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In Enron trial, a novel - even brash - defense
HOUSTON
Defense lawyers for Kenneth Lay and Jeffrey Skilling said two months ago they would prove not only that the top executives did not know about any wrongdoing at Enron, but that there was no wrongdoing, save for the actions of a few bad apples.
Monday in a federal courthouse here they'll begin to try to build their case for that bold assertion - one never before used as a defense in a corporate corruption trial.
The "there was no evil" defense is a high-risk strategy, but it may be born of necessity, court watchers say. In other recent trials involving allegations of corner-office malfeasance, the usual argument - that corruption existed but that corporate leaders were ignorant of it - often didn't fly.
"Jurors are quite skeptical of CEOs who ask them to accept that they were competent, hands-on managers, but completely unaware of massive fraud right under their noses," says Robert Mintz, a former federal prosecutor. "I can assure you that [Messrs Skilling and Lay] have paid attention to other CEOs who have tried to raise [that] defense and failed."
Case in point: The verdicts last year against former WorldCom CEO Bernard Ebbers and former Tyco CEO Dennis Kozlowski.
The Enron defense's novel approach - which caused many in Houston to gasp in disbelief upon hearing it - posits that Enron was basically sound and that it went bankrupt because the market panicked and creditors pulled out when investor confidence eroded and Enron's stock price plummeted.
That argument, though, may be hard to reconcile with testimony of the past eight weeks, as one government witness after another has said that Lay, Enron's founder, and Skilling, its CEO, knew of wrongdoing and even participated in it.
"So far, the biggest surprise is how effective a job the government is doing," says Gerald Treece, assistant dean at the South Texas College of Law in Houston. "The case is stronger than I thought it would be. The witnesses have been more effective than I thought they would be. And the young prosecutors have more than held their own against the more experienced defense attorneys."
What government prosecutors learned
Moreover, the defense team isn't the only one to take some lessons from earlier corporate corruption trials. The government learned a few things from losing its case against former HealthSouth CEO Richard Scrushy - and is using them to its advantage in the Enron case, says Jim Parkman, Mr. Scrushy's lawyer. The HealthSouth executive was acquitted last year of all charges in the $2.7 billion accounting fraud at the hospital chain - a case in which the "CEO didn't know" defense did manage to prevail.
For one, the Enron prosecutors did not spend a long time on the company's Byzantine accounting practices, as the HealthSouth prosecutors did. For another, they didn't replay endless analyst conference calls or hide their witnesses' wrongdoing from the jury, says Mr. Parkman.
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