Key Enron trial nears, but climate has changed
Enron is America's best-known corporate scandal, the first in a string of high-profile debacles that rocked Wall Street, wiped out the retirement savings of thousands of workers, and sparked the most sweeping changes in business regulation since the Depression.
So when the company's two powerful leaders go on trial here Monday, the proceedings are likely to attract inordinate attention.
But the trial comes at a time when business and industry groups are mounting a campaign to roll back some of the reforms that the Enron scandal inaugurated. Thus, the lessons of the nation's second-biggest bankruptcy remain in flux and may be determined, in part, by the outcome of the legal drama set to begin.
"There are those who are trying to roll back [a key section] of the law less than two years after it took effect," says Jacob Zamansky, a securities fraud lawyer in New York who will attend the trial. "But these rules were put in place to protect us after Enron."
For a scandal that brought the language of bizarre accounting practices into America's living rooms (remember "off balance sheet partnerships?"), courtroom drama may be in short supply.
"I think people are going to be surprised at how boring most parts of the trial will be," says Nancy Rapoport, a bankruptcy expert and dean of the University of Houston law school. "Watching grass grow and paint dry will have more excitement. There will be some good stuff, but the good stuff will be punctuated by a lot of monotonous stuff."
Still, the details of the lives and business practices of the two men on trial - Enron founder Kenneth Lay and former chief executive Jeffrey Skilling - could provide an inside view of how the nation's second-biggest bankruptcy unfolded.
"We are going to be hearing for the first time what was happening at the highest levels of the corporation, what was happening inside the boardrooms, at all those expensive dinners and exotic trips all over the world," says Thomas Ajamie, a Houston securities fraud lawyer who has followed the case. "We are going to be learning how these high rollers lived and what they did with their shareholders' money."
To date, 16 former Enron employees have pleaded guilty and five have been convicted by jury. But Monday's trial is considered the main event - the real test of just how deep the deception went.
After the jury is selected by the judge, it is expected to last four months and include many key witnesses, such as Enron's former chief financial officer, Andrew Fastow, its former treasurer, Ben Glisan Jr., and possibly Richard Causey, the former chief accounting officer who pleaded guilty in December. Messrs. Lay and Skilling have also said they will testify.
Both sides have some of the best attorneys in America, court-watchers say. But because the accounting practices were so convoluted and cryptic even to those investigating the company's collapse, explaining it to a jury is going to be a challenge, experts say. The first criminal case of the Enron debacle, involving the suspicious purchase of a Nigerian barge, is a good example.
"The government better go to school and learn how confusing all that was for the jury," says Gerald Treece, assistant dean at the South Texas College of Law in Houston. Although five of the six defendants were ultimately convicted (four of them with Merrill Lynch), the case was widely seen as confusing. And it was child's play compared with the upcoming Enron case, he adds.
"If that was math, this is algebra, and the government is going to lose this case if it doesn't make it simple," he says. "I can assure you that the defense attorneys are going to be creating confusion, arguing that the people at the top didn't know about the misdeeds."
In fact, both defendants will argue that they did nothing wrong and did not know of any illegal activity at the company.
Lay has been charged with seven counts, including securities fraud and wire fraud. Skilling has been charged with 31 counts, including securities fraud, wire fraud, making false statements to auditors, and insider trading.
As for the way they have handled themselves since the company collapsed, Lay and Skilling have "taken completely opposite approaches," says Philip Hilder, the lawyer who represents Sherron Watkins, Enron's internal whistleblower.
Lay, for instance, invoked the Fifth Amendment in front of Congress during initial hearings, but since his indictment has been very open with the public. Skilling testified defiantly in front of Congress, but has not spoken publicly since that time.
"At the end of the trial, we will see which tack worked - if either," says Mr. Hilder.
As for what has been learned in Enron's wake, there is growing debate. Some groups are saying that Congress went too far when it enacted the Sarbanes-Oxley Act, a major piece of accounting reform that requires CEOs to vouch for corporate earnings.
The US Chamber of Commerce, the largest business lobby group, has been campaigning aggressively for changes in the act's Section 404, which requires company auditors to thoroughly document their procedures. The chamber argues that the section is so cumbersome and costly that it is driving companies offshore.