Another CEO in handcuffs

"We tend to get these sorts of major scandals almost once a decade," says Nancy Rapoport, dean of the University of Houston Law Center and a bankruptcy expert. "We don't seem to learn very much from our mistakes. "But while scandals like the savings and loan scandal were bad, this is worse. It's not necessarily different in kind, but it's slightly different in scale. It affected a broader swath of people."

In additional to new rules governing the accounting industry, the current spate of scandals appears to have, at least for a time, reshaped public opinion of large corporations. According to polls by the Gallup organization, the public's confidence in "big business" was fairly strong during the boom years of the late 1990s, with 30 percent citing strong faith in corporations. By June of 2002 that number had fallen to a low point - 20 percent.

Trust in big business has since begun edging up again, with 22 percent of Americans having strong confidence in June 2003 and 24 percent in May 2004.

For all the visibility of the case, the Lay trial may not have as much impact on corporate behavior as it would have had a year ago. Henry T.C. Hu, a corporate and securities law professor at the University of Texas in Austin, notes that while Lay was certainly the poster child for corporate governance problems in recent years, other big-name individuals have already been convicted - including Andrew Fastow, Enron's chief financial officer, who is serving 10 years in prison, and Martha Stewart, who is about to be sentenced. "The message has already gone out to would-be white-collar criminals," says Dr. Hu.

Even that message, though, may not be as strong as it could be. Ms. Rapoport notes that the problem with criminal penalties is that smart people never expect to get caught or convicted so they are always going to underestimate their risk.

The government hopes to try Mr. Lay with Jeffrey Skilling, Enron's former CEO, and Richard Causey, the company's former chief accounting officer. The charges against Lay are similar to those against the others - in Lay's case, an 11-count criminal indictment charging him with fraud, insider trading, bank fraud, securities fraud, wire fraud, conspiracy, and making false and misleading statements. Lay's lawyer will argue for a separate trial. "We believe Ken Lay should go first," says Mike Ramsey." Lay, in a written statement, proclaimed his innocence.

Lawyers believe getting a conviction could be a challenge for the government. Unlike some other white-collar cases, there is not likely to be a long paper trail. "If there was a smoking gun, he would have been charged earlier," says Mr. Behre.

Instead, much of the case will depend on the testimony of Mr. Fastow, the firm's former treasurer who pleaded guilty and is now facing a 10-year sentence. "Fastow led a life so permeated with deceit and deception that he is going to be torn to shreds on cross examination," says Christopher Bebel, a former US Attorney who specializes in securities law. "The government will not be able to rest its case on his testimony alone."

In addition, Lay will maintain his role was more ceremonial. "He was not in the trenches and was not involved in key decisions on a daily basis, and he's going to be able to use that to his advantage," adds Mr. Bebel.

Yet Mr. Hu says that it's likely the government has compiled a formidable case. "They don't want to be embarrassed by a hung jury so you can be sure they have a lot of evidence suggesting that Ken Lay was not simply an innocent dupe," he says. "They've already sent a great message to corporate America, to would-be criminals, and they don't want to do anything to undermine that."

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