Former Enron chiefs convicted of conspiracy and fraud
Former Enron Corp chiefs Kenneth Lay and Jeffrey Skilling were convicted today of conspiracy and securities and wire fraud in one of the biggest business scandals in US history.
The verdict put the blame for the 2001 demise of the high-profile energy trader, once the nation’s seventh-largest company, squarely on its top two executives. It came on the sixth day of deliberations following a federal criminal trial in Houston, Texas, that lasted nearly four months.
Lay was also convicted of bank fraud and making false statements to banks in a separate, non-jury trial before US District Judge Sim Lake related to Lay’s personal finances.
The conspiracy conviction was a major win for the government, serving almost as a bookend to an era that has seen prosecutors win convictions against executives from WorldCom Inc to Adelphia Communications Corp and homemaking guru Martha Stewart. The public outrage over the string of corporate scandals led Congress to pass the Sarbanes-Oxley Act, designed to make company executives more accountable.
Enron’s collapse alone took with it more than 60 billion dollars (£32 billion) in market value, almost 2.1 billion dollars (£1.1 billion) in pension plans and 5,600 jobs.
“The jury’s verdicts help to close a notorious chapter in the history of America’s publicly-traded companies” said Rep Michael Oxley of Ohio, co-author of the Sarbanes-Oxley legislation. “Appeals aside, the end of the trial will mark the end of a dark era.”
Enron founder Lay was convicted on all six counts against him in the corporate trial. Former chief executive Skilling was convicted on 19 of the 28 counts, including one count of insider trading, and acquitted on the remaining nine.
Judge Lake set sentencing for September 11.
Lay’s charges carry a maximum penalty in prison of 45 years for the corporate trial and 120 years in the personal banking trial. Skilling’s charges carry a maximum penalty of 185 years in prison.
The sentencing will come five years almost to the day after Skilling sold 500,000 shares of Enron stock for 15.5 million (£8.3 million), for which he was convicted of insider trading.
As Judge Lake read the verdict from the bench, Lay tossed his head at hearing the first “guilty” on the conspiracy count. He clutched his wife’s hand as he heard that word over and over again.
Lay sat with his wife Linda; his daughter, Elizabeth Vittor, a member of his defence team; and Linda Lay’s daughter, Robyn. As Lay clutched Linda Lay’s hand, the three women leaned forward and began to sob quietly.
After Lake left the courtroom, Lay’s family and some friends gathered around him as the ex-chairman, red-faced and fighting back tears, hugged them and thanked them for their support.
Skilling, sitting with his brother, Mark, showed no emotion when the verdict was read.
“Obviously, I’m disappointed,” Skilling told reporters outside the courthouse. “But that’s the way the system works.”
“We’re going to stand behind him,” his lawyer, Daniel Petrocelli, said. “As I told him, we’ve just begun to fight.”
Skilling’s 5 million (£2.7 million) bond, which restricts him to the continental US, remains in effect. Lay, who surrendered his passport, posted a 5 million bond secured with family-owned properties at a hearing following the verdict.
The Enron founder was also ordered to stay in the Southern District of Texas or Colorado, avoid contact with any victim of the offence charged, report to court officials regularly and not to own a gun or use alcohol excessively or drugs.
Asked if he understood the conditions Lay said: “I do, Your Honour.”
Jurors, through their verdict, found that both men had repeatedly lied to cover a vast web of unsustainable accounting tricks and failing ventures at Enron.
The panel rejected Skilling’s insistence that no fraud occurred at Enron other than that committed by a few executives skimming millions in secret side deals, and that bad press and poor market confidence combined to sink the company.
The government’s victory caps a 4 1/2 year investigation that produced 16 guilty pleas from former Enron executives, including former chief financial officer Andrew Fastow and former chief accounting officer Richard Causey.
All are awaiting sentencing later this year except for two, who have either finished or are still serving prison terms.
“You can’t lie to shareholders, you can’t put yourselves in front of your employees’ interests. No matter how rich and powerful you are, you have to play by the rules,” prosecutor Sean Berkowitz told reporters outside the courthouse.
He expressed sympathy for the Enron employees who lost their life savings when the company collapsed.
“Nothing that happened today is going to bring that back for them ... What we do hope is that today’s verdict lets them know that the government will not let corporate leaders violate their trust and get away with it.”
