Will Jurors Send Enron's Lay, Skilling to Prison?

HOUSTON, May 17, 2006 — -- Fifteen weeks after they began hearing testimony, the jury in the Enron fraud trial finally gets down to deliberating today -- 4½ years after Enron collapsed in a spectacular implosion of accounting scandals.

Enron founder Ken Lay and CEO Jeff Skilling are charged with intentionally lying about the health of their company while dumping half a billion dollars of their own stock, charges that both vehemently deny.

Their defense attorneys were passionate in closing arguments. Skilling's attorney, Daniel Petrocelli, implored the jury to look at the facts.

"This was all manufactured after the fact. Because it is Enron. After all, somebody has to pay. It's Enron," he said.

Lay defense attorney Bruce Collins told jurors his client accepts full responsibility for Enron's failure, but he says, "Ken Lay committed no crimes."

Prosecutors, meanwhile, said the the jurors should ask themselves this: "Why did the defendants lie? The deception kept the story alive and the stock price up. When the stock price was high these men were on top of the world."

Enron was at one time the largest energy trader in the world. More than $60 billion in market value was lost when the company declared bankruptcy and unceremoniously sacked thousands of employees. It also froze its employees' 401(k) retirement programs for a time, and almost $2.1 billion in pensions were lost. Many workers found most of their life savings were wiped out, as Enron's stock plummeted from $90 a share to less than $1 a share in just weeks.

Charlie Prestwood is one of the former Enron employees waiting for the jury's verdict.

When he retired to his small rural home north of Houston after 33 years working in a power plant, he knew exactly what he had in his nest egg. "$1,310,570 and some few cents. That was my life savings," Prestwood said.

Today that nest egg is gone, and, like thousands of other former Enron employees, he is still struggling to recover from his loss. He says at his age, 67, he won't live long enough to ever recoup that money. Today he gets by on his Social Security checks, watches every penny he spends, and prays nothing will go wrong with his house, his truck or his health.

Has anything changed for investors and employees since the collapse of Enron?

Not much, according to Mary Bain Pearson, who also lost money when Enron collapsed. She says she learned an expensive lesson and now does her own research.

"I just think it is up to the individual," Pearson said. "They are the ones who pay the price if you lose all your money like I did."

Bill Mann of the The Motley Fool, a financial newsletter, agrees.

"Unfortunately, most people still think harder about their next refrigerator than the next stock they're going to buy," Mann said. "To my mind, that is one of those things that has a more obvious impact on your future."

'Stakes Are Huge'

Much of the prosecution's case hinged on the testimony of former Enron Chief Financial Officer Andrew Fastow.

Fastow has pleaded guilty to two charges of conspiracy in exchange for his testimony against Lay and Skilling. He will be sentenced to 10 years in prison on June 13.

The Lay and Skilling defense teams have spent a staggering $30 million preparing for this trial. Phil Hilder, a former federal prosecutor, knows what the government is up against.

"The stakes are huge, the Enron task force will be defined by a victory or a defeat in this case, and a lot rests on them," Hilder said. "I think the prosecution has a formidable task; they are going to have to synthesize a very complex tale and whittle it down to simple things that a jury can understand. Did they, in fact, mislead the investing public as to the well-being of Enron?"

Making the jury understand is a huge hurdle for the defense. Petrocelli says it really is very simple: "We are saying there was no conspiracy, there was no fraud, this just didn't happen."

The challenge, according to Petrocelli, is the public presumption of guilt.

"Mr. Skilling has been declared guilty by the public without ever having a shred of evidence declared against him and we are going to do our very best to destroy all the myths about what happened at Enron over the last four or five years and about Jeff Skilling," he said.

An Angry City

Rusty Hardin understands the challenge. He represented the accounting firm of Arthur Andersen when it was indicted by the government in the collapse of Enron. Arthur Anderson was convicted, but that conviction was overturned by the Supreme Court. But it was too late; Arthur Andersen is no more. He doesn't believe Lay and Skilling can get a fair trial in Houston.

"I just know this city was tremendously scarred and seared by the consequences of the fall of Enron," Hardin said. "I know as far back as four years ago when I was defending Arthur Andersen, when jurors were asked about Enron they would literally shake they were so angry in giving their answers."

Cathy Peterson is still angry. Her husband, Bill, was an Enron employee who was being treated for cancer when Enron declared bankruptcy. When he lost his job, he lost his health insurance, which was a matter of life and death for him.

"We really suffered. We suffered financially and emotionally," Peterson said. "We sold our home, our second car, anything we could live without, we did without. Cell phones, newspapers, I learned to buy the cheapest food we could buy. We moved in with my twin sister. My husband was not allowed the dignity of dying in his own home."

No one expects a quick verdict. Skilling faces 28 charges; Lay, six. How long will the jury deliberate? Who knows? But do the math. There are 34 complicated charges to deliberate, and if the jury devotes just one hour to each charge, that's three long days.

Once the jury gets this case, Lay's second trial will begin. He is charged with one count of bank fraud and three counts of making false statements to banks. That case will be a bench trial before U.S. District Judge Judge Sim Lake. Lay is accused of obtaining $75 million in loans from three banks, then backing down from promises not to use the money to carry or buy stock on margin.