Enron: Where The Market Met The Law

Enron trial co-defendants Kenneth Lay and Jeffrey Skilling, against a background showing the Enron logo CBS/AP

Attorney Andrew Cohen analyzes legal issues for CBS News and CBSNews.com.



When you travel to downtown Houston from the Intercontinental Airport, one of the first things you see are power lines — big, clunky power lines — along one of the highways that leads ultimately to the Interstate and then into the fourth-largest city in the nation.

As you look down the long row of towers, you can imagine, if only for a moment, the promise of untapped energy markets that fueled Enron's dramatic rise during the 1990s.

But no one is gathering at the Bob Casey Federal Courthouse in Houston today to talk about Enron's short-lived success. Instead, the gang's all here to talk about what went wrong at Enron, once the nation's seventh-largest company.

There is plenty to talk about. For sheer scale of financial devastation, for sheer audacity, for sheer greed, the story of the fall of Enron is an order of magnitude more startling than all of the other corporate scandal cases and trials that have come before it. The days of reckoning finally are dawning for Kenneth Lay and Jeffrey Skilling, who thought they were the next Masters of the Universe — but who may instead be looking at spending most of the rest of their days in a federal prison.

As opening statements begin here, it's not hard to see where this trial is likely to head. Federal prosecutors know they have to make simple for jurors the enormously complex story of Enron's implosion.

The feds know — even from just the Enron-related Arthur Andersen obstruction trial in 2002 — that it's easy for jurors to get lost amid talk of arcane accounting rules and corporate policy manuals. That's why the mantra for prosecutors will be: Given all the criminal conduct at Enron, which took place on so many different levels over so many years, it is simply not credible to believe that the company's mastermind, Skilling, and its eminence grise, Lay, were not complicit in the crimes.

Stupid men don't get to run companies like Enron, prosecutors will argue, and anyone who ran Enron simply had to know how rotten it was to its core.

For the defense, the task will be much different. Attorneys for Lay and Skilling want to educate jurors about how all of the institutions of corporate governance failed Enron's shareholders and employees.

We'll hear about how the accountants and the lawyers and the bankers and the credit agencies all at one point or another should have said no to Enron but didn't. Then we'll hear about how Skilling and Lay could reasonably have believed they were acting within the letter of the law because no one put a halt to the diabolically clever ways the company discovered to cook its books.

It's important to remember that this trial is not about ethics or morality. It is about the narrow scope of what the law of fraud and conspiracy does and does not allow.

In the prosecution's narrative, Lay and Skilling purposely turned a blind eye to the three-card monte game that Enron perpetuated, quarter after quarter, year after year, as it hid its huge losses and boosted its profit reports. They saw no evil and heard no evil, the government will claim, because doing so allowed them to cash in on Enron's fluffed-up stock prices.

They believed what they wanted to believe about the company, the feds say, because it allowed them to avoid the difficult decisions that corporate executives have to make every day. That, of course, is one of the great ironies of this story. Never mind their honesty and integrity: If Lay and Skilling were simply better executives and managers — if they were more competent and more curious — Enron never would have had to contort its business practices to hide its failings. It might not have rocketed through the corporate stratosphere in the 1990s as it did — but it also might be around today.

  • Jessica Goldman

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