Image: Ken Lay
Dave Einsel  /  Getty Images
Ken Lay walks with his wife Linda and Houston Police officer K.R. Perkins into the U.S. Courthouse in Houston on Monday morning.
updated 5/15/2006 6:21:05 PM ET 2006-05-15T22:21:05

Enron Corp. founder Kenneth Lay and former Chief Executive Jeffrey Skilling instigated a massive fraud before the company collapsed in one of the biggest corporate scandals in U.S. history, a federal prosecutor said on Monday.

Lay and Skilling committed crimes “through accounting tricks, fiction, hocus-pocus, trickery, misleading statements, half-truths, omissions and outright lies,” prosecutor Kathryn Ruemmler told jurors and a packed courtroom in closing arguments.

“In this courtroom, ladies and gentlemen, the cover stories have been blown. Mr. Lay and Mr. Skilling are still clinging to the cover stories,” she said.

On a large screen, Ruemmler displayed for jurors a comment Lay made during his often contentious testimony that she said encapsulated the Enron culture that the two men nurtured and embraced:

“Rules are important, but they should not ... you should not be a slave to the rules either.”

Ruemmler, pacing before the jury box as the eight-woman, four-man panel listened intently, said Lay and Skilling “lied over and over and over again” and “bent rules, pushed rules and then pushed over the line” in the years before Enron sought bankruptcy protection in December 2001.

Video: Enron prosecution begins closing arguments The collapse left thousands jobless and wiped out billions of dollars from investors who believed their claims.

“That is a fraud. That is why we are here. That is why this matters,” Ruemmler said.

Jurors will hear from the defense on Tuesday and begin deliberations Wednesday after getting the last word from prosecutors in the case, which lasted more than 14 weeks and featured 54 government and defense witnesses.

Ruemmler said Lay and Skilling repeatedly lied to pump up Enron’s stock price and win adoration from Wall Street and their peers.

When Enron’s stock price was high, “these men and their lieutenants were on top of the world,” Ruemmler said.

But throughout 2001 the stock price fell steadily. Skilling abruptly resigned in mid-August that year after only six months as CEO, leaving Lay to resume the role in addition to being chairman.

At that juncture, both men could have told investors that the company’s broadband unit had failed, the retail energy business was awash in losses, financial structures designed to lock in gains from assets and investments were crumbling, and asset values were overblown, Ruemmler said. Instead, both assured Wall Street and investors that Enron was in the best shape ever.

“They chose to lie,” she said.

Ruemmler reminded jurors of a slew of written warnings Lay received from employees after Skilling’s departure that questioned Enron’s accounting integrity. He also received updates from top lieutenants that Enron was weak, which Lay disputes. Yet Lay continually reassured employees that the company was strong and would survive an increasing storm of public scrutiny in the fall of 2001.

“Those were flat lies,” she said, accentuating her words by pounding a podium in front of the jury box. “He had no right to do that. No right to do that.”

She added that both men could have asked more questions about unusual financial structures or conflicts of interest and chose not to. Jurors will be able to consider whether the defendants deliberately avoided learning bad news, though Ruemmler pressed that option more with Lay than Skilling.

“Over and over and over again, Mr. Lay chose not to ask hard questions. The law says you can’t do that. You cannot escape liability by putting your head in the sand,” she said.

Lay, who took notes on a yellow legal pad, occasionally exchanged a smile with Skilling, who sat two seats down from him at the defense table. The two shook their heads at each other slightly in apparent disbelief.

Before Ruemmler launched the dozen hours of closing arguments split between both sides, U.S. District Judge Sim Lake instructed jurors to weigh with “great care” the testimony of witnesses who pleaded guilty as part of a deal with prosecutors.

Eight ex-Enron executives who cut plea deals testified against Lay and Skilling. A key element of the two men’s defense is that these executives admitted to crimes they never committed and lied about their bosses in the hopes of winning more lenient punishments.

Ruemmler noted each of the witnesses “came in and owned up to what they did,” while Lay and Skilling offered excuses, claimed memory lapses and pointed to statements by accountants and lawyers that Enron’s inner workings were proper.

The trial produced little hard evidence against the defendants, leaving jurors to decide whom to believe.

Lay and Skilling, who both testified in their own defense, counter that no fraud occurred at Enron other than that committed by a few executives who skimmed millions from secret side deals. They say bad publicity and diminished market confidence combined to push Enron into bankruptcy proceedings.

Ruemmler called that defense “absurd” and “ridiculous,” both words Skilling used to dismiss some of the allegations against him during his lengthy testimony.

“Don’t buy it,” Ruemmler urged. “Hold them accountable for the choices that they made and the lies that they told.”

Skilling faces 28 counts of fraud, conspiracy, insider trading and lying to auditors related to his activities from 1999 to August 2001. Lay faces six counts of fraud and conspiracy stemming mostly from the period after he resumed as CEO upon Skilling’s departure.

On Thursday, Lay will be on trial again — before Lake, but without a jury — in a case related to his personal banking. In that case, the government contends he obtained $75 million in loans from three banks from 1999 through 2001 and reneged on agreements not to use the money to carry or buy margin stock. He is charged with one count of bank fraud and three counts of making false statements to banks in the case.

Lake plans to issue his verdict in the banking case, which is expected to last several days, after jurors in the larger conspiracy case render theirs.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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