Things look grim for Lay, Skilling
As the jury gets set to deliberate, legal experts say the odds are against the former Enron executives being acquitted.
By Shaheen Pasha, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - It's not looking too pretty for Enron founder Kenneth Lay and former CEO Jeffrey Skilling as the corporate trial of the century enters its final stretch.

With closing arguments set to begin Monday, legal experts say it seems that the scales have tipped in favor of the prosecution as Lay and Skilling's lackluster performance on the stand did little to endear them to jurors, or support their claim that Enron was the victim of negative news reports and a "run on the bank" by nervous investors.

Find out who you might have seen at the Enron trial, how they got involved, and what they're doing now.
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And the defense took another blow this week when Judge Sim Lake said he would instruct jurors that "deliberate ignorance" of fraud at the collapsed energy company was not a justifiable defense. That could be particularly damaging to Lay, who maintained a "see-no-evil, hear-no-evil" posture on the witness stand, blaming others for Enron's collapse and insisting that from what he was told, Enron was in solid shape until the end.

Michael Wynne, a former federal prosecutor, said the government's witnesses were convincing as they insisted that both Lay and Skilling were made aware of trouble at Enron but deliberately chose to either ignore the warning signs or mislead the public to prop up the company's stock.

"(The witnesses) have testified in some detail so the suggestions that Lay and Skilling had their heads in the sand is just not going to sell," said Wynne, now a lawyer at Yetter & Warden in Houston.

Judge Lake's ruling was a big win for prosecutors, making it easier for the jury to find against the defendants, legal experts said.

"I think Lay and Skilling are both in a lot of trouble," said Jacob Zamansky, a former federal prosecutor who's now a principal at Zamansky & Associates, a New York law firm that represents investors. "Lay came off as an angry, defensive CEO and not the warm and fuzzy guy he needed to be. And Skilling looked like a cold and calculating executive who left Enron under suspicious circumstances."

While Skilling kept his cool under friendly questioning from his own lawyers, he lost his temper repeatedly under cross-examination, adding credibility to the prosecution's contention that his nice-guy demeanor was just for show.

From the start, the defense faced an uphill battle as they tried to convince jurors that Lay and Skilling are not only innocent of the crimes they've been accused of but that there were no crimes at Enron, except for the millions of dollars ex-CFO Andrew Fastow siphoned from the company.

But with the defense's inability to bring forth any high-level executives to support their theory, it was up to Lay and Skilling to fend for themselves. And to that end, neither defendant was particularly convincing, legal experts said.

"The bottom line is there is one question that hasn't been answered: why Enron fell apart," said Joel Androphy, a white-collar defense attorney at the Houston-based law firm Berg & Androphy. "Lay and Skilling kept professing that market forces caused its decline ... but we haven't heard any actual evidence about that."

A far-fetched defense

Legal experts said defense assertions that the media was attacking Enron at the behest of investors betting against the company who had gathered at a secret meeting in Florida in early 2001 seemed far-fetched.

By contrast, the government presented 22 witnesses that pointed the finger at both defendants and testified that they created an environment of corruption where success had to be achieved at all costs.

Skilling's abrupt departure in August 2001, which set off a chain of events that led to Enron's bankruptcy that December, as well as his weak explanations for the stock sales he made then could also prove damning.

Still, it was Skilling that turned out to be the surprise charmer on the stand as he sought to refute the government's portrayal of him as a man so consumed with greed and power that he ultimately brought down the company he helped build.

Thomas Ajamie, a securities law expert attending the trial, said Skilling was successful in showing jurors Enron's business was more complex than prosecutors portrayal. While prosecutors say Enron was a black-and-white or right or wrong, the defense argued the company's accounting and financial structure may have been aggressive but fell within the letter of the law.

Skilling played the part of professor as he walked the jurors through some of the more complicated financial transactions Enron undertook. That complexity bolstered defense assertions that Lay and Skilling had to rely on the advice of accounting experts and attorneys who signed off on the company's books.

"He explained in a lot more detail the nuances and complexities of running a company the size of Enron," Ajamie said. "If I had to call it, my guess is that he won't be convicted on all 28 charges against him. He may still be convicted, but on fewer charges."

Lay under attack

But Lay could turn out to be a surprise. His amiable persona took a beating on the stand as he failed to connect with jurors or adequately explain the $70 million in stock sales he made just months before Enron collapsed.

Going into the trial, many legal observers thought the case against Lay was weak, and he was considered the more folksy executive who could win over jurors.

But the man on the stand turned out to be a far cry from that. He sparred with prosecutors and appeared testy and overbearing with his own attorney, George "Mac" Secrest. That could hurt him as jurors enter deliberation.

Lay's explanation that the $70 million worth of stock he sold in 2001 were "forced sales" to meet margin calls seemed dubious - especially when contrasted with his lavish lifestyle presented into evidence.

"From a practical matter, the case is going to be decided [based] on the personal gain that each of them obtained as a result of how Enron unfolded," said Wynne at Yetter & Warden. "Lay just destroyed his case on the stand."

Androphy of the law firm Berg & Androphy said Lay would have been better off admitting he mishandled the warnings from former vice president Sherron Watkins, who predicted Enron would "implode in a wave of accounting scandals."

But jurors may be divided on whether he consciously chose to ignore warning signs that Enron was in trouble, he added.

"There is never going to be an acquittal," Androphy said. "But I think Lay's got a decent shot at a hung jury."

Combined, Lay and Skilling face about 36 counts of fraud and conspiracy, and could get 20 to 30 years behind bars if convicted. Lay will also face a trial for bank fraud once jurors begin deliberations in the current case.

Enron's 2001 bankruptcy cost 4,000 employees their jobs and many of them their life savings, and led to billions in losses for investors.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.