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Enron's Lay, Skilling convicted

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    The Architect

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By Matt Daily and Dan Whitcomb

HOUSTON (Reuters) - Former Enron Corp. chiefs Ken Lay and Jeffrey Skilling were convicted on Thursday for lying to investors as the energy giant stumbled toward bankruptcy in 2001 in a stunning collapse that shook the country's faith in corporate America.

The jury verdict after a bitter four-month trial capped a years-long government effort to punish the men responsible for one of the greatest corporate scandals in U.S. history that cost investors billions of dollars, wiped out thousands of jobs and sent shock waves through Wall Street and Washington.

Skilling and Lay could be sent to prison for the rest of their lives.

Prosecutors said the convictions sent a message that even the rich and powerful would be brought to justice if they committed crimes.

As the verdicts were read, Lay slumped, sighed heavily and shook his head, his sobbing wife Linda tightly clutching his arm. Skilling looked shaken and left the courtroom quickly after U.S. District Judge Sim Lake set sentencing for the week of September 11.

After the verdict Lay stood with his family members gathered around him and weeping loudly. Lay had no tears and tried to console them, saying, "God's got another plan right now."

Lay, 64, the son of a preacher, then clasped hands with them as they stood in a circle to pray. "We'll all come through this stronger and more reliant on God," he told them.

Lay was convicted of all six counts of conspiracy and fraud and faces a maximum of 45 years in prison.

Skilling, 52, was found guilty of 19 counts of conspiracy, fraud, insider trading and making false statements which combined, carry a maximum sentence of 185 years. He was not convicted of nine other counts of insider trading.

"If it (the guilty verdict) hadn't happened it would have been an open wound," said former Enron employee Chris Jones, 35. "This brings closure for some people."

In a separate trial for Lay, Judge Lake found him guilty of all four bank fraud charges for illegally using money from $75 million in personal loans to buy stock.

Each of those four charges carries a maximum of 30 years, but experts say he is unlikely to get a sentence of more than six months for each because he paid off the loans and the lenders suffered no damage.

Both men will remain free on a $5 million bond until sentencing, set for September 11.


Both men's attorneys vowed to fight the convictions.

"We will have a full and vigorous appeal," Skilling attorney Dan Petrocelli said.

"This is obviously a very difficult time for Mr. Skilling and his family. There is a lot of thinking to do about the next steps that we take but as I told him, we have just begun the fight," Petrocelli said.

Skilling was almost philosophical about the verdict as he spoke to reporters.

"I think we fought a good fight but some things work and some things don't," he said. "Obviously I am disappointed but that is the way the system works."

Lay attorney Mike Ramsey also promised an appeal and said, "The biggest issue is the venue issue," meaning the trial should not have been held in Houston, where Enron was based.

Enron, which at its height was the nation's seventh-largest company, collapsed in December 2001 into the biggest U.S. bankruptcy at the time amid disclosures it used off-the-books deals to hide billions of dollars in debt and inflate profits.

It also was revealed that chief financial officer Andy Fastow had looted the company of $60 million while running the side deals.

Prosecutors charged that Lay and Skilling knew Enron's reports of booming profits were just financial trickery, but told the world all was well to keep the stock price up even as the Houston-based power trader slid toward its demise.

"The jury sent an unmistakable message: You can't lie to shareholders. No matter how rich and powerful, you must play by the rules," prosecutor Sean Berkowitz said.

In testimony, Lay and Skilling said they painted a rosy picture of the company because they believed it was in great shape, not because they wanted to cover up problems.

Skilling suddenly resigned in August 2001 after just six months as chief executive officer and was replaced by board chairman Lay, who had been CEO before Skilling. The two men testified that Skilling left because he was burned out, not because of Enron's growing financial problems.

They blamed media coverage and Fastow's thievery for a financial crisis that sank the firm they built from a quiet pipeline business into an international trading powerhouse.


Jurors, who were in their sixth day of deliberations when they reached their verdict, said some of the most important testimony came from former Enron treasurer Ben Glisan, who was already serving a five-year prison sentence after pleading guilty to a charge of conspiracy.

Glisan told the jury Skilling and Lay knew Enron was in deep financial trouble and tried to hide it.

The jury believed him, not his former bosses, said juror Freddy Delgado.

"To say that you didn't know what was going on in your own company is not the right thing," he told reporters after the verdict.

In Fastow's testimony, he tearfully told the jury of his misdeeds and said Skilling and Lay were deeply involved in what he described as a massive cover-up of Enron's troubled finances.

He has pleaded guilty to conspiracy in exchange for a 10-year jail sentence which he likely will begin serving soon.

Prosecutors said the two men milked Enron for hundreds of million of dollars and lived lives of luxury while driving the company into a bankruptcy.

Lay took home $220 million in compensation from the sale of Enron shares from 1999 through 2001, while Skilling got $150 million, Assistant U.S. Attorney John Hueston said in opening arguments.

Lay used his and the company's money to gain political power by donating heavily to candidates, particularly Republicans and especially the Bush family.

He was the biggest donor to President George W. Bush, who before the Enron scandal referred to him warmly as "Kenny Boy."

Their convictions bring to 19 the number of Enron executives who pleaded guilty or have been found guilty of crimes.

Enron's demise raised questions about the quality of corporate oversight and was quickly followed by scandals at firms such as HealthSouth, WorldCom, Global Crossing and Adelphia.

Enron auditor Arthur Andersen was convicted of June 2002 of obstruction of justice for its role in the Enron saga. The U.S. Supreme Court overturned the conviction a year ago, but Anderson is now virtually out of business.

After Enron, the U.S. Congress scrambled to pass the Sarbanes-Oxley Act in 2002, toughening financial and auditing requirements for publicly-owned companies.

Source: Reuters
The sky was the color of a television, tuned to a dead channel. - William Gibson

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