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Last Updated: Wednesday, 1 February 2006, 21:38 GMT
Enron chiefs 'involved in fraud'
Ken Lay, former Enron chairman, arrives at court with his wife Linda
Enron's former chairman Ken Lay says he knew nothing of the fraud
The chairman and chief executive of the collapsed energy firm Enron were highly involved with the company, the first prosecution witness has told a court.

Enron's founder and chairman Ken Lay and chief executive Jeffrey Skilling are on trial for massive fraud.

The two men deny the charges and claim they knew nothing of the company's problems and debts of $40bn (23bn).

But former head of investor relations Mark Koenig implicated the men as he testified for the prosecution.

The firm's sudden collapse in 2001 was the biggest corporate scandal in recent US history.

The trial in Houston, Texas, is expected to last four months.

Ramping the stock

Mr Koenig is one of 16 former Enron executives who have agreed to help the prosecution after pleading guilty to crimes related to the fraud, including changing the company's accounts.

Giving evidence on Wednesday, Mr Koenig alleged that the main reason earnings reports were altered was to make Enron seem more profitable than it was, impressing analysts and boosting the company's share price.

Mr Koenig claimed that earnings per share figures had been increased to 34 cents from 32 cents in July 2000 on the order of Mr Skilling because "we thought it would maintain or increase the stock price".

He also alleged that he discussed an earlier fudging of figures with Mr Lay.

The defence is expected to argue that Enron was a big company and Mr Lay and Mr Skilling did not know everything that was happening.

Instead of them being the masterminds behind the fraud, the defence claim it was carried out by more junior staff, led by former finance chief Andrew Fastow.

Harsh hearing?

Mr Fastow struck a plea bargain with the authorities last year in return for a reduced sentence and is expected to give evidence against the two men.

The defence has claimed that many of those helping the prosecution may have been pressured into giving evidence in the hope of getting a reduced sentence.

Mr Lay faces seven counts of fraud and conspiracy, while Mr Skilling faces 31 counts of fraud, conspiracy, insider trading and lying to auditors about Enron's financial position.

If convicted on all counts, the two defendants are likely to spend most of the rest of their lives in prison.

Defence lawyers wanted the trial moved away from Houston, Enron's hometown, fearing that remaining anger over the firm's collapse could harm jury independence.

About 4,000 people lost their jobs, the majority of whom worked in Texas, while many others saw their life savings disappear as a consequence.

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