Top Enron Officials' Trial Begins Today

Kenneth L. Lay, former Enron chairman, leaves court last week after a pretrial hearing. His trial is scheduled to start today in Houston.
Kenneth L. Lay, former Enron chairman, leaves court last week after a pretrial hearing. His trial is scheduled to start today in Houston. (By F. Carter Smith -- Bloomberg News)
By Ben White and Carrie Johnson
Washington Post Staff Writers
Monday, January 30, 2006; 3:09 PM

The outcome of the criminal trial of former Enron Corp. executives Kenneth L. Lay and Jeffrey K. Skilling, which opened with jury selection today, will write the coda to four years of battle over whether government can effectively police corporate wrongdoing.

When the go-go energy trading firm collapsed amid secret deals that enriched insiders and hid its precarious financings from the public, it exposed lies large and small in the financial reports of dozens of America's largest corporations. As shaken investors pulled back and share prices plunged, government began a massive crackdown that culminates in whether it can convince a jury that two men who were at the top of a company perpetrating massive fraud are guilty of a crime. Lay and Skilling both assert their innocence.

But U.S. District Judge Sim Lake today warned potential jurors that their role is limited, saying, "We are not looking for people who want to right a wrong or provide remedies for those who suffered in the collapse of Enron," the Associated Press reported.

Unlike previous eras, this scandal was not confined to a few high-flying financiers with a penchant for flouting the rules. Corporate managers from every corner of the U.S. economy -- and the accountants and lawyers advising them -- were shown to have signed off on phony numbers, driven by greed, exacting expectations from investors to show growth in their businesses and little apparent fear of being caught.

"White-collar cases used to be isolated and very much on the margins," said former prosecutor David Gourevitch, now a defense attorney. "What you saw over the last four years was corruption cases moving from the fringes of corporate America to the very heart, including many Fortune 500 companies."

The stock market is still recovering from the revelations that dozens of companies were faking their numbers. "There is much more investor cynicism now, and that plays into the kind of difficult market we've been having," said Eric Barden, portfolio manager at Texas Capital Value Funds, describing the grinding, low-return stock market of the past few years. "There is no question that shareholders have corporate management on a very short leash now. Any whiff of impropriety and it's sell first, ask questions later."

Regulators and prosecutors, initially overwhelmed by the breadth of corporate wrongdoing, eventually responded with an unprecedented barrage of criminal and civil investigations and prosecutions that reached deep into the business world. The President's Corporate Fraud Task Force, formed in 2002, has filed criminal charges against more than 900 defendants -- 60 of them at the chief executive or president level -- and won 500 convictions or guilty pleas, according to Justice Department statistics. The Securities and Exchange Commission, meanwhile, used new millions granted by Congress to boost its enforcement caseload by nearly 30 percent, from 484 in 2001 to 629 last year. The SEC won or settled 99 percent of the cases brought last year, according to its annual report.

Despite the successes, no one is sounding the all-clear. Public opinion of business has been eroded substantially in the post-Enron years. Forty-five percent of participants in an October poll by the Pew Research Center for the People and the Press said they felt unfavorably toward U.S. companies -- a 20-point rise from March 2001, nine months before Enron filed for bankruptcy protection.

The public mistrust of companies after Enron is in contrast to polls dating to the mid-1980s, when the insider-trading and savings-and-loan scandals of that era did little to dent overall trust in corporate America, researchers said. That changed in the past four years. "The erosion in perceptions of corporations has come among most demographic and political groups," according to Pew research.

Can one major white-collar trial reverse the damage done to investor confidence and open a fresh chapter in U.S. business history? Financial observers say that is asking too much. But some say resolution of the Lay and Skilling trial could at least begin a healing process.

"Symbolically, this case is going to be extraordinarily important," said Wall Street historian Charles Geisst, a professor at Manhattan College. "It may be unfortunate for [Skilling and Lay], but if we are going to get this era behind us, this has to be dealt with."

The hope among many business historians and market analysts is that the Sarbanes-Oxley corporate reform law will tighten behavior up enough to prevent a similar rash of scandal in the near future. But most believe that the next raging bull market will almost certainly produce greedy executives bent on siphoning off wealth however they can.

"Greed is, after all, one of the seven deadly sins," said business historian John Steele Gordon. "And those were enumerated a few thousand years ago."

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