Video: Enron Trial

updated 1/30/2006 1:04:10 PM ET 2006-01-30T18:04:10

It may well be the white-collar version of the O.J. Simpson case with a defense, which could be just as groundbreaking.  Today is day one of the Enron trial or more specifically the trial of Enron founder Ken Lay and former Enron CEO Jeff Skilling, who together face dozens of charges including conspiracy, fraud, and insider trading.

Shareholders lost upwards of $60 billion and it seems Skilling and Lay's attorneys are going to tell the jury that Enron was actually a pretty healthy company.  That everything they did was legal and a few bad apples in conjunction with overzealous prosecutors brought the company down.  The outcome of this case could become the legacy of corporate fraud during the 1990s economic boom. 

Daniel Petrocelli, the attorney for Jeffrey Skilling and Michael Ramsey, the attorney for Ken Lay joined Dan Abrams on ‘The Abrams Report’ to discuss the case they plan to present to the court.

To read an excerpt from their conversation, continue to the text below. To watch the video, click on the "Launch" button to the right.

DAN ABRAMS, HOST, ‘THE ABRAMS REPORT’:  Let me ask you a pretty simple question.  Do I have this right?  You are going to argue that Enron was basically a sound company when it went under? 

DANIEL PETROCELLI, ATTORNEY FOR JEFFREY SKILLING:  Not only argue, but prove, Dan.  I mean I have never seen a situation where there has been a wider gulf between perception and reality than this Enron story.  I mean the public made up its mind.  The media made up its mind and of course the government made up its mind long before anybody really bothered to get to the facts.

Now you know Jeff Skilling, you know, has had a hard time having to endure the last three or four years getting ready for this trial.  But I will tell you this much.  He's relieved to finally get there.  We're at the threshold and finally, finally, the facts of this story are going to come out. 

ABRAMS:  But how are you going to argue to a jury of ordinary folks that a company was healthy when it completely went out of business? 

PETROCELLI:  Well there are such phenomena in the world of business, Dan, particularly with respect to financial institutions called runs on the bank.  We had them in our great depressions.  They almost brought the country down until the Federal Reserve was created to protect banks.

In many respects we had a run on the bank at Enron.  And we are going to get into that in detail and explain exactly how in a few short weeks an immediate and temporary and punishing drain on the liquidity of the company could literally suffocate it.  And that's exactly what happened.  And Enron was rich in earnings.  It was a liquidity problem.  It was a bankruptcy of liquidity not solvency.

ABRAMS:  But wasn't there also a problem about lies?  I mean one of the things and correct me if I'm wrong because this is a somewhat complicated case.  I want to make sure I understand this.  But one of the things that they are alleging that Skilling did is that he exaggerated Enron's earnings.  He was hiding losses, et cetera.  And my understanding is that you all are going to argue that he may have been doing some of that, but it was legal.  And are you concerned that jurors are going to say wait a second, that's OK? 

PETROCELLI:  Well let me be real clear about this.  I don't know where you got your information.  But we in no way, shape or form are going to be arguing that Jeff Skilling lied about anything.  He absolutely had no reason to lie, would not lie, could not lie, did not lie. 

He did not exaggerate, mislead, deceive, lie, whatever word you want to put on there.  This is all part of the mythology that has built up around Enron.  The truth is that Jeff Skilling told the truth about the company.  It was one of the most over disclosed companies in the country at the time.  It was one of the highest profile companies.  It was one of the companies that investors and analysts knew more about than any other company and prior to the bankruptcy, Dan, there wasn't one law enforcement official who had any problem with Enron.  Nobody came knocking on the door accusing Enron of fraud, Dan.

ABRAMS:  But the same people in the industry would say we were totally fooled and lied to.  They would say all the reports we got from Enron were full of misstatements.

PETROCELLI:  Now Dan, how can hundreds of the most astute, sophisticated financial analysts whose job it is to cover a handful of companies possibly be deceived not one day, not two days, but three years?  I mean it's preposterous and that's the problem with this case. 

Now some of these corporate fraud cases, I grant you, there have been situations involving a fraud where both sides agree that a fraud occurred and the only question is whether the guy at the top knew about it.  That is not this case, Dan.  When you ask people on the street what was the fraud at Enron they cannot tell you.

ABRAMS:  Well the answer would be is that they continued to mislead investors.  They continued to lie in their reports about the success or failures.  They continued to hide losses, et cetera, and that ultimately, effectively the Ponzi scheme fell in on.

PETROCELLI:  Well you know that's why in a way we are happy to be starting this trial.  Because finally, all of these mythologies are going to be destroyed.

ABRAMS:  I got to clear up one other issue about a mythology.  I've heard that you know you as a New Jersey heading down to Houston, you actually bought a pair of cowboy boots.

PETROCELLI:  Not only did I buy a pair of cowboy boots, but I'm wearing them now, Dan.

No, you're going to have to come down to Houston. 

ABRAMS:  I thought I might get just like a little peek look.  You know we're doing a segment later on whether this porn star should get a visa to this country and I'm thinking I'd like to see your cowboy boots.

Final question, first criminal trial for you, no concerns there, right?

PETROCELLI:  I have a lot of great help, so I'm going to try to get through it. 

ABRAMS:  Mr. Ramsey, I was just talking to Dan Petrocelli about the defense that Jeff Skilling is going to be presenting.  Is part of your defense also going to be that Enron was a fundamentally sound company? 

MICHAEL RAMSEY, ATTORNEY FOR KEN LAY:  Absolutely.  The third quarter of 2001, the quarter before the bankruptcy was the strongest quarter Enron wholesale ever had.  And it was an enormous profit center.  It was a wonderful machine that was making money hand over fist.

ABRAMS:  So Ken Lay's defense is not going to be I was just the CEO and I didn't know everything that was happening? 

RAMSEY:  Absolutely not.  I mean Ken Lay had been CEO before.  He moved back into that position after Jeff left.  He was getting his hands on the wheel, but he had been there as chairman the whole time. 

ABRAMS:  This is from July 8, 2004 after the indictment. 

(BEGIN VIDEO CLIP)

KENNETH LAY, FORMER ENRON CEO:  As CEO of the company, I accept responsibility for Enron's collapse as I've said before.  However, that does not mean I knew everything that happened at Enron.  And I firmly reject any notion that I engaged in any wrongful or criminal activity. 

(END VIDEO CLIP)

ABRAMS:  The I didn't know everything that happened at Enron sure sounds like he's saying I was just the CEO.

RAMSEY:  No, no, no, no.  He is accepting responsibility as a business leader for the collapse of the company, for the bankruptcy of the company.  He did not know everything.  By Enron's standards were minor thefts going on by Andrew Fastow over the years, which finally were gradually coming to light I think which set off the panic that eventually sank Enron.

What people don't understand is the very size of the Enron trading operation is one of the things that killed Enron.  Because when they lost the faith of counter parties because of the Fastow situation, they started demanding full collateral.  No company could have supported that way.

ABRAMS:  Andrew Fastow is expected to be one of the star witnesses against both your client and Jeff Skilling.  And yet, you're going to I assume you know paint him as someone who was engaged in crimes.  He's going to have pled guilty.  The problem is, as you know, that some of his crimes were ones that benefited Enron and not him personally. 

RAMSEY:  No, no.

ABRAMS:  So none of them.  You are saying none of the crimes benefited the company? 

RAMSEY:  No, no.  He stole for his own account.  He stole on his own with all of the attributes of a secret criminal activity that you would expect off shore effect, off shore accounts.

ABRAMS:  But that's not all of the crimes.  I mean the bottom line is...

RAMSEY:  Well there were no crimes that Enron was aware of is what you've got to understand.

ABRAMS:  But I'm focusing on some of the crimes that Fastow is accused of.

RAMSEY:  Well tell me one. 

ABRAMS:  Robert Heim, what's the name of the crime? 

ROBERT HEIM, FORMER SEC ATTORNEY:  Well Dan, I think that Andrew Fastow is definitely the government's star witness.  Essentially the way the government has portrayed Mr. Fastow is having set up these partnerships and other financial maneuvers that were really designed to get liabilities off Enron's balance sheet and essentially pump up the earnings.  Now remember the government has to prove this beyond a reasonable doubt.

ABRAMS:  Right.

HEIM:  But certainly the government's case is going to be based upon Andrew Fastow's conduct and I am sure that Mr. Fastow is going to be providing some pretty damaging testimony in support of the government. 

ABRAMS:  When you say part of the bottom line and let's be clear because I want to make sure my question is accurate.  The trial is starting Monday.  I've still got three days to brush up on this if I'm wrong, but Mr. Heim—and I'll let you respond to this, Mr. Ramsey—but Mr. Heim, my understanding was that much of what Andrew Fastow is accused of actually helped Enron or he did it for the benefit of Enron in addition to other things he was accused of to benefit himself. 

HEIM:  Yes, the indictment in this case against Mr. Skilling and against Mr. Lay portrays a situation where Andrew Fastow and others at Enron set up a complex maneuvers and financial situation, which essentially helped mislead investors and make Enron look like a much more profitable company than it really was.  And certainly the government is going to put Mr.  Fastow on the stand help make its case.

ABRAMS:  So the question, Mr. Ramsey, is why would he do that and not consult his superiors if it's benefiting Enron?

RAMSEY:  Well you're assuming that the things that Fastow as CFO structured the off-balance sheet financing, which every company in America does, were somehow crimes.  They were not.  And that's what nobody seems to get.  The point is the man was a brilliant man.  Fastow is a pitiful creature in this sense, he's got a brilliant mind.  He did wonderful financing for Enron, but it was not criminal.  What he did for Enron were not crimes. 

ABRAMS:  And Mr. Heim, see this is really what we're going to hear.  We're going to hear the defense teams saying that Lay and Skilling and Enron did not do anything wrong, that the only things that were done wrong here was when Fastow tried to benefit himself. 

HEIM:  That's right.  And I think that's going to be one of the key issues of the whole trial, is whether what Mr. Fastow did with his off-balance sheet transactions, was in fact illegal.  The government is going to have its experts testify that it was.  The defendants I'm sure will have experts to rebut that and it leaves the jury, which is essentially probably people untrained in accounting in a very precarious position to be able to try to evaluate these very complicated accounting rules, which a lot of times were not crystal clear. 

ABRAMS:  And Mr. Ramsey, are you worried about that?  About the complexities of this case?

RAMSEY:  No, not at all.  I informed by the government they're not even going to call experts.  I think they are admitting now that they understand that the off balance sheet financing Enron did is just as common as grass in the corporate world.

ABRAMS:  Very quickly, Mr. Ramsey, who then is at fault for the collapse of Enron? 

RAMSEY:  Well, there are a series of converging events that caused the panic.  We were in a down at the tail end of the bubble bursting.  There were a lot of other events that made the market nervous, but what put it over the edge, the catalyst was Wall Street beginning to smell Andrew Fastow and what he was up to.

Watch the 'Abrams Report' for more analysis and interviews on the top legal stories each weeknight at 6 p.m. ET on MSNBC TV.

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