Enron defense faces uphill battle
As the government wraps up their side of the case, Lay and Skilling's defense teams will have to work hard to bounce back.
NEW YORK (CNNMoney.com) - Just over two months into the corporate trial of the century, Enron prosecutors are ready to take their seats and let defense attorneys for Enron founder Kenneth Lay and former chief executive Jeffrey Skilling claim the spotlight.
But legal experts warn the defense team could be facing a tough crowd as they work to convince jurors that their clients are not only innocent of any criminal activities but that Enron itself was not the den of iniquity the prosecution has painted it to be.
It's an uphill battle to say the least.
As the first phase of the trial comes to a close, the prosecution's presentation of the complicated case against the two Houston icons deserves kudos. Legal experts said the government's case -- which is expected to wrap up as early as Tuesday -- could easily have been mired in accounting vagaries and long, complex explanations of the dreaded Raptors financial vehicles, creating the perfect environment for the defense to raise doubt among jurors that Lay and Skilling could have been acting in good faith.
But the prosecution's decision to present Enron as a case about "lies and choices" rather than accounting has put some pressure on the defense team.
Refocus on the numbers
"I think the defense strategy has fallen a bit short of the mark," said Jamie Wareham, global chairman of litigation at law firm Paul Hastings. "They've allowed the government to put on a simple, straight forward case."
Wareham said the defense team, led by Lay attorney Michael Ramsey and Skilling attorney Daniel Petrocelli, lost some ground as the trial unfolded by not emphasizing during cross examination of the many witnesses just how complex and indiscernible the accounting for the various special financial vehicles really was.
He said the defense team will have to work hard during its portion of the case to focus the jury's attention once again on the numbers, rather than the defendants. He said the defense will have to rely on the testimony of so-called expert witnesses to guide the jury through the complex accounting and prove that the number-crunching may have been too advanced for even the CEO of the company.
But legal experts said Lay and Skilling's defense took a beating as witness after witness testified that the two were not only aware of the aggressive, and illegal, accounting methods but encouraged Enron employees to do whatever it takes to meet Wall Street expectations.
While the defense attempted to discredit the testimonies by focusing on the fact that most of the witnesses had plea agreements with the government and suggested that they testified in order to save themselves, the sheer number of former employees as well as their high positions at Enron was damaging.
The jury may be hard to convice on the word of one uncorroborated witness "but if you have several of those people, there reaches a point of critical mass in which the jury says 'what more do you need?'" said Robert W. Ray, partner at Kelley Drye & Warren and former independent counsel in the Clinton Whitewater scandal.
And legal observers said the defense suffered a blow as the witnesses refused to back down from their assertions that Enron, with Lay and Skilling at the helm, was essentially corrupt, despite some heated cross-examinations by the defense.
A desperate defense
"The defense came across looking very desperate," said Scott Meyers, security litigation partner at Levenfeld Pearlstein. "They were trying to argue that there was nothing wrong at Enron and that the accounting was fine, but the witnesses confirmed there were problems. I think that the strategy has gone completely south and they are starting to look silly."
But Enron watchers are expecting Ramsey and Petrocelli – both seasoned attorneys with solid records – to pull some rabbits out of their hats.
John Bielema, partner in securities litigation and enforcement defense at Atlanta-based law firm Powell Goldstein said while the witnesses were damaging, the defense team did score points by highlighting that there was no actual documentation to prove that Lay and Skilling ordered their employees to commit crimes.
Aside from a copy of the now infamous Global Galactic list, which former financial chief Andrew Fastow presented as evidence of his side dealings with Skilling and which the defense has suggested were fabricated, witnesses admitted on the stand that there was no paper trail implicating either defendant.
And that lack of documentation will likely be at the cornerstone of Lay and Skilling's defense as their lawyers prepare their side of the case.
"It's going to be one person's word against another," Bielema said.
Lay and Skilling's fates lie in their own hands
To counter that, the defense will call both Lay and Skilling to the stand – a move that legal experts derided at the beginning of the trial but now insist is the only course of action the defense team has to refute a mounting pile of evidence from the government.
While putting a defendant on the stand is always risky, in a case lacking any smoking gun evidence, it'll be up to Lay and Skilling to clear their own names and convince the jury that they were acting on the advice of seasoned accountants and first-rate law firms that assured them their actions were within the law.
"There is a good reasonable doubt case here, but there are a lot of chips betting on (the defendants) convincing the jury that they never did the things they're accused of," said Paul Hastings' Wareham. "In a lot of these white collar cases, affability and attractiveness of the defendants" play a key role in shaping a jurors decision.
To that end, Lay stands a better chance with jurors, legal experts said. While Skilling has often been presented as a short-tempered, foul-mouthed authoritarian (the prosecution presented transcripts in which Skilling called a critical analyst by an expletive), Lay benefits from his softer, more genial approach to the public.
And Lay has the added benefit of having been farther removed from Enron's shenanigans while Skilling was chief executive.
A rough road
Still, legal observers see a rough road ahead for both defendants as the defense gears up to present its side of the story to jurors. And for Lay, the end of one trial marks the beginning of a second criminal trial in which he will face four charges of bank fraud.
Combined, Lay and Skilling face more than three dozen fraud and conspiracy charges accusing them of lying to investors about the company's financial state while they enriched themselves by selling millions of dollars in stock.
Enron was once the seventh largest corporation in the U.S. until it declared bankruptcy in December 2001, costing 4,000 employees their jobs and resulting in millions of dollars in losses for investors.
"Texans were once really proud of Enron and it turned out to be a humiliation for the entire community," Wareham said. "They'll be looking for heads."
Is the defense strategy brilliant or just crazy? Find out here.
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