After 54 witnesses in more than three months, testimony ended Monday in the federal fraud and conspiracy trial of Enron Corp. founder Kenneth Lay and former Chief Executive Jeffrey Skilling.
The two defendants appeared upbeat shortly after the jury was released for the rest of the week.
“We feel real good about where we are right now,” the 64-year-old Lay said outside the Houston federal courthouse. “We think, in fact, in the end we’re going to prevail.”
“It’s been a long time coming,” Skilling, 52, told reporters.
The eight-woman, four-man jury will return May 15 to hear closing arguments over three days before deliberating the outcome of the premier criminal case to emerge from one of the biggest corporate scandals in U.S. history.
Both defendants testified as part of a 29-witness defense lineup. The government called 22 witnesses in its case, which rested March 28 — including eight ex-Enron executives who have pleaded guilty to crimes — and three more rebuttal witnesses on Monday.
After the defense teams rested their cases midmorning, the government offered witnesses in rapid succession to reinforce prosecutors’ contention that Lay and Skilling committed crimes at the company before it spiraled into bankruptcy proceedings in December 2001.
Skilling lawyer Daniel Petrocelli said outside of court that while the defense teams had eliminated some witnesses — as the government had before them — the defendants are confident that jurors will enter deliberations with an open mind and that they were ready for “vigorous debate and discussion.”
“We do think the jury has heard enough to make a decision,” Petrocelli said.
Lay’s lead lawyer, Michael Ramsey, returned to court Monday after being absent for about a month after having two stents implanted in arteries to relieve blockage.
“I’ve got a few pipes that have been blown out, but they’ve been patched,” Ramsey said, noting that he will help present the Lay team’s closing argument. “We’re glad this case is over with. It’s time to get to the jury,” he said.
Prosecutors declined to comment, as is customary in high-profile cases.
The star defense witnesses were Lay and Skilling. As expected, both adhered to their stance that no fraud occurred at Enron, they did nothing wrong, and bad press and a skittish post-Sept. 11 market combined to siphon investor confidence from the company.
The government contends Lay and Skilling repeatedly lied about Enron’s strength when they knew accounting tricks and false optimism masked losses and failing ventures.
One of the government’s rebuttal witnesses testified that Lay has lied before when under pressure.
“Under certain business exigencies, I have known Mr. Lay not to tell the truth,” said former Enron oil and gas executive Mike Muckleroy, who worked for Lay before and after Enron was founded in 1985.
Muckleroy was referring to financial problems created by top oil traders in the so-called Enron oil scandal in 1987. But he couldn’t provide that context to jurors because U.S. District Judge Sim Lake prohibited prosecutors from addressing the issue in the trial. Lay was never charged with any wrongdoing in the scandal.
However, Muckleroy, whose actions in 1987 helped Enron avert financial crisis, told jurors Monday he was fired in 1992 or 1993 because he wasn’t a “team player.”
“I’d been very unhappy with the direction that Mr. Lay had set for the company and some of the people he had hired, including the other defendant, Mr. Skilling,” Muckleroy said.
Both sides in the trial have lacked tangible evidence to back their claims, relying heavily on the credibility of their witnesses, especially the defense.
Whereas Skilling confounded many expectations by mostly maintaining his composure on the witness stand, though, Lay surprised observers by shedding his diplomatic persona. The Enron founder questioned his own lawyer’s tactics and bristled with anger when a prosecutor challenged his testimony.
Lay insisted during six days of testimony that he was telling the truth when praising Enron’s strength to employees and investors in the fall of 2001, just months before it filed for bankruptcy protection.
But he admitted during cross-examination that he hadn’t investigated a slew of written warnings about Enron’s accounting integrity from employees.
Lay also defended tapping Enron for more than $70 million throughout 2001, even as the company cratered. He repaid most of those loans by selling shares back to the company but didn’t disclose the sales publicly because regulations at the time didn’t require him to do so until 2002.
Prosecutors pointed out that in September 2001 Lay told employees he had bought stock — a fraction of what he sold — and encouraged them to do the same.
The government’s last rebuttal witness, former Enron employee Patti Klein, testified Monday she tracked stock sales by top executives and would have liked to know Lay sold more than 1.7 million shares back to Enron in 2001.
Klein works at Portland General Electric, the Pacific Northwest utility Enron bought in 1997. The utility severed its ties with Enron last month and issued common stock as an independent company.
When Lay lawyer George Secrest asked if Klein realized Lay had acted legally when not disclosing the share sales, she replied Lay had told workers and investors that Enron’s disclosures would be more transparent when he resumed as CEO upon Skilling’s abrupt resignation in mid-August 2001.
“His sales that I had tracked online were nowhere near those numbers,” she said. “Did it sound illegal? Not maybe necessarily, but it sure didn’t sound transparent.”
Skilling testified for 7½ days before Lay. He emerged bruised but without having sustained a knockout punch.
The former CEO also insisted he truthfully touted the company’s strength. He defended financial structures and partnerships that prosecution witnesses described as fraudulent, but lacked evidence to prove the accusations were false.
His fate may hinge on whether jurors believe his testimony regarding allegedly illegal stock sales.
Skilling claimed he couldn’t remember placing an order to sell 200,000 shares of his Enron stock in early September 2001 after he resigned, though jurors heard an audiotape of him doing so in a telephone call to his broker.
That sale was held up, and Skilling ended up selling 500,000 shares for $15.5 million on Sept. 17, 2001. He insisted that fear of a market roiled by the Sept. 11, 2001, terrorist attacks prompted the sale, which is alleged to be illegal in the last of 10 insider trading counts against him.
While Skilling will await a verdict when deliberations begin, Lay has another trial slated to start May 18. He is charged with bank fraud in a separate case, which will be tried before Lake without a jury.
Prosecutors allege he obtained $75 million in loans from three banks and reneged on an agreement with them not to use the money to carry or buy margin stock.
The case was originally part of the conspiracy indictment. Its Enron connection is that the loans were collateralized by Lay’s company stock. The lenders issued the margin calls he said prompted him to tap the company for cash and repay the energy giant with Enron shares.
Skilling faces 28 counts of fraud, conspiracy, insider trading and lying to auditors and a maximum of 275 years in prison if convicted on all counts. Lay faces six counts of fraud and conspiracy that carry a maximum penalty of 45 years. Each of the four banking charges against Lay also carry a maximum penalty of 30 years.