In 2001, seemingly overnight, Enron Corp. suffered one of the nation’s most insidious downfalls. The company’s collapse cost shareholders more than $60 billion in market value, and more than 5,600 employees lost their jobs. More than $2 billion was lost in employees’ retirement funds, and the debacle pulled down the venerable accounting firm Arthur Andersen.
Over the past five years, prosecutors have tried to determine what laws were broken and who should be held responsible. In a trial that ended Thursday, the top executives argued that there wasn’t much criminal activity, and, in any event, they weren’t to blame. But jurors said both men were too much the hands-on managers to credibly claim ignorance of what was happening.
The Texas jury heard four months’ testimony, and jurors weren’t buying it. Former Enron chiefs Kenneth Lay and Jeff Skilling were convicted of multiple counts of conspiracy and fraud in the greed-driven collapse of the energy and commodities giant.
Lay, former chairman, was convicted of six counts of fraud and conspiracy, and Skilling, the ex-chief executive officer of Enron, was found guilty of 19 out of 28 counts of fraud, conspiracy and insider trading.
The verdict leaves a forceful impression, and we hope that corporate executives will embrace the significance: they will be held to account for fraud or corruption.
Enron became synonymous with corporate fraud when it was discovered that executives took elaborate steps to inflate earnings. Pending appeal, Lay and Skillings are likely to join the top executives of WorldCom Inc., Adelphia Communications and Rite Aid, serving time as the government cracks down on white-collar crime.
When old-time bandits like Jesse James and the Younger gang robbed banks and trains, there was no mistaking who they were and what they were doing. But Lay, Skilling and their cohorts dressed in business suits and confounded Wall Street as they faked Enron’s performance to keep shareholders in the dark.
Enron, formed in 1985 from the merger of Houston Natural Gas and Omaha-based InterNorth, started out as a pipeline and energy firm but eventually branched out into other areas.
Before its collapse, Enron was a $101 billion-a-year illusion created and sustained by glowing financial statements.
Steve Peters, a Denver attorney and former federal prosecutor who specialized in white-collar cases, said the government’s case was well-focused. “From everything I can tell, it was a well-tried case by the Justice Department,” Peters said. He said prosecutors avoided one of the pitfalls of white-collar cases by not heaping too much detail on the jurors.
Skilling and Lay, who could spend 25 or more years in prison, join 16 other Enron officials who pleaded guilty. The message is clear: executives can’t manipulate a publicly traded company at the expense of unsuspecting shareholders.
