Sucheta Dalal :What's at heart of Enron case accounting or 'lies and choices'?
Sucheta Dalal

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What's at heart of Enron case, accounting or 'lies and choices'?  

February 7, 2006

The trial of Jeffrey Skilling and Kenneth Lay, who are accused of participating in a conspiracy to defraud Enron and mislead investors about the true health of the company's businesses.


What's at heart of Enron case, accounting or 'lies and choices'? 

By Alexei Barrionuevo and Vikas Bajaj The New York Times


HOUSTON: The government and the defense in the criminal trial of the two central figures at Enron outlined widely different approaches to their cases during opening statements here on Tuesday, with the prosecutors eschewing arcane financial detail and the defense embracing it.


"This is a simple case," said John Hueston, a federal prosecutor. "It is not about accounting, it is about lies and choices."


In the first hours of statements in the trial of Enron's former chief executives, Kenneth Lay and Jeffrey Skilling, the government made it clear that it would not get bogged down in the kind of mundane details that, legal experts say, have cost prosecutors convictions in other recent high-profile white-collar criminal trials.


But a lawyer for Skilling countered that accounting was central to the case and would play a key role in the defense of the executive. "This place was infested with accountants and lawyers, so it is about accounting," the lawyer, Daniel Petrocelli said.


The role of accounting will not be the only distinction between the approach of the two sides to the case. Whereas Hueston described Enron as a "ticking time bomb" and said the executives had lied to investors and analysts about the true state of the company's finances, Petrocelli characterized Enron as a successful and healthy enterprise that was brought down by a "punishing drain on its liquidity. "This is not a case of hear no evil and see no evil," Petrocelli said. "This is a case of there was no evil."


The jury, consisting of eight women and four men, who were selected from a pool of almost 100 on Monday, listened attentively. The group includes three people who work in the oil and gas industry and a few in accounting.


The trial of Skilling and Lay, the two men most directly responsible for Enron's meteoric rise from a stodgy pipeline company into an energy-trading powerhouse, is the culmination of four years of investigation by the Enron Task Force into the company's bankruptcy filing in December 2001.


Lay and Skilling are accused of participating in a conspiracy to defraud Enron and mislead investors about the true health of the company's businesses.


Skilling, 52, is charged with 31 counts of conspiracy, fraud and insider trading. Lay, 63, is charged with seven counts of conspiracy and fraud.


The prosecution and two defense teams were each scheduled to have two hours to make their opening arguments Tuesday in a trial that is expected to last for four months.


Each side is expected to call dozens of witnesses; Lay and Skilling are also expected to testify in their own defense.


Hueston identified a couple of the key witnesses the government planned to call, many of whom are cooperating in plea deals and in exchange for reduced sentences. They include Andrew Fastow, Enron's former chief financial officer; Mark Koenig, who headed investor relations and is expected to be the lead witness for the government; Paula Rieker, his deputy; and David Delainey, who headed the company's retail energy business.


The government said the witnesses will recount how Lay and Skilling kept the public in the dark about the myriad financial problems at Enron. While they ignored warnings from subordinates that troubles at the company were mounting, Hueston said, the executives were taking home large compensation packages and seeing the value of their Enron shares soar. He noted that Lay's compensation totaled $220 million from 1999 to 2001, and Skilling netted $150 million in the same time.


"But inside the doors of Enron, something was terribly wrong," Hueston said.


He said the evidence would show that Skilling, for instance, knew when he left the company in mid-August in 2001 that Enron was in trouble but continued to assure investors that the energy company was doing fine. Hueston said Skilling sold 500,000 shares in Enron after the Sept. 11 terrorist attacks, up from the 200,000 shares he had tried to sell just a few months earlier.


Though in testimony given to the Securities and Exchange Commission, Skilling said he "absolutely agonized" over the sale, Hueston said a taped conversation between the executive and his broker would show that Skilling was lying.


Skilling's lawyer did not specifically address the stock sales but spent about half his opening statement rebutting the government's assertions.


"I can't tell you how happy Jeff Skilling is to be in sanctity of this courtroom," Petrocelli said. "He knows this is where the facts will finally be told."


Skilling's ex-wife, Sue, and three children from his marriage sat in the second row during the proceedings today.



-- Sucheta Dalal