Testimony Ends in Enron Fraud Trial

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The New York Sun

HOUSTON (AP) – Testimony ended Monday in the federal fraud and conspiracy trial of Enron Corp. founder Kenneth Lay and former Chief Executive Jeffrey Skilling after attorneys on both sides cut short their witness lineups.

But a dozen hours of closing arguments in the premier criminal case to emerge from one of the biggest corporate scandals in U.S. history remain scheduled to start May 15. Jurors will get the rest of this week off while attorneys hone their final comments to the panel.

The defense teams expected to call five witnesses, but ditched two experts and rested their case Monday morning. The government followed up with three rebuttal witnesses _ also cut from last week’s estimate of up to 10 _ ending testimony at least a day earlier than expected.

Deliberations are to begin May 17.

Both defendants testified as part of a 29-witness defense lineup. The government called 22 witnesses in its main case, which rested March 28.

Prosecutors questioned rebuttal witnesses Monday to reinforce their contention that Lay and Skilling committed crimes at the energy company before it careened into bankruptcy proceedings in December 2001.

Oil and gas executive Mike Muckleroy told jurors he saw Lay lie under pressure.

“Under certain business exigencies, I have known Mr. Lay not to tell the truth,” said Muckleroy, who worked for Lay before and after Enron was founded in 1985.

Muckleroy was referring to financial problems created by top oil traders in the so-called Enron oil scandal in 1987. But he couldn’t provide that context to jurors because U.S. District Judge Sim Lake prohibited prosecutors from addressing the issue in the trial. Lay was never charged with any wrongdoing in the scandal.

However, Muckleroy, whose actions in 1987 helped Enron avert a crisis, told jurors Monday he was fired in 1992 or 1993 because he wasn’t a “team player.”

“I’d been very unhappy with the direction that Mr. Lay had set for the company and some of the people he had hired, including the other defendant, Mr. Skilling,” Muckleroy said.

The stars among the defense witnesses were clearly Lay and Skilling. As expected, both adhered to their stance that no fraud occurred at Enron, they did nothing wrong, and a lethal combination of bad press and a skittish post-Sept. 11 market siphoned market confidence from the company.

The government contends Lay and Skilling repeatedly lied about Enron’s strength when they knew accounting tricks were being used.

The prosecution lacked hard evidence pointing to the defendants’ guilt. The defense also lacked tangible evidence, relying heavily on the credibility of Lay and Skilling.

Observers expected Skilling to be temperamental in keeping with his reputation, but he was largely civil despite a few flare-ups with a prosecutor. But Lay shed his diplomatic persona, trying to control his own attorney and bristling with anger at a prosecutor who questioned his honesty.

Lay insisted during six days of testimony that he told the truth when he praised Enron’s strength to employees and investors throughout the fall of 2001, months before it sought bankruptcy protection.

But on cross-examination, Lay was bombarded with a slew of written warnings about Enron’s accounting integrity that he had received from various employees. Lay admitted he didn’t investigate the complaints.

Lay also defended tapping Enron for more than $70 million throughout 2001, even as the company cratered. He repaid most of those loans with Enron stock. He didn’t disclose sales of the stock back to the company publicly because regulations at the time didn’t require him to do so until 2002.

Skilling, while bruised, emerged without having received any knockout punches.

The former CEO insisted he had been truthful when publicly touting the company’s strength. He defended financial structures and partnerships that prosecution witnesses described as fraudulent.

Like the prosecution witnesses before him, Skilling lacked physical evidence to show his accusers lied about incriminating conversations and meetings.

But Skilling’s fate could hinge largely on whether jurors believe his testimony regarding allegedly illegal stock sales.

He claimed he couldn’t remember placing an order to sell 200,000 shares of his Enron stock in early September 2001 three weeks after his resignation, though jurors heard an audiotape of him doing so on a telephone call to his broker. That sale was held up, and he ended up selling 500,000 shares for $15.5 million on Sept. 17, 2001. He insisted his fear of a market roiled by the Sept. 11, 2001, terrorist attacks prompted the sale, which is alleged to be illegal in the last of 10 insider trading counts against him.

When the jurors begin deliberations next week, Skilling will await their verdict. Lay has another trial slated to start May 18. He is charged with bank fraud in a separate case, which will be tried before U.S. District Judge Sim Lake without a jury.

Lay’s bank fraud case involves his personal banking. Prosecutors allege he obtained $75 million in loans from three banks and then reneged on an agreement with the lenders that he wouldn’t use the money to carry or buy margin stock.

The banking case was originally part of the conspiracy indictment. Its Enron connection is that the $75 million in loans were collateralized by Lay’s company stock. Those lenders issued the margin calls he said prompted him to tap the company for cash and repay the energy giant with Enron shares.


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