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January 29, 2006 5:42 pm

Enron ‘Super Bowl’ fraud trial set to begin

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The US’s most pivotal corporate fraud trial begins on Monday in Houston, where Ken Lay and Jeff Skilling, Enron’s two former chief executives, face charges related to the 2001 bankruptcy of what was then the US’s seventh-largest company.

The fraud perpetrated by Enron was so far-reaching it unleashed a backlash against corruption in corporate America, leading to the Sarbanes Oxley Act, which tightened controls and accountability in US corporate life.

Yet the government’s campaign against corporate fraud is riding on this trial. “I consider this to be the Super Bowl of corporate fraud trials,’’ said Jacob Zamansky, a securities lawyer who has been following the Enron trials.

“In terms of a deterrent to future fraud, it is essential that [the government] win.’’

Washington’s record is mixed. Sixteen former Enron executives, including Andrew Fastow, the former chief financial officer, have entered guilty pleas, yet a jury threw up its hands and forced a mistrial for five former mid-level Enron executives, as jurors could not understand the case built by prosecutors.

And, most devastating for the government, the US Supreme Court overturned its conviction of Andersen, Enron's accounting firm, which was put out of business by the litigation.

Mr Lay, 63, is charged with seven counts of fraud and conspiracy that allege he lied about the dire state of the company even as it slid toward the bankruptcy it filed for in December 2001. Mr Skilling, 52, is charged with 35 counts of fraud, insider trading, conspiracy, and misleading auditors.

Both men insist they are innocent. If convicted, they could face life imprisonment.

Their defence is expected to be that neither man knew about the fraud being committed by Enron – a company, which, at its height, had been valued in the stock market at more than $68bn.

Corporate lawyers who have been following the cases believe the jury’s decision will come down to whether they like and trust Mr Lay and Mr Skilling.

Mr Lay, who had been a friend of President George W. Bush, a major promoter of charity, and the go-to man for corporate Houston, has since his indictment cultivated an image as a folksy grandfather who served as more of an ambassador to the community than a hands-on CEO.

Mr Skilling, a tough-guy, workaholic, ideas man who had driven much of Enron’s success, has been focusing interviews on how much he liked his court-ordered charity work following a highly publicised drinking episode in New York.

“Enron was a very, very complex corporate fraud,’’ said Gary Brown, a corporate lawyer who, while serving as a Special Counsel in the US Senate, advised on the Sarbanes Oxley Act of 2002.

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