updated 5/10/2006 6:15:43 PM ET 2006-05-10T22:15:43

Jurors in the fraud and conspiracy trial of Enron Corp. founder Kenneth Lay and former Chief Executive Jeffrey Skilling will be able to consider whether the two men closed their eyes to possible crimes at their company, the judge decided Wednesday.

U.S. District Judge Sim Lake finalized lengthy jury instructions that he will read to the panel before closing arguments begin on May 15, providing everything from legal definitions to guidance on what jurors can and cannot consider while reaching a verdict.

Testimony ended Monday in the premier trial to emerge from Enron’s collapse into bankruptcy proceedings in December 2001. Attorneys on both sides are preparing a dozen hours of closing arguments summarizing more than 14 weeks of testimony that involved 54 witnesses.

Jury instructions include a so-called “knowledge and deliberate indifference” instruction that could provide the defense teams with ammunition for a strong appeal if either of the defendants are convicted, experts said. The instruction allows the panel to consider a less direct route to guilt if jurors find Lay and Skilling deliberately blinded themselves to obvious signs of fraud.

“Prosecutors are trying to hedge their bets and say if, for some reason, jurors don’t find a direct link with all the evidence they presented, there’s still one more way they can say whether the behavior was wrong — to find either or both the defendants did not ask the obvious questions because they did not want to know the answers,” said Nancy Rapaport, dean of the University of Houston Law Center.

David Berg, a Houston civil litigator, said the instruction appears to contradict the prosecution’s contention that Lay and Skilling lied about Enron’s strength when they knew fraudulent activity gave the company an appearance of success.

Both men testified and agreed, under prosecutors’ questioning, that they were active managers informed of Enron’s inner workings. They also contended no fraud occurred at Enron other than that committed by a few executives who skimmed money from secret side deals. They attributed the company’s failure to a combination of bad press and lost market confidence.

Jury instructions are critical because a flawed instruction can prompt appellate judges to overturn a conviction, regardless of whether strong evidence backed it up.

And appellate courts are watching, Berg added.

Last year a flawed jury instruction prompted the U.S. Supreme Court to overturn former Enron auditor Arthur Andersen LLP’s June 2002 conviction of obstruction of justice. Justices unanimously ruled that a vague jury instruction allowed jurors to convict without finding that criminal intent fueled mass destruction of Enron-related audit documents.

Lake didn’t respond Wednesday when Lay lawyer George Secrest voiced opposition to the deliberate indifference instruction, which indicated it will be among those the jury hears next week.

Skilling faces 28 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces six counts of fraud and conspiracy.

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