Watch CBSN Live

Enron Lawyers Face Off

The blockbuster criminal trial of former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling is about lies, not numbers, a federal prosecutor told jurors Tuesday, launching the much-awaited case against the scandal-ridden company's former corporate titans.

"This is a simple case. It is not about accounting. It is about lies and choices," prosecutor John Hueston told jurors in his opening statement.

He said Lay and Skilling assured investors that all was well despite crushing debt and chaotic finances propped up by fragile structures designed to hide the debt and maintain the energy trader's well-polished image of success.

The government says Enron was a "ticking timebomb," $500 million in the hole and hiding losses from investors by swapping funds from one account to another, CBS News' Teri Okita reports.

"They chose to lie," Hueston said.

Daniel Petrocelli, Skilling's lead trial lawyer, countered that his client never spearheaded, took part in, or knew of a massive conspiracy, "and neither did this man, Mr. Lay."

Also, Petrocelli said Enron deserved its adoration from Wall Street and elsewhere for pioneering energy trading markets and was not rife with corruption. It was the world's largest such trader, and buyer and seller of natural gas and electricity in the U.S., before filing for Chapter 11 bankruptcy protection in December 2001.

"This is not a case of hear no evil and see no evil. This is a case of there was no evil," he said.

The former head of Enron's investor relations department, Mark Koenig, who worked with Lay and Skilling on quarterly conference calls with analysts, is expected to take the stand, CBS News reports. Koenig pleaded guilty in August 2004 to aiding and abetting securities fraud.

Enron, once the seventh-largest company in the United States, crashed in December 2001 within weeks of revelations of hidden debt, inflated profits and alleged accounting tricks. The trial is under way just blocks from the former headquartersof the company adored by Wall Street in the late 1990s as a trading pioneer with a lofty stock price.

Petrocelli attributed the collapse to a cash crisis of "chaos, not insolvency."

Skilling faces 31 counts of fraud, conspiracy, insider trading and deceiving auditors for allegedly lying about Enron's financial strength. Lay faces seven counts of fraud and conspiracy for perpetuating the alleged scheme after Skilling resigned in August 2001. Both have pleaded not guilty.

Hueston said Skilling knew a crisis was imminent when he abruptly quit, citing personal reasons. Petrocelli countered that Skilling believed Enron was in sound financial condition — as Skilling twice testified in congressional hearings in early 2002.

Petrocelli told jurors Skilling would testify in his trial as well.

"He is going to tell you in his own words whether he did any of these things," Petrocelli said.

Lay has already said publicly he will testify.

Hueston used Skilling's own words to illustrate the alleged lies. Skilling was a top cheerleader for Enron's defunct broadband business, touting it as a multibillion-dollar behemoth to Wall Street in 2000 and 2001 while the rest of the once-hot telecom industry struggled.

Skilling told broadband employees in March 2001 that the telecom market was in "absolute meltdown," and workers needed to be moved elsewhere in the company because "the whole revenue opportunity we saw is gone or shrunk significantly."

Eight days later Skilling told analysts the broadband division was "coming along just fine," and "in fact, I'm pretty optimistic about it."

Skilling abruptly resigned from Enron in August 2001 — after serving as CEO for just six months — and Lay, who was chairman, resumed the CEO role. Lay had been CEO and chairman of the company from 1986 until his resignation in January 2002, except for the few months when Skilling was CEO.

"The evidence will show he was told of the equivalent of a ticking time bomb," Hueston said, referring to a celebrated memo from former Enron executive Sherron Watkins warning that the company could "implode in a wave of accounting scandals" if fragile accounting tricks designed to hide debt were revealed publicly.

Yet Lay assured employees and investors "that there are no problems, there are no shoes to drop."

Both Skilling and Lay also lied about the strength of Enron's retail energy unit, which never made a profit and was so mismanaged that Enron didn't keep track of customer payments for energy management services.

Former heads of broadband and retail energy are among 16 ex-Enron executives who have pleaded guilty to crimes and agreed to help prosecutors. At least eight of those, including former Enron finance chief Andrew Fastow, are expected to testify against their former bosses. Watkins also is slated to testify for the government.

The jurors, including an additional two women and two men as alternates, were picked after just one day of jury selection in Houston federal court. Opening statements were scheduled for Tuesday.

While thousands of Houston-area residents were laid off in the flame-out of the energy giant, U.S. District Judge Sim Lake made clear to the pool of almost 100 potential jurors assembled Monday morning that the jury box was not the place to avenge those who lost jobs or investments.

"We are not looking for people who want to right a wrong or provide remedies for those who suffered in the collapse of Enron," Lake said.

Observing the trial, CBS News legal analyst Andrew Cohen writes, "It was an extraordinary quick selection process that is sure to generate lingering questions of fairness no matter what ultimately happens at trial."

Opening statements were expected to last through Tuesday, followed by testimony Wednesday.

View CBS News In