CHICAGO – So much for the bold defense of Kenneth Lay and Jeffrey Skilling.
The pair was convicted Thursday by federal jurors who listened to both former Enron Corp. executives spin a tale from the witness stand about a truly great company that was sadly misunderstood.
From the start, legal observers questioned the strategy of promoting Enron as a “shining star,” since the rest of the world concluded long ago it had been misled about the one-time Houston energy giant.
Former insiders cooperating with the government swore under oath that the company had lost its moral bearings and manipulated its financial results to deceive a gullible public.
The outcome of the case, with Skilling and Lay facing long prison terms, is likely to encourage future corporate executives targeted in criminal investigations to adopt a lower-risk approach, some legal experts predict.
The convictions underscore the conventional wisdom among defense attorneys that testifying at trial is among the most perilous steps for any criminal defendant, even the polished and educated.
They also suggest that convincing a jury of a completely different story than the one advanced by the government is especially tough in complex corporate fraud.
The Enron defendants “felt they had to roll the dice on the “Big Sell,’ because the traditional defenses were going to be met with great skepticism,” said David Yellen, dean of the Loyola University law school in Chicago.
Merely saying, “We made mistakes, but they weren’t criminal,” or, “We didn’t know about the fraud,” would have been insufficient in this case, Yellen explained.
Yet by attempting to “shoot the moon” with their description of a wonderful company brought low by a “run on the bank” through no fault of theirs, the Enron defendants eroded some of their best defenses, said Samuel Buell, a former prosecutor on the government’s Enron Task Force now teaching at the University of Texas law school.
“That undermines the credibility of even the good stuff you’ve got for poking holes in the government’s case,” he said. “It was highly risky.”
The Enron prosecution was by no means a slam dunk for the Justice Department, despite public expectations that the former corporate leaders would be convicted. It lacked a blockbuster witness, or “smoking gun” evidence tying the defendants conclusively to the fraud.
Lay and Skilling were consistent in maintaining they not only did nothing wrong, but also almost everything right.
Apart from their decision to waive conflict-of-interest rules for their corrupt finance chief, Andrew Fastow, the pair aggressively defended their time at the top of the ill-fated company.
On direct examination, as they described Enron’s glory days, it almost seemed they wanted the poker-faced jurors to burst into applause. Then on cross-examination, Lay all but snarled at the prosecutor questioning him, while Skilling lurched between near-perfect recall of certain events and sudden amnesia about others.
The pair should have admitted more faults and errors, said Brian Wice, a Houston defense attorney who followed the trial. “You can’t come in with a stiff neck and say, “I’m perfect,”‘ he said. “For these guys, it not only was business, it was personal, and that’s a mistake. They wanted to be vindicated.”
Asked on the day the jury began its deliberations if his client sought redemption, not just acquittal, Lay’s lead attorney, Michael Ramsey, replied, “That’s very true. Very true.”
Daniel Petrocelli, who represented Skilling, said the defense needed to knock down the preconceptions of jurors steeped in years of adverse publicity about Enron.
Skilling sought redemption “only to the extent it was needed to unlock jurors’ minds,” Petrocelli said. “It’s not an ego thing. It’s really to undo these perceptions.”
The defendants’ campaign for absolution began immediately after Enron collapsed. Although Lay refused to testify before Congress, taking a pounding in grim silence, Skilling talked and talked.
He shared a witness table with Sherron Watkins, the Enron whistleblower who would testify against him and Lay at their criminal trial, presenting the “run on the bank” defense that became his most prominent theme.
That impulse to blame the victims for their lack of faith in the company carried through to the trial. Far from bringing down a thriving enterprise, the “run” on Enron revealed the house of cards it had become, prosecutors pointed out to the jury. Enron lacked the wherewithal to raise enough cash to keep its operations going, even long enough to sell it at a bargain price.
The defense was seeking to “defuse the notion that this was a business that was rotten to the core from start to finish,” said Buell. “Obviously, certain parts of the business were successful. That’s beside the point. They had to explain how the collapse of Enron happened. It didn’t work because the story was just implausible.”