updated 5/25/2006 8:53:06 PM ET 2006-05-26T00:53:06

Kenneth Lay may have paved his way to prison when he testified in his own defense against fraud and conspiracy charges, snarling at a prosecutor and telling a jury of middle-class men and women that he couldn’t turn off his rich lifestyle “like a spigot,” despite $100 million in personal debt.

Jeffrey Skilling may have guaranteed himself a string of convictions when he couldn’t counter incriminating testimony from prosecution witnesses with more than, “It’s not true.”

The epic undoing of the founder and former chief executive of what was once the seventh-largest company in the country and his hand-picked successor came in telling moments throughout the trial of more than four months.

Lay and Skilling entered the trial with a claim that shocked many: Not only were they innocent of wrongdoing, no fraud at all occurred at Enron. Skilling boiled it down with a statement at the end of his 7½ days of grueling testimony:

“We are innocent. By ’we’ I mean Enron Corp.,” he said.

Prosecutors knew going in that both defendants would seek to exonerate not only themselves, but the company as well. Lay forecast that approach in a speech to Houston business and academic leaders in mid-December, while Skilling’s legal team used a court filing to signal their intent.

But Enron fell so precipitously into bankruptcy proceedings in December 2001 from being the nation’s seventh-largest company the year before that something had to be rotten, whether Lay and Skilling knew about it or not.

The government sought to show that rot, and how Lay and Skilling led an effort to hide it — a conclusion both continue to vehemently deny as they vow to appeal their convictions.

It wasn’t easy. No one sat around a table in a dark, smoke-filled room and brazenly stated that they would commit crimes to fool investors into believing Enron deserved its powerhouse image.

No one even typed a memo, dashed off an e-mail or left a phone message indicating criminal intent, leaving prosecutors with little hard evidence.

Prosecutors presented their case like it was built over four years — brick by brick — with much emphasis on testimony from former executives who pleaded guilty to crimes rather than face their own trials, convictions and lengthy prison terms.

Those division heads and others said they felt pressure — tangible or intangible — from Skilling and Lay to meet earnings targets or mask bad news at any cost and to maintain Wall Street’s adoration.

The government also painstakingly worked to present its cadre of 25 witnesses as an ensemble cast without any stars, to be seen as a whole.

The media eagerly touted the testimony of former Chief Financial Officer Andrew Fastow, but his testimony was in the end no more important than that of other ex-executives. De-emphasizing the importance of the man held responsible for forging schemes that helped sink Enron was among the prosecution’s smartest moves.

Fastow was an easy target for the defense. He roped his wife into his crimes. He likely could have prevented her from being indicted had he cut a deal with prosecutors within six months of being indicted himself, much as junk-bond pioneer Michael Milken copped a plea to keep the government from charging his brother.

Fastow endured his first public flogging during four days of brutal testimony and cross examination. He laid bare his shame. He never minimized his culpability and greed. And he insisted he and Skilling “committed crimes together,” and Lay knew disaster was imminent in the fall of 2001 when he claimed publicly that Enron was fundamentally strong.

The key was, others provided equally damaging testimony about how Lay and Skilling knew Enron wasn’t what it purported to be thanks to smoke and mirrors that masqueraded as proper accounting.

Those included former Enron Treasurer Ben Glisan Jr. Now federal inmate No. 20293-179, Glisan is in prison for crafting fraudulent financial structures Enron used to hide losses and bad investments — structures Lay and Skilling insisted were proper.

But others with no criminal taint added fuel to the prosecution’s fire. Vince Kaminski, a former top risk analyst whom Skilling respected, said the ex-CEO swept him and his staff from a risk assessment squad, complaining they acted too much like “cops” rather than deal facilitators.

Then came the defendants, the stars among the defense’s 29 witnesses. Observers expected Skilling to live up to his reputation for being temperamental and abrasive, but it was Lay who bickered and bristled, even with his own lawyer.

Lay, known for making pious-sounding religious references, arrogantly defended his extravagant lifestyle, including a $200,000 yacht for wife Linda’s birthday party, despite $100 million in personal debt.

“It was difficult to turn off that lifestyle like a spigot,” Lay said.

Lay, a local mover-and-shaker dubbed “Kenny Boy” by President Bush, once told prosecutor John Hueston that Enron’s “corpse was on the gurney” for the government to carve up.

Lay was convicted on all counts, while Skilling was acquitted on nine insider trading charges stemming from trades of Enron stock he made in 2000. The ex-CEO was convicted on 19 other counts of fraud, conspiracy, lying to auditors and insider trading.

“This whole thing of saying there was nothing wrong at Enron, it just strains the imagination,” said Gary Brown, former special counsel for the Senate Committee on Governmental Affairs in its investigation of Enron’s December 2001 crash.

Sam Buell, a former federal prosecutor with the Justice Department’s Enron Task Force who secured the indictment against Skilling, said the government had witnesses from myriad units — trading, finance, broadband, investor relations and retail energy — who told a story that hung together when viewed as a whole.

“I think the defense probably felt they just couldn’t deviate from the playbook that says you have to give the jury an affirmative story of your own that explains the whole case — that it would be too risky just to play defense and poke holes in the government’s case,” Buell said.

However, the story that the government witnesses were liars or misunderstood what they thought was sinister “just wasn’t plausible and undermined the credibility of everything they did and said,” Buell said.

Jurors said they acquitted Skilling on the nine insider trading counts for lack of evidence. But they said when viewed overall, the government’s case — despite its lack of hard evidence beyond the word of witnesses — pointed to the pair’s guilt.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.71%
$30K home equity loan FICO 5.26%
$75K home equity loan FICO 4.70%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.42%
13.42%
Cash Back Cards 17.94%
17.94%
Rewards Cards 17.14%
17.14%
Source: Bankrate.com