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Enron: Where The Market Met The Law

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.


Prosecutors also will remind jurors that the "everyone else was doing it" defense is really no defense at all. They will point to the minutes of board meetings at which the funky deals were approved. They will point to all the internal memos and e-mails that demonstrate a level of knowledge on the part of Skilling and Lay — perhaps not about every detail of every deal but perhaps enough to count — that tying them directly to the criminal conduct.

We will see a procession of former Enron employees and other witnesses who will parade before jurors and testify about all the warning signs that were going off inside Enron while the schemes were underway. Indeed, one of the startling realities of the Enron story is how many people on the inside of the corporation knew what was really going on, tried to stop it, but failed — over and over and over again.

In the defense narrative, Lay and Skilling are victims of their own success; scapegoats for an atmosphere of corporate greed that was much, much larger than Enron itself. Their attorneys will point to the rogue's gallery of Enron underlings and their accountants and lawyers and bankers, many of whom played much more direct roles in the fraudulent schemes that fooled so many employees and stockholders.

Lay, in particular, played such a hands-off role in the dirty work at Enron that his attorneys should be able to reasonably argue at trial that his lack of attention to detail shouldn't result in the equivalent of a life sentence. Skilling, meanwhile, will blame most of his troubles on his protégé, Andrew Fastow, the corporation's former CFO, who was the linchpin for Enron's crimes. Fastow will be a prosecution witness, and his days on the witness stand surely will be the trial's most dramatic.

In many ways, the defense that Lay and Skilling plan to offer jurors at trial is similar to the schemes that landed them and Enron in all this trouble. Enron assembled a house of cards with its off-book partnerships and then, when under the gun from Wall Street to show profits, shifted the company's losses onto those other entities to achieve the goal.

Facing serious prison time — literally "under the gun" — Lay and Skilling similarly intend to shift their own culpability for Enron's deals and policies onto other "entities," their accountants and lawyers and anyone else who had a hands-on role in the decisions that brought down the company. Will this defense work? I don't know. But just look what happened to Enron.

As the trial begins, it's hard to remember another criminal case where so many relevant, material facts already have been established beyond a reasonable doubt.

Two excellent books already have been written about the precise issues that jurors will face. A documentary movie has been made. Countless magazine and newspaper articles have poured through the debris of Enron to explain what happened to it. There are court-endorsed factual findings generated by Enron's bankruptcy.

There have already been several Enron-related trials. Clearly, there is no mystery as to what happened to Enron. The only question that will be raised and that may be answered by this trial is whether what Lay and Skilling did at Enron sinks to the level of criminal conduct.

It is going to take months — and much of the testimony that jurors will hear and see will be tedious. But United States v. Skilling, et al looks to be a fascinating study of the intersection of the law and the market, two great engines of American society, where nuance and ambiguities matter.

Those ambiguities helped Enron — and Lay and Skilling and the market itself — for years and years. But those days are gone, and now the Masters of the Universe, already disgraced and disdained, may be on the cusp of becoming convicted felons as well.

By Andrew Cohen