Prosecutors Keep It Simple

U.S. Government prosecutor John Hueston walks to the federal courthouse in Houston, Monday, Jan. 30, 2006 for the start of the Enron fraud trial. (AP Photo/Matt Slocum)
Attorney Andrew Cohen analyzes legal issues for CBS News and He is presently in Houston observing the Enron trial.

Prosecutors did a smart thing Tuesday morning during their opening statements at the trial of former Enron chiefs Kenneth Lay and Jeffrey Skilling. Instead of focusing upon arcane accounting rules and the complex but crooked "special purpose entities" that brought down the company, they portrayed the defendants as simple but ruthless hucksters, who lied to investors and their own employees in order to keep Enron's stock prices high and their own compensation soaring. "It's a case about lies," jurors were told.

Over and over again, federal prosecutor John C. Hueston told jurors in this corporate fraud and conspiracy trial that Lay and Skilling purposely deceived the public into thinking that Enron's corporate health was rosy even when it was clear that it was not. Over and over again, the government argued, Lay and Skilling ignored the chaotic reality inside Enron and used illegal and improper accounting schemes to hide the massive and growing problem. "I don't want to hear the bad news," Skilling reportedly told an associate, before he went out and told the world that all was well with what was then the seventh-largest corporation in the nation.

For the feds, it was a good, simple start to a trial that easily could devolve for jurors into a confusing mess of corporate jargon and financial lingo. By framing the story as one between the big guys — Hueston told jurors that Skilling ultimately took in $150 million and Lay took in $220 million — and the regular guys — the investors and employees who weren't working off the same information as were the defendants — the government took a large step in engaging jurors in the narrative they want them to remember. The financial complexities of this case are unfathomable. But everyone can understand how wrong it is for a boss — or anyone, for that matter — to say one thing in private and another in public.

So basic was the presentation that jurors didn't hear about those special purpose entities — the fraudulent, off-the-books partnerships that hid Enron's debts and sealed its doom — until Hueston was about one-third of the way through his opening statement. "It's not about the accounting, it's about the lies," Hueston told the panel. The words "Andrew Fastow," identifying the former Enron Chief Financial Officer who was at the center of those crimes (and who has since pleaded guilty and will be a prosecution witness later in the trial), didn't even get mentioned until nearly an hour into the presentation. By that time, jurors had been given example after example of the defendants' alleged deceptions. In court the government played a videotape of Jeffrey Skilling publicly hyping the "big, big numbers" from one of Enron's sub-companies. They weren't "big, big numbers," the prosecutor told jurors, they were "big, big losses."

Moreover, jurors were given plenty of reasons why Lay's anticipated defense probably won't work. Far from being a removed CEO who didn't get his hands dirty in the specifics of individual deals, the government attorney told the panel that Lay kept himself fully informed. Lay and Skilling, Hueston said, met regularly "with their top lieutenants," went to management meetings, received budget and earnings updates, helped review filings with the Securities and Exchange Commission, reviewed and edited press releases, participated in board and audit committee presentations, and got risk updates. "They knew about Enron's total debt and its off-balance-sheet debt," Hueston told the panel, and Skilling himself encouraged his deputies to cook the books. In other words, the government says, the "know-nothing" executive defense simply won't fly.

The feds also made sure to educate jurors about the nature of the relationship between individual investors, like me and you, and the corporate executives in whose companies we invest. Lay and Skilling, Hueston reminded the panel, had special duties and responsibilities to their shareholders. "When an investor buys a share of stock they buy the right to trust the chief executive officer," the prosecutor said, "the right to trust that that officer will remain loyal." And yet both Lay and Skilling were selling their Enron stock at a time when they were telling their own employees and stock investors that Enron was in fine shape. Worse, prosecutors made sure to point out, the company precluded its own employees from selling their stock even as the shares were plummeting — a condition that did not exist for the defendants