovered the sludgy bottom beneath the frothy share prices of the millennial stock-market bubble.
In the collapse that followed many companies once seen as icons of the “new economy” were brought down. Financially, Enron’s demise was eclipsed by the fall of the telecoms giant WorldCom, now the world’s biggest bankruptcy case. WorldCom’s founder, 64-year-old Bernard Ebbers, is now appealing against a 25-year jail sentence.
WorldCom may have been a larger collapse, but it was Enron that became the symbol of the age’s excess.
Opaque and arrogant, the company that had started as a simple energy firm had by 2001 become a monster dealing in ever more complicated investment vehicles, its sky-high share price backed up by esoteric accounting.
Enron flaunted its ties with President George Bush’s family, its executives boasted they were the smartest on the planet and its traders were caught bragging as they triggered an energy crisis in California.
The company’s collapse cost thousands of jobs and devastated the pensions and savings of employees and many more dependants. This was a case that the government could not afford to lose.
Outside the courthouse, Sean Berkowitz, director of the Justice Department’s Enron task force, said: “The jury has spoken and they have sent an unmistakable message to boardrooms across the country that you can’t lie to shareholders, you can’t put yourself in front of your employees’ interests, and no matter how rich and powerful you are, you have to play by the rules.”
Alex Gibney, director of The Smartest Guys in the Room, an Oscar-nominated documentary film about Enron, said: “Justice has been done. The prosecution did a great job of showing that Skilling and Lay had created an illusion.”
Many had feared the enormously complex case would collapse. There was no “smoking gun” e-mail that revealed a deliberate fraud in black and white. But the prosecution convinced the jury that Lay and Skilling must have known their company was a house of cards as they sold shares while encouraging others to buy.
Nell Minnow of The Corporate Library, a shareholder-rights group, said she was “delighted” by the verdict. “I don’t take anything for granted, so I am relieved and encouraged,” she said. “I am also happy that this will help to keep other executives ‘scared straight’ by reminding them that we will hold top executives accountable for fraud.
“In a way, this story is almost operatic in its themes, especially hubris. It’s a good reminder that nobody is too rich or powerful to escape justice.”
Enron had once dominated Houston, bringing the city huge wealth. Lay and Skilling had been local heroes.
“People here were very angry. Almost everyone you talked to knew someone who was affected by the collapse,” said Jacob Zamansky, a lawyer at Zamansky Associates who has been following the trial.
For many the big surprise of the trial came in Skilling and Lay’s testimony. The fiery Skilling had been expected to lose his temper on the stand, but he remained professional and calm — displaying his sharp mind and a talent for explaining complex matters in simple terms.
But no matter how plausible a witness he was, the sheer weight of documentation with Skilling’s name on it made it hard for the jury to believe that Skilling did not know what was really going on. Enron also lent money to Photofete, a firm owned by Skilling’s former girlfriend. Testimony showed he had covered up the size of the payment and ignored his own ethical code. It was hardly criminal behaviour, but it added to the sense that Skilling played by his own rules.
Lay, by contrast, was expected to shower the jury with his avuncular charm. Instead he came across as tetchy and bitter, even arguing with his own lawyers.
His most damaging witness was Sherron Watkins, the Enron whistleblower who warned Lay that there were serious problems at the company ahead of its collapse. In court Lay’s team attacked Watkins, accusing her of profiting from Enron’s downfall. Speaking on cable news channel CNBC after the trial, Watkins said: “I really wish Ken Lay would have taken me seriously.”
Zamansky said he was surprised that either man appeared on the stand. In many cases defence lawyers decide not to let their clients testify for fear that they may make the situation worse.
“Juries are ordinary people and they respect common sense. Neither Lay nor Skilling had a commonsense argument for what went wrong at Enron,” he said.
Perhaps the most astonishing factor in their defence was the audacity of their argument. Many disgraced corporate bosses have argued that they did not know what was going on in their own companies. They were the “big picture” guys — the little people took care of the numbers.
Neither Skilling nor Lay argued that they did not know what was going on at Enron. Rather, they claimed, Enron’s collapse was all about perception and reality. Enron had been a great company destroyed not by their crooked accounting but by “a run on the market” triggered by a media witch-hunt against the company. It was a bold argument from a company that assiduously courted the media during its rise and was not above bullying reporters and analysts that did not follow its line.
Zamansky described the defence as “flawed and foolish”. “It was obvious that nobody believed them,” he said. In a city where a lot of people lost their jobs, savings and pensions, arguing that nothing was wrong at Enron was never likely to win over the jury.
Even after the trial the two men maintained their innocence. Asked if he would ever feel responsible for Enron’s collapse, Skilling gave a firm “No”. Lay was even clearer: “I firmly believe I’m innocent of the charges against me,” he said. “We believe that God in fact is in control and, indeed, he does work all things for good for those who love the Lord.”
“It was classic Enron,” said Gibney. “They didn’t say ‘We didn’t know what was going on’. They said ‘Enron was the greatest company in the world’. Even after all that happened, they had the balls to say that. I don’t admire it but it does take guts.”
