Thursday, May 25, 2006

 

Enron's Lay and Skilling convicted










Enron's Lay and Skilling convicted
Thu May 25, 2006 1:42 PM ET

By Matt Daily and Dan Whitcomb

HOUSTON (Reuters) - Former Enron Corp. chief executives Ken Lay and Jeffrey Skilling were found guilty on Thursday of lying about their company's troubled finances in one of the biggest U.S. business scandals and could face years in prison.

The jury verdict in a trial that began on January 30 capped a four-year-long government effort to get those responsible for a corporate collapse into bankruptcy that cost investors billions of dollars, wiped out thousands of jobs and sent shockwaves through Wall Street and Washington.

Lay, 64, and Skilling, 52, who were once lauded as two of the world's top business leaders but later became poster boys for corporate deception, looked shaken when U.S. District Judge Sim Lake read the decision to a packed courtroom.

Skilling looked down as the verdict was read. Lay sighed heavily and shook his head, as his wife Linda grabbed his arm.

Afterward, Lay's family members swarmed around him, weeping. He was not crying as he tried to console them, saying, "God's got another plan right now."

Lay was convicted of all six counts of conspiracy and fraud and faces a maximum of 45 years in prison.

Skilling was found guilty of 19 counts of conspiracy, fraud, insider trading and making false statements which, combined, carry a maximum sentence of 185 years. He was not convicted of nine criminal counts.

In a separate trial for Lay, Judge Lake found him guilty of all four bank fraud charges for illegally using money from $75 million in personal loans to buy stock.

Each of those four charges carries a maximum of 30 years, but experts say he is unlikely to get a sentence of more than six months for each because he paid off the loans and the lenders suffered no economic damage.

Skilling will remain free on a $5 million bond, while Lake said Lay must post a $5 million bond and give up his passport to stay out of jail until sentencing, set for September 11.

Skilling attorney Daniel Petrocelli promised to fight the convictions.

"We will have a full and vigorous appeal," he told reporters.

"This is obviously a very difficult time for Mr. Skilling and his family. There is a lot of thinking to do about the next steps that we take but as I told him, we have just begun the fight," Petrocelli said.

Skilling was almost philosophical about the verdict as he spoke to reporters.

"I think we fought a good fight but some things work and some things don't," he said. "Obviously I am disappointed but that is the way the system works."

Lay attorney Mike Ramsey also promised an appeal and said, "The biggest issue is the venue issue," meaning the trial should not have been held in Houston, where Enron was based.

Enron, which at its height was the nation's seventh-largest company, collapsed in December 2001 into the biggest U.S. bankruptcy at the time amid disclosures it used off-the-books deals to hide billions of dollars in debt and inflate profits.

It also turned out that chief financial officer Andy Fastow had looted the company of $60 million while running the side deals.

Prosecutors charged that Lay and Skilling knew Enron's reports of booming profits were just financial trickery, but told the world all was well to keep the stock price up even as the Houston-based power trader slid toward its demise.

In testimony, Lay and Skilling said they painted a rosy picture of the company because they believed it was in great shape, not because they wanted to cover up problems.

Skilling suddenly resigned in August 2001 after just six months as chief executive officer and was replaced by board chairman Lay, who had been CEO before Skilling.

But the two men testified that Skilling left because he was burned out, not because of Enron's growing financial problems.

They blamed media coverage and Fastow's thievery for a financial crisis that sank the firm they built from a quiet pipeline business into an international trading powerhouse.

Jurors, who were in their sixth day of deliberations when they reached their verdict, said among the most important testimony came from former Enron treasurer Ben Glisan, who was already serving a five-year prison sentence for his part in the Enron collapse.

Like Fastow, he pointed the finger directly at Skilling and Lay, saying they knew Enron was crumbling and tried to hide it.

Prosecutors said the two men milked Enron for hundreds of million of dollars and lived lives of luxury while driving the company into a bankruptcy.

Lay took home $220 million in compensation from the sale of Enron shares from 1999 through 2001, while Skilling got $150 million, Assistant U.S. Attorney John Hueston said in opening arguments.

Lay used his and the company's money to gain political power by donating heavily to candidates, particularly Republicans and especially the Bush family.

He was the biggest donor to President George W. Bush, who before the Enron scandal referred to him warmly as "Kenny Boy."

Their convictions bring to 19 the number of Enron executives who pleaded guilty or have been found guilty of crimes.

Prosecutors built their case by slowly going up the chain of command to secure guilty pleas and cooperation from key players, several of whom testified that Lay and Skilling knowingly led Enron's giant scam.

In his testimony, Fastow tearfully told the jury of his misdeeds and said Skilling and Lay were deeply involved in what he described as a massive cover-up of Enron's troubled finances.

He has pleaded guilty to conspiracy in exchange for a 10-year jail sentence which he likely will begin serving soon.

Enron's demise raised questions about the quality of corporate oversight and was quickly followed by similar scandals at firms such as HealthSouth, WorldCom, Global Crossing and Adelphia.

Enron auditor Arthur Andersen was convicted of June 2002 of obstruction of justice for its role in the Enron saga. The U.S. Supreme Court overturned the conviction a year ago, but Anderson is now virtually out of business.

After Enron, the U.S. Congress scrambled to pass the Sarbanes-Oxley Act in 2002 toughening financial and auditing requirements for publicly-owned companies.

(Additional reporting by Jeff Franks and Eileen O'Grady)

Some executives implicated in other high-profile corporate scandals have also been convicted, while others have been acquitted. A list of executives follows:

** Samuel Waksal, former ImClone Systems Inc. chief executive, was sentenced in 2003 to seven years in prison after pleading guilty to criminal charges of insider trading. In 2004, he agreed to pay a $3 million fine to settle charges in the Martha Stewart insider trading case.

** Martha Stewart, celebrity homemaker and founder of Martha Stewart Living Omnimedia Inc., was sentenced in July 2004 to five months in prison and five months of house arrest, followed by two years probation, on charges she lied about the reasons for selling ImClone stock. After serving her sentence, her television career resumed.

** Frank Quattrone, former star investment banker for Credit Suisse First Boston, was sentenced in 2004 to 18 months in prison for obstructing probes into suspected kickbacks involving hot technology stock offerings during the 1990s. However, that conviction was thrown out on appeal due to erroneous jury instructions and Quattrone faces a possible new trial.

** Bernard Ebbers, former WorldCom Inc. CEO was found guilty in March, 2005 of orchestrating an $11 billion accounting scandal that drove the telecommunications company into bankruptcy. Ebbers was sentenced to 25 years in prison, but remains free as his case is appealed.

WorldCom filed for the largest-ever U.S. bankruptcy in July 2002. It emerged as MCI Inc., which was later purchased by Verizon Communications Inc.

** HealthSouth Corp. founder and former Chief Executive Richard Scrushy was acquitted in June 2005 on all counts concerning a $2.7 billion accounting scam. Scrushy was later sued by HealthSouth for $76 million in a case still outstanding and also faces charges by the Securities and Exchange Commission.

** L. Dennis Kozlowski, former Tyco International Ltd. chief executive, and finance chief Mark Swartz were found guilty on June 17 of 22 counts of grand larceny, conspiracy, fraud and falsifying business records. Both were sentenced to 8 1/3 to 25 years in prison.

** John Rigas, founder of cable operator Adelphia Communications Corp., was sentenced on June 20 to 15 years in federal prison for concealing loans and stealing money. His son, Timothy Rigas, Adelphia's former finance chief, was sentenced to 20 years in prison.


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