Enron Corp. founder Kenneth Lay and former CEO Jeffrey Skilling never broke the law, never stole any money and never lied to the public about hiding billions of dollars in losses, defense attorneys told jurors Tuesday in opening statements. However, the prosecution claimed the opposite is true, supported by actual statements and eyewitnesses, which demonstrate how the ex-executives attempted to deceive the public in the months preceding Enron’s implosion.

On the second day of the trial against Enron’s former top executives, U.S. District Judge Sim Lake in Houston again held to a tight schedule, allowing prosecutors two hours and each defense team two hours to present opening statements. Assistant U.S. Attorney John Hueston was first, using his time to contrast Lay’s and Skilling’s words with reality.

“This is a simple case,” Hueston said. “It is not about accounting. It is about lies and choices.” Lay and Skilling “chose to lie.”

Jurors were shown a presentation Skilling made to employees in March 2001 in Portland, OR to discuss Enron Broadband Services (EBS), a relatively new unit at the time.

“We have got to get the cost structure down,” Skilling said to employees on the tape. “The market is in absolute meltdown. The whole revenue opportunity we saw in this marketplace is gone or shrunk significantly.” He added, “We’re going to be redeploying about 240 people in EBS out of EBS. I know this is a downer. This is obviously not great.” The glut of bandwidth in the market at the time made it “an unbelievably bad macro environment, particularly in the broadband business. There’s going to be a couple of rough years… I’ve never seen anything like this. Revenues are gone. It’s bad.”

However, eight days later, Skilling held a conference call with financial analysts. In the broadcast call, Skilling said, “EBS is coming along just fine. I’m pretty optimistic about it. We are moving some people around inside EBS. This is very good news. I’m feeling very good about the position of bandwidth right now…EBS is looking good.” NGI, which covered the conference call in March 2001, reported Skilling was predicting the broadband business would have 400-500 transactions in 2001, which would be “ahead of the plan. We expect it to do good business for us,” he said (see Daily GPI, March 26, 2001).

There are 31 criminal counts against Skilling, several related to fraud that prosecutors allege was committed on financial statements for Enron’s 1999 Form 10K, 2000 Form 10K and quarterly financial statements beginning with 1Q2000 10Q through 3Q2000 10Q. He also is accused of committing fraud in statements he made during a Jan. 25, 2001 analyst conference in Houston, which NGI covered (see Daily GPI, Jan. 26, 2001).

Hueston also focused on Skilling’s statements regarding how he came to sell some Enron shares in early September 2001. According to Skilling, he tried to sell 500,000 Enron shares Sept. 12, 2001, the day after terrorists attacked the country. In an exchange with the Securities and Exchange Commission, Skilling said he “agonized” over the decision because of the terrorist attacks. But Hueston played a tape of a conversation Skilling had with a broker on Sept. 6, 2001, in which he said he wanted to sell 200,000 shares of company stock.

“You want to sell Enron?” the broker asked. “Yes,” said Skilling. Because Skilling was no longer an Enron officer, the broker said he would require a letter to verify the information before the transaction was completed. Because of the required letter, the sale was postponed until Sept. 12, 2001.

In his attack on Lay’s credibility, Hueston zeroed in on statements by the former chairman, who resumed the CEO role when Skilling resigned in mid-August 2001. The charges against Lay relate to the months following Skilling’s resignation, specifically statements made to employees, analysts and ratings agencies between Sept. 26, 2001 and Nov. 12, 2001.

Enron declared bankruptcy in early December 2001, but in the weeks preceding the filing, Lay made several public statements concerning how well he thought the company was doing. “The continued excellent prospects in these businesses and Enron’s leading market position make us very confident in our strong earnings outlook,” Lay stated during Enron’s 3Q2001 earnings call, which NGI covered (see Daily GPI, Oct. 17, 2001). Hueston said Lay falsely promised analysts and investors that Enron was pulling itself out of trouble in later analyst calls (see Daily GPI, Oct. 24, 2001; Nov. 12, 2001; Nov. 13, 2001; Nov. 15, 2001).

And within days of the company’s bankruptcy filing, “Lay maxed out his line of credit at Enron and paid off his home mortgage,” Hueston said. Lay never repaid the money to Enron, according to the prosecution.

Skilling’s lead attorney, Daniel Petrocelli, said his client never took part in or knew of a conspiracy at the company. “”This is not a case of hear no evil and see no evil,” said Petrocelli. “This is a case of there was no evil.” After he resigned in August 2001, Petrocelli said Skilling offered to come back to help, and he was even planning to commit his entire savings of $60-70 million to help revive the company. Skilling never officially offered Enron any money, but Petrocelli said his desire to do it showed how much he was committed to the company.

Skilling is expected to testify in his defense, said Petrocelli. “I’m committing to you right now that this man will take the witness stand… You could not keep him off that witness stand…He’s going to tell you in his own words whether he did any of those things. He’s going to tell you how much he loved that company.” Skilling “never broke the law. He didn’t lie. He didn’t cheat. He didn’t steal…Mr. Skilling did not steal one nickel.”

Petrocelli said except for former CFO Andrew Fastow and some others who stole from the company, Enron was a healthy company. “Enron was no house of cards…It was a wonderful company, a shining star.”

Mike Ramsey, Lay’s lead attorney, told jurors, “Ken Lay has, does and will continue to accept responsibility for the bankruptcy of Enron. He was the man in control.” But, Ramsey said, “failure is not a crime. Bankruptcy is not a crime. If it were, we’d have to turn Oklahoma back into a penal colony because there would be so many people we’d have to lock up.” Even though Lay is accused of becoming wealthy from stock sales while telling others to buy Enron stock, Ramsey said his client did not sell stock when Enron was in its most dire straits except when he was “compelled” to do so.

The jury, seated on Monday, is predominantly white, with two Hispanics and one Asian American. Nearly all of the jurors hold college degrees or have attended some college classes, and some have masters degrees. All of the jurors are employed outside of the home; two are self employed, three work in education and three work in the energy industry. Two other jurors hold jobs in accounting-related fields.

The first witness expected to testify Wednesday is Mark Koenig, former head of investor relations for Enron. Koenig has pleaded guilty to one count of aiding and abetting securities fraud. He also has a cooperation agreement with prosecutors. Others expected to testify for the prosecution in the coming weeks include former CFO Fastow, considered the star witness. Fastow has pleaded guilty to two crimes and he faces a 10-year prison sentence; he has been cooperating with the Enron Task Force. Some of the other 15 Enron executives who have pleaded guilty to crimes also are expected to testify.

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