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Last Updated: Thursday, 26 January 2006, 23:00 GMT
Enron trial to last four months
By Will Smale
BBC News business reporter

Ken Lay
Ken Lay has always said he was unaware of the fraud
An anonymous courtroom in Houston is preparing to host the criminal trial at the centre of the biggest corporate scandal in recent US history.

The top two bosses of former energy giant Enron are finally due up in court, with final jury selection starting on Monday.

Five years have passed since Enron collapsed in the wake of revelations that the firm had hidden hundreds of millions of dollars of debts in complex transactions and secret accounts in order to pretend it was profitable.

The scandal, which shook the business world in 2001, saw the mass resignation and arrest of Enron's directors.

Now the two biggest fish are finally up in court - Enron's founder and former chairman Ken Lay, 63, and former chief executive Jeffrey Skilling, 52.

Both deny any wrongdoing, and will vigorously plead not guilty.

Bogged down

With a trial expected to last four months, federal prosecutors have vowed to leave no stone unturned as they aim to prove that Mr Lay and Mr Skilling not only knew about, but actually orchestrated the giant fraud.

Jeffrey Skilling photographed earlier this month
Jeffrey Skilling has appeared happy and relaxed in recent photos

Mr Skilling faces 31 counts of fraud, conspiracy, insider trading and lying to auditors, while Mr Lay has seven fraud and conspiracy charges against him.

Commentators say prosecutors will have to put forward their cases as clearly as possible, or else risk confusing the jury with complicated financial jargon.

"If the government cannot explain what happened at Enron and why it was wrong, in terms a jury of 12 lay persons can understand, then the government will likely fail to obtain convictions," says former federal prosecutor Ross Albert.

Fellow former federal prosecutor Samuel Buell agrees, saying prosecutors should ensure the jurors concentrate on the whole picture and not get bogged down with each and every individual fraudulent transaction.

"Once you put all these transactions together and you understand how they work together to further an objective - that was designed to present a picture of the company that did not match reality - it's not that complicated," he says.

Delaying tactics

For Mr Lay and Mr Skilling's part, their lawyers have so far attempted both to postpone the court case and to get it moved out of Houston, Enron's home city.

Judge Lake's courtroom
The Houston courtroom is rather basic

Their lawyers argue that the continued hostility to Enron's former directors in the city is so great that the defendants will not get a fair trial.

They pointed to the negative comments given by some prospective jurors when questioned about what they thought of Mr Lay and Mr Skilling.

Mr Lay was described by one as "a snake in the grass" and Mr Skilling as a "crook".

Yet their pleas have been brushed aside by the trial judge, US District Judge Sim Lake, who has turned down repeated requests to transfer proceedings to Denver, Phoenix or Atlanta.

Judge Lake has said he is sure the final chosen jury will only decide upon the evidence put before it.

If these guys [Mr Lay and Mr Skilling] take the stand, they'd better be very careful and they'd better be sure there's no 'smoking gun' document
Trial commentator Gary Brown

He has also repeatedly refused to grant the defence lawyers the power to question potential jurors directly during jury selection.

Instead, all questioning will be carried out by Judge Lake, as is normal practice.

Judge Lake said he was sure the "adequate safeguards" were in place and that they would result in "the selection of a fair and impartial jury in this case".

'Others did it'

Most commentators predict that Mr Lay and Mr Skilling's central defence will be that they did not know about the fraud, and that it was instead the work of less senior directors.

Former Enron finance chief Andrew Fastow with wife Lea Fastow
Former finance boss Andrew Fastow is expected to be a key witness

In a speech last month, Mr Lay laid the blame squarely at the feet of the company's former finance chief, Andrew Fastow.

Mr Lay insisted that "sadly, tragically", his trust in Mr Fastow was misplaced.

The biggest problem for the defence is that a number of former colleagues have been given plea bargains.

Accepting their guilt, they have agreed to become prosecution witnesses and give evidence against Mr Lay and Mr Skilling - in exchange for plea bargains and reduced sentences.

Mr Fastow and other expected prosecution witnesses, such as former Enron chief accountant Richard Causey, will inevitably try to implicate their former bosses.

ENRON FACTS
Founded in 1985 by Ken Lay
Originally a gas pipeline business
Moved to become an energy trader
21,000 staff when it collapsed in 2001

There is a second, more challenging defence that Mr Lay and Mr Skilling could try: the audacious claim that Enron did not actually do anything wrong.

Instead, they could argue, its complex financial transactions were just that - complex rather than fraudulent, and in fact fairly common business practice for large corporates.

They may add in turn that Enron was simply being victimised by overzealous federal prosecutors.

But the 16 Enron employees who have thus far pleaded guilty could make presenting this argument a risky strategy.

"If these guys [Mr Lay and Mr Skilling] take the stand, they'd better be very careful and they'd better be sure there's no 'smoking gun' document," says Gary Brown, former special counsel for US Senate Committee on Governmental Affairs.

"Once your credibility is lost on the jury, it's over."


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