Enron Prosecutors: Find them guilty
In its closing arguments, the government tells jurors that Skilling and Lay stole, cheated and lied to prop up Enron's stock price.
By Shaheen Pasha, CNNMoney.com staff writer

HOUSTON (CNNMoney.com) - In the 54th day of the Enron trial, government prosecutor Kathryn Ruemmler told jurors that Enron founder Kenneth Lay and ex-CEO Jeffrey Skilling orchestrated a massive fraud that led to the bankruptcy that symbolized the nation's rash of corporate scandals.

"Through accounting tricks, hocus pocus, outright lies, they painted a picture to the outside world [about the state of Enron] that was dramatically different than what was happening inside those doors," Ruemmler said as she began the government's closing arguments. "Those lies were criminal."

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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"This is a case of lies and choices," she said, reiterating the government's key phrase from opening arguments. "Owners of Enron were cheated, they were stolen from, they were profoundly harmed by what these two men did. That is fraud, that is why we are here, that is why this matters."

The government has a total of six hours to present closing arguments over two days. As Ruemmler concluded her portion of the summation, she appealed to the jury to hold Lay and Skilling accountable for the choices they made and the lies they told.

"Find them guilty on all counts of the indictment," she said.

Masters of the cover story

Throughout the day, Ruemmler portrayed the defendants as men who chose to be in an elite inner circle on the fiftieth floor of Enron's corporate offices a circle fueled by ego and the desire to promote Enron's stock price at any cost.

Pointing to comments Lay made on the stand in which he said "rules are important, but you shouldn't be a slave to the rules," Ruemmler told jurors "Mr. Lay and Mr. Skilling were so arrogant, they didn't think that the rules applied to them."

She said the defendants were "masters of the cover story" as they attempted to mask their lies by making excuses for themselves, saying that they relied on the advice of accountants and lawyers who signed off on some of the company's questionable financial structures, such as LJM and Raptors. The government contends that those financial vehicles were used to hide millions in dollars of losses.

And she said that the proof that financial vehicles like the Raptors were fraudulent lay in the fact that Skilling had promised former financial chief Andrew Fastow that he would not lose any money on these transactions. The government contends that since there was no transfer of risk from the poor-performing assets to the special-purpose entities headed by Fastow, Enron committed fraud when accounting for them as independent third-party transactions.

In a softspoken voice, sometimes punctuated with either indignation or ridicule, Ruemmler said Skilling approved the formation of the LJM transactions special-purpose entities run by Fastow and said Skilling's testimony that he spent very little time on LJM was at odds with his reputation as a controlling, hands on executive involved in all aspects of the company.

"Come on! Does he really expect you to buy that?" she asked incredulously. "Does that make any sense at all?"

Ruemmler went on to tackle the presence of the Global Galactic agreements a photocopy of handwritten notes presented by Fastow that listed the side deals he entered into with Skilling. The defense has said the documents don't implicate Skilling because there are only the initials of Fastow and former accounting chief Richard Causey on the three-page list. The defense also raised the possibility that the documents were faked by Fastow to implicate Skilling after the fact.

In an attempt to refute that allegation, Ruemmler pointed to a number of calendar entries from former Enron treasurer Ben Glisan, Causey and Fastow that indicated that they met to discuss the Global Galactic deals on a number of occasions. She added that if Fastow was going to fake the document, it would make more sense to fake Skilling's initials than Causey's.

As Ruemmler wrapped up the first day of summation, she became increasingly animated, pounding her fists on the podium to emphasize the millions of dollars in stock that Lay sold even as Enron faced financial ruin, all while telling both employees and shareholders that the company was in solid shape.

"He chose to put his own interest above the people that worked for him, he chose to lull them, chose to tell them everything was fine" she said. "He had no right to do that. When he did it, he broke the law."

She said Lay did nothing to find out the truth of the company's financial condition even as employees contacted him saying that Enron relied on accounting trickery and the media began to question Enron's involvement with LJM.

"Mr. Lay chose not to ask hard questions. He tried to stick his head in the stand," Ruemmler said. "The law says you can't do that."

Indeed, Judge Sim Lake instructed the jury early Monday that deliberate ignorance of a crime wasn't a justifiable defense, adding "if you find the defendant[s] deliberately closed his eyes to what normally would have been obvious to him" that could be used to infer that the defendant was aware that there was misconduct at Enron.

The prosecution scored points last week when Lake determined that deliberate ignorance could be introduced to the jury, making a possible conviction easier, legal experts said.

Corroboration is incredibly important

Earlier in the day, Ruemmler went point by point over the measures the government says Enron took to make sure that it appeared a solid, growing company across the board.

Ruemmler turned the jury's attention towards Enron's retail energy business, Enron Energy Services and presented it as a failing business. The government contends that Enron's decision to move the risk management portion of EES into the more profitable wholesale energy business was an effort to hide millions of dollars in losses. The defense maintains it was done to enhance corporate efficiencies.

David Delainey, who headed the unit, testified that the decision to move the risk business into the wholesale division lacked integrity because it was an effort by the company to show that the highly touted EES business was doing well when it was actually "a basket case."

Delainey said that he was chided by Skilling for the concerns he expressed about the move in a meeting, and that he "wished on [his] kids' lives that I would have stepped away from that table that day."

Ruemmler warned the jury that the defense will try to persuade them during its closing arguments on Tuesday that government witnesses like Delainey shouldn't be believed. She said Delainey's version was corroborated by multiple witnesses, who all testified that portions of EES were transferred to hide losses.

"Corroboration is incredibly, incredibly important in your mission to find the truth," Ruemmler advised the jury. "On the key issues of this case, things that the defendants dispute, there is almost no corroboration for defendants' testimony. It's their testimony against a whole other host of evidence."

She added that the word of each corroborating witness wasn't coincidence but rather "truth beyond a reasonable doubt."

Ruemmler paced in front of the jury as she presented slides to the jury demonstrating how the defendants manipulated earnings to hit analyst targets and lied to analysts about the health of the company's troubled broadband unit. She juxtaposed the evidence of wrongdoing next to different charges in the indictment in an attempt to guide jurors on how to interpret the different counts of securities and wire fraud charges before them.

As Lay and Skilling sat still in their chairs, their faces expressionless, Ruemmler asked the jurors to discard the defense's insistence that they focus on why Enron went into bankruptcy. She said the defendant's testimony that Enron was brought down by a mixture of short sellers and bad press was ludicrous and meant to distract the jury from the meat of the case their participation in fraud over the two years prior to Enron's collapse in December 2001.

"The idea that there was a secret conspiracy between the Wall Street Journal and short sellers which brought down the seventh largest company in the country is nonsensical, it's absurd, it's ridiculous, don't buy it," Ruemmler said indignantly.

She also dismissed the defense's assertions that there was no fraud at Enron, adding that after four months of presented evidence, that notion was "flatly absurd."

Skilling faces 28 counts of conspiracy and fraud, including charges of insider trading, while jurors will have to weigh six counts of fraud and conspiracy for Lay. Lay will face another four counts of bank fraud at a separate bench trial before Judge Lake later this week.

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. If convicted, both Lay and Skilling could face between 20 to 30 years in jail.

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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 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.