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Suddenly, there's a new villain in the Enron saga. It's the press. At least that's what Kenneth L. Lay wants the jury to think in his criminal fraud trial in Houston.
/ Source: BusinessWeek Online

Suddenly, there's a new villain in the Enron saga. It's the press. At least that's what Kenneth L. Lay wants the jury to think in his criminal fraud trial in Houston. Taking the witness stand on Apr. 24, Enron's former chairman and chief executive officer elaborated on the testimony of his former colleague and co-defendant Jeffrey K. Skilling, who had contended that the energy giant was financially sound until just weeks before it collapsed in December, 2001.

At times abandoning his legendary folksy manner for a sharper tone, Lay told jurors there had been "a real conspiracy" against Enron. He asserted that one newspaper in particular, The Wall Street Journal, "was on a witch hunt" aimed at the company and its onetime chief financial officer, Andrew S. Fastow. While also blaming Fastow, who has pled guilty to fraud and testified for the government, Lay zeroed in on articles the newspaper published in the fall of 2001 that he said "kicked off a run on the bank" that doomed the company.

Lay didn't point out any errors in the Journal's coverage. But white-collar crime aficionados with no stake in the proceedings acknowledge the ingenuity of blaming the media in an era when journalists are widely seen in a negative light. "It's absolutely a novel defense," says Robert A. Mintz, a former federal prosecutor now with the firm of McCarter & English in Newark, N.J. But not unique. Making his case in the court of public opinion in the late 1980s, junk-bond financier Michael Milken claimed the Wall Street Establishment and media helped speed his downfall. He pled guilty to securities fraud and spent 22 months in prison.

Certainly the press makes for a handy bad guy. In recent years, Harris Interactive Inc.'s annual survey of confidence in U.S. institutions has put the media near the bottom of a list of 16. Also among the losers: big corporations, Wall Street, and lawyers.

Careful observers of the Enron drama might have anticipated that the press would get kicked around in the Houston courtroom. In February, 2002, Skilling told a panel of the House Energy & Commerce Committee that Enron was the victim of "a classic run on the bank" triggered by media hype that alarmed creditors and shareholders.

On day two of his testimony, Lay contended that Journal stories on debt hidden in Enron's off-the-books partnerships "were absolutely destroying investor confidence in the company and driving down the stock at a time when the company was doing extremely well." He also lashed out at short sellers, investors who bet that the company's shares would fall.

Will all that wash with jurors? Some defense lawyers doubt it. "The idea that rapid information spread contributed to the Enron collapse is undoubtedly the case," says John K. Carroll, a former prosecutor now with Clifford Chance in New York. But as a legal defense, he finds the argument unconvincing. More promising, in Carroll's opinion, is Lay's contention that he didn't know about fraud committed by Fastow.

Lay could hit trouble during cross-examination if he can't identify mistakes in the Journal's reporting. "I don't know that you can just say that accurate reporting leads to the collapse of your company," says David A. Hoffman, a former securities litigator who teaches law at Temple University in Philadelphia.

In retrospect, media critics have noted that journalists generally were slow to discover problems at Enron. But the Journal is basking in Lay's disdain. "Reporters at the Journal were leaders in uncovering the accounting irregularities at Enron," Managing Editor Paul E. Steiger said in a written statement. "We are proud of our work."