HOUSTON: Enron was always the big fish. Sure, there was Martha Stewart, whose celebrity and pitch-perfect homemaking talents made a public spectacle of her trial and conviction for lying about a curiously timed stock trade.
And there was Bernard Ebbers, the folksy former chief executive of WorldCom Inc., who was convicted of presiding over an $11 billion accounting fraud, the biggest in the scandal-pocked years since the dot-com boom went bust.
But make no mistake: all along there was one company, and two men, that came to symbolise an era of corporate fraud in America.
The company was Enron Corp., and the men were Kenneth Lay and Jeffrey Skilling, its former CEOs.
For prosecutors, and perhaps for a public eager for someone to pay the price for the business scandals, Enron and Lay and Skilling loomed over all the rest. And on Thursday, they were snared: Lay and Skilling were convicted of federal fraud and conspiracy charges.
“Obviously, I’m disappointed. But that’s the way the system works,” said Skilling, who was convicted of 19 counts of conspiracy, securities fraud, lying to auditors and insider trading. Lay was convicted of conspiracy, wire fraud, securities fraud, bank fraud and lying to banks.
Enron’s rise was a remarkable story: an edgy energy trading company, the seventh-largest company in the US at one point. A glad-handing CEO — who was the toast of Houston and had the ear of President George W. Bush — pocketing hundreds of millions of dollars.
Its fall was just as remarkable, too: thousands of jobs and billions of investor dollars down the tubes.
Implode is precisely what Enron did. And in the age it came to define, Enron had some striking similarities to, and notable differences with, the other white-collar scandals that followed it.
As in the fraud cases involving WorldCom, cable giant Adelphia Communications Corp. and HealthSouth Corp., federal prosecutors worked slowly to wring guilty pleas from lower executives, then used those as leverage to win indictments against the bosses.
All four cases were demonstrations of the significant power prosecutors wield with cooperating witnesses, who must work — sometimes for hundreds of hours — to help the government build its case, or risk far lengthier prison terms.
“They treated this like a mob case, or a drug deal, where they get the captains first,” David Berg, a Houston civil litigator, said in an interview before the jury returned its verdict. “And they did a brilliant job of simplifying this case.”
In the Enron case, eight former executives with government deals testified against Lay and Skilling. Defence lawyers derided them — unsuccessfully, it turned out — as ‘shellacked’ and untrustworthy because of their incentive to help the prosecutors.
Lay and Skilling employed an interesting defence, arguing in the face of widespread public opinion that there was simply no widespread fraud at Enron — only lesser crimes by the former finance chief, bad press and market pressures that took it down.
It was a departure from what has been called the ‘Sgt. Schultz defence’, after the I-know-nothing German prisoner-of-war camp guard from the 1960s TV show Hogan’s Heroes. Other CEOs, most notably Ebbers and ex-HealthSouth chief Richard Scrushy, claimed that while there may have been fraud, they were unaware.
Federal jurors in New York did not buy it with Ebbers, who was convicted of fraud and sentenced to 25 years; he is appealing. Alabama federal jurors let Scrushy walk in the government’s highest-profile white-collar defeat.—AP
