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Two Stories Emerge in Opening Act Of Former Enron Executives... Trial

By Alexei Barrionuevo


On the opening day of the much-anticipated trial of Kenneth L. Lay and Jeffrey K. Skilling, lawyers for the government and the defense on Tuesday told a tale of two Enrons, portraying starkly different versions of why the energy company collapsed in late 2001.

That Enron blazed a path to the summit of the energy world was not in dispute. In the 1990s, it was a Wall Street darling, the pride of an energy city and the creator of a new industry that bought and sold natural gas, electricity and anything else its ambitious employees could dream up. But since its bankruptcy in late 2001, Enron has come to symbolize the corporate malfeasance that infected so many American corporations in the 1990s.

After six hours of opening statements, it was clear that Enron’s sudden failure — and the reasons behind it — were as much on trial in federal court here as Skilling and Lay.

In its statement, the government painted a picture of a company whose stunning rise in profits was accounting “hocus pocus.” It said that two of Enron’s trumpeted businesses were in bad shape and that its chief executives chose to lie about the company’s true condition to the investing public out of personal greed. In the end, the government said, the comments of Skilling and Lay helped fuel a crisis of confidence in the market that led to its demise.

“This is a simple case,” John Hueston, an assistant U.S. attorney, told the jury of eight women and four men. “It is not about accounting. It is about lies and choices.” Skilling and Lay, Hueston later added, “lied to investors in the final darkening months of Enron.”

Hueston, who spoke for 90 minutes on Tuesday, said the government would focus its case not on the Byzantine accounting that many have attributed to the criminal activity inside Enron, but instead on the purportedly misleading statements that Skilling and Lay gave to investors in 2000 and 2001 — lies, defense attorneys said, that hurt the company and gave the two chief executives insider knowledge about when to sell Enron stock.

The defense countered with its own portrait of a pioneering company built by Skilling, a former star management consultant, and Lay, a poor Missouri farm boy, that grew rapidly through risk-taking. What ultimately killed Enron, the defense said, was a “death spiral” that began when the market panicked and creditors pulled their support for Enron’s trading operation.

“Ken Lay has, does and will continue to accept responsibility for the fall of Enron,” said Michael Ramsey, Lay’s lead lawyer. “He was the man at the controls. But failure is not a crime.”

Ramsey and Daniel Petrocelli, Skilling’s lead lawyer, vowed to attack the government’s case in the trial by defending the allegedly fraudulent accounting that the government now says it will not focus on. But Lay’s lawyer also laid out a case that will blame a host of outsiders, including short-sellers and The Wall Street Journal, and Enron’s own over-reliance on trading to produce profits for stoking the crisis of confidence that led to the company’s rapid descent to the largest bankruptcy filing in history at the time.