Focus Kept Narrow in Indictment Of Lay

This week's verdict in the criminal case against the former leaders of Adelphia Communications Corp. shows that there are no guarantees. In that case, a Manhattan-based jury convicted Adelphia founder John J. Rigas and his son Timothy, the former chief financial officer, of securities and bank fraud but deadlocked on another son, Michael, after prosecutors were unable to show he was personally involved in concocting accounting schemes and looting the cable television firm. Jurors also acquitted a lower-level executive, Michael C. Mulcahey, who did not personally profit from the schemes.

"A conscientious jury makes those kinds of distinctions based on level of culpability. Ken Lay should be hugely relieved by the Adelphia verdict," said Columbia University law professor John C. Coffee Jr.

One of the differences among the defendants is that only Skilling and Causey are charged criminally with insider trading, although the Securities and Exchange Commission has brought civil charges against Lay, Skilling and Causey, alleging that they dumped millions of dollars in stock as Enron imploded.

Legal analysts said the difference almost certainly stems from the fact that Lay appears to have a strong defense against insider trading. He and his attorneys have argued that he sold stock only when he was forced to by the terms of his loans and that he passed up opportunities to sell more.

One possible problem with the case against Lay, analysts said, is that much of the evidence will come in the form of testimony from the five alleged conspirators who have already cut deals with the government, most prominently Fastow. "One thing that's missing here is the smoking gun e-mail. There's going to be a disproportionate reliance on the cooperating witnesses," said former federal prosecutor Kirby D. Behre. "Until you hear those statements on the stand, you just don't know how strong the case is."

In addition, several of the securities and wire fraud charges will require prosecutors to prove not only that Lay's statements to analysts and employers were objectively false but also that he was deliberately trying to mislead. That's because the law allows executives to engage in "puffery," or talk up their company's potential, as long as they don't actively mislead.

For example, "there is nothing wrong with telling the public that your muffin company is a great investment because people can eat muffins for breakfast, lunch, dinner and dessert. That's just puffing. But to say that your muffin company's orders are on a steady increase when they are down, well, that's fraud," said Steven M. Cohen, a former federal prosecutor.

In Lay's case, his attorneys may also be able to use the fact that he has not been criminally charged with any knowledge of wrongdoing before September 2001 to argue that he, too, was duped and was simply doing his best to save the company he founded.

"There is at least a plausible case that he is a true believer who went down with his ship," Coffee said.

Washington Post staff writer Carrie Johnson contributed to this report.