Enron Trial Update

Washington Post staff writer Carrie Johnson was online from Houston, where former Enron executives Kenneth L. Lay and Jeffrey K. Skilling were convicted on Thursday.

A transcript follows.

Coverage on Enron's collapse and the legal proceedings against its former executives, including regular audio reports from Carrie, is available in a special report online here .

Read today's coverage:

Enron Leaders Found Guilty

Defendants Sunk by Their Testimony

Once a Friend and Ally, Now a Distant Memory

From the Ex-Employees: Revenge, Shock, Sadness

White-Collar Crime's New Milestone

Steven Pearlstein: Convictions Drive Home the Point Again

Blog: In the Pipeline

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Carrie Johnson: Hello from Houston, where the ground is still shaking after yesterday's resounding guilty verdicts against Ken Lay and Jeff Skilling. Two men who once stood at the top of the corporate universe now face spending the rest of their lives in prison. After 16 weeks, 56 witnesses, and a whole lotta Texas slang, there is plenty to hash over on this historic day-after. Let's go!

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Washington, DC: Carrie,

Who decides upon the sentencing of these two former Lords of the Universe, a judge or a judge with input from the jury? I assume the former, but don't know. Might I suggest a panel of former Enron pensioners? When will the sentencing be announced?

Carrie Johnson: Hi Washington,

The sentences will be handed down by US District Judge Simeon T. Lake III, on a date he perhaps set with some irony or poignancy: Sept. 11, 2006, the fifth anniversary of the terror attacks that the defense blamed for contributing to Enron's collapse. In the weeks to come, the judge will get memos from the pretrial services office on both defendants' background and criminal history, as well as legal briefs on the amount of loss the government says they caused. All of these will be important factors in Judge Lake's sentence, as may be an assertion from prosecutors that Lay and Skilling continue to deny responsibility for their actions. Lay and Skilling told reporters outside the courthouse yesterday that they maintained their innocence.

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Chevy Chase, DC: Carrie:

What is the expected sentence and when do they report to jail?

Carrie Johnson: Some legal analysts predict the sentences for Lay, convicted of 10 criminal charges, and Skilling, convicted of 19, will range between 10 and 25 years. In the federal system, there is no parole, which means that inmates must serve at least 85 percent of their sentence.

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Bethesda, Md.: Skilling and Lay know that they are going to get out in 2 years so they did not care much about the outcome of the verdict. They are enjoying it publicly. What do you think?

washingtonpost.com: Once a Friend and Ally, Now a Distant Memory

Carrie Johnson: Hello Bethesda,

There are several questions along this line of inquiry. To this, I reiterate: there is no evidence that President Bush will seek to pardon either Lay or Skilling. When Lay reached out to Bush Administration officials in late 2001, he got absolutely no help at all.

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Fort Lauderdale, Fla. : Hello Carrie:

Given the no-nonsense reputation of Judge Lake (and his guilty verdict on bank fraud charges against Lay), how likely is it Lay and Skilling will get socked with more than mere slaps at sentencing? What kind of track record does Judge Lake have for sentencing in other white collar graft and corruption cases? That's not to suggest there's ever been anything like this. Thanks for your very detailed coverage all these weeks.

Carrie Johnson: Great question, Ft. Lauderdale. And thank you for reading.

Judge Lake, a former business litigator at a large Houston law firm, has a reputation as a tough sentencer. For instance, he slammed former Dynegy executive Jamie Olis with more than 24 years in prison in connection with his role in an accounting fraud at that energy company. Olis was a midlevel executive, not a corporate titan, and the harsh sentence gave pause to many defense lawyers and their clients. An appeals court overturned the sentence and Judge Lake, who has had his hands more than full with the Enron trial, has yet to hand down a reduced prison term to Olis.

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Chevy Chase, DC: But they remain free on bail in the meantime?

Carrie Johnson: Both Skilling and Lay are free on $5 million bond. They have surrendered their passports and in Lay's case, yesterday three of his children pledged the deeds to their homes on the promise that he would not abscond.

They will remain free at least until Sept. 11, 2006, the date of their sentencing, barring any violations of the conditions of their release (which include not intimidating witnesses, not drinking to excess, and other such steps).

Both men will likely appeal their convictions and one looming question is whether Judge Lake will let them stay out of prison while those long appeals work their way through the judicial system. We won't know the answer to that, alas, for a few months.

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Laramie, WY: What do you think the odds are that Ken Lay gets a pardon and what do you think are the chances of the White House press inquiring about it?

Thursday, 30 minutes after the verdict, Tony Snow got exactly zero questions about "Kenny Boy".

Carrie Johnson: I think the odds are low.

Have not read the transcript of the Tony Snow press conference because I was too busy baking in the sun outside the courthouse waiting for the defendants to speak, but my impression was that Snow had brushed aside an earlier question about Enron.

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Bogota, Colombia: What type of sentencing is the prosecution going after?

Carrie Johnson: We won't know for some time, Bogota, while prosecutors consider such things as the amount of monetary loss stemming from the convictions and whether the defendants accepted responsibility and testified truthfully.

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Fairfax, VA: Now that the verdicts have come in with the results that many of us were hoping for, inevitable appeals will follow for years to come. Are you hearing any talk from local legal people about their thoughts on the possible outcome of these appeals?

Carrie Johnson: Stay tuned to the Washington Post's news pages for a deeper answer to this question.

In their articulate, fascinating chat with reporters yesterday, the jurors raised this point. One business owner, Wendy Vaughan, suggested that the defendants might in her words buy justice for themselves on appeal. Lay and Skilling defended themselves vigorously outside the courthouse yesterday and said they were innocent despite the jury's verdict.

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Walnut Creek, CA: Carrie: Can you give us an idea what life will be like for the families of Mr. Lay and Mr. Skilling? What funds/income are currently at their disposal? I have loved every word you and Mr. Ahrens have written from and about the Houston trials. This has been like a bad novel about the arrogance of power.

washingtonpost.com: Special Report: Enron Trial

Carrie Johnson: Thank you California.

It came out during the trial that Skilling's former wife, Sue Lowe, had sold about $14 million in Enron stock in 2000, before the company failed. She and Skilling have three children who will be provided for using those funds, I'm sure. Skilling's current wife, former Enron corporate board secretary Rebecca Carter, has her own money and her own home based on her years of work at Enron.

Lay and his wife Linda have said they are essentially broke. But on cross examination prosecutors raised questions about annuities and proceeds from property sales the Lays continue to enjoy, as well as their penthouse apartment in a Houston luxury building called the Huntingdon. Together, Ken and Linda Lay have five grown children and a dozen grandchildren. Three of those children raised their right hands yesterday at a bond hearing and handed over the deeds to their homes to ensure that their father would stay out of prison until he is sentenced.

Prosecutors, too, are seeking forfeiture of many of Skilling and Lay's remaining assets, a process that could still take a while.

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washingtonpost.com: Jury Perspective: Defendants Sunk by Their Testimony

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Philly, PA: A lot of people like my father in law are rejoicing at the verdicts, feeling like those CEOs got what they deserve. I feel like it is an injustice. Although Lay and Skilling were guilty of unbelievably awful managerial decisions and failure to learn specifics of what underlings were doing, it seems to me that the Enron debacle is just the result of a monumental abdication of responsibility on the part of so many people. Board members who didn't pay any attention to what they were approving; Arthur Anderson, who failed to keep objective accounting standards in place, lawyers who signed off on deals just to keep the client happy, Stock analysts who could have figured out that the numbers didn't make sense if they had really done their research, bankers who made loans they knew they shouldn't make just to keep a customer -- the list could go on and on. There was more than just execs with their hand in the till, and it seems like Skilling and Lay are getting a worse fate than they deserve (not that they deserve good).

Carrie Johnson: This is an interesting point. I'd direct you to a powerful column published today by my esteemed colleague Steve Pearlstein. His piece should be available on our web site.

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washingtonpost.com: Steven Pearlstein: Convictions Drive Home the Point Again

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Chicago, Illinois: Can the appeals court judges read the newspapers and watch the TV coverage of the Enron case, even though they be hearing the appeal?

If so, will Skilling and Lay and their lawyers try to spin them?

Carrie Johnson: I believe the appeals court panel, which has not yet been named, can be exposed to any and all media reports about the case. Indeed, it would be difficult to avoid them at this point.

I very much doubt that judges on the US Court of Appeals for the Fifth Circuit could be swayed by emotional appeals from the defense, though anything is possible....

One thing is certain: the appellate ruling will be scrutinized just as much as the trial was, by reporters and interested members of the public across the country.

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Fairfield, IA: Conviction in the bank-fraud trial was the only outcome. Violation was admitted. I've often heard cited in court cases that ignorance is no excuse. If this ignorance defense was accepted, then every defendant in any other future trial would cite this precedent. It seems the defense put forth was surprisingly weak, maybe because the evidence was so overwhelming.

Carrie Johnson: Hi Fairfield,

You're referring, of course, to the three day long separate bank fraud and false statements case against Ken Lay, in which Lay basically conceded he had violated Federal Reserve rules barring him from using loans to buy stock.

Lay by many measures was caught in a box on this separate trial, in part because prosecutors had so many documents, and a few live witnesses, placing Lay in meetings and placing his signature on papers.

Judge Lake, who heard the trial without a jury, found Lay guilty on all four counts, which carry a practical sentence of about six months apiece.

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Manchester, NH: Can anyone surmise what the issues were delaying a verdict? For example, had the jury asked for any info or testimony that would indicate what the deliberation was about?

Carrie Johnson: The eight woman, four man jury was relatively quiet throughout its deliberations. Earlier this week the panel asked for extra copies of an exhibit list and wondered if they might get trial testimony (though they were not specific about whose). Last week they wanted speakers, presumably to listen to audio and video presentations by the defendants during Enron's heyday and waning years.

Many people have expressed surprise that the jury took fewer than six days to issue a clear verdict in a case so complex. Yesterday the jurors told us there were occasional bumps in the road without describing them in detail because Judge Lake had asked them not to do so. Even so, those bumps must not have been too large given their speedy verdict.

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Bethesda, Md: Lay is "shocked" at his conviction? Just how out of touch with reality is this man? Skilling is far more realistically "disappointed."

Carrie Johnson: We are who we are, on big days in our lives as well as minor ones.

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Salt Lake City, UT: You mentioned that a factor in sentencing will likely be the fact that Skilling and Lay maintain their innocence. Does that make them more likely to receive a longer sentence or a shorter one?

Carrie Johnson: Some judges will tack on extra prison time if they believe defendants have not been truthful on the witness stand or if they have failed to accept, in a judge's view, personal responsibility for their actions.

In response to a question at a brief press conference outside the courthouse yesterday, prosecutor Sean Berkowitz signaled this issue could be a part of the government's sentencing memo.

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Maryland Suburbs: My opinion is that both Skilling and Lay should go to jail for a long time. While there may be other people who contributed to the Enron mess it is these two who are most responsible.

It is these two who encouraged employees of Enron to buy the stock while -they- were selling it. It is these two who showed their character while on the witness stand.

Carrie Johnson: Thank you for your comments.

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Albuquerque, NM: I'm sure this is the number one question, but I'll ask anyway. What is to prevent either of these "gentlemen" from fleeing the country? I'll grant that the govt. probably has taken their passports and frozen whatever assets they can find. But devious people such as these two surely have hidden funds and getting a fake passport is a breeze.

Diana Emerich

Carrie Johnson: Hi Diana,

Judge Lake in one of his most stringent statements yesterday insisted that Ken Lay would not leave the courthouse without turning over his passport.

In Houston, and throughout the Southwest if not the rest of the country, I'd venture to guess these men are known by sight. I have seen no evidence that Skilling or Lay have hidden bank accounts, but I do not have subpoena power to examine their private records.

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Richmond, Va.: I think lots of people wonder whether Bush will have the nerve to pardon Kenneth "Kenny Boy" Lay (and if he pardons Lay, would Skilling be pardoned too, even though he doesn't have a nick name from Bush)? And what would be the fall out from such a pardon (though, of course, it wouldn't attach to Bush personally because he would be out of office)?

Carrie Johnson: I think there would be tremendous fallout from such an act.

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St. Mary's City, Md.: What can be done to prevent the kinds of abuses that went on at Enron from happening at other companies? From the books I've read about the company, the stock options and the ridiculously inflated stock price seemed intoxicating for the employees.

Also, will the guilty verdicts against Lay and Skilling do anything to help the lower-level employees and others who lost money?

washingtonpost.com: White-Collar Crime's New Milestone

Carrie Johnson: Some folks were cheered by yesterday's verdict and may use it to defend against legal intrusions on the Sarbanes Oxley Act, passed by Congress after the Enron and WorldCom disasters.

Lay and Skilling may not have much money left after they pay lawyers and finance their appeals, so the true deep pockets are the investment banks and other gatekeepers that helped Enron structure deals. Plaintiff lawyers already have won nearly $7 billion in settlements and trial against the non settling banks is looming this fall. Even so, investors will only see pennies on the dollar.

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Washington, D.C.: I am intrigued by the jury's candid public discussion of how they reached their verdict? Is this common? If not, can it become common? What fascinating information.

Carrie Johnson: Me too! Could have listened to them for hours.

Judges in high profile cases sometimes make a room available for jurors who wish to speak with reporters. It helps prevent the kind of unseemly scrambling for interviews that can take place without a more controlled setting.

Jurors in the case of HealthSouth founder Richard Scrushy also spoke with reporters, and a few also spoke with journalists after the Arthur Andersen trial in Houston four years ago.

I'm not as familiar with New York juries (Ebbers, Martha Stewart) doing the same.

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Chevy Chase, DC: Fleeing would cost Lay's children their homes wouldn't it?

Carrie Johnson: Yes, it would. They were forced to stand before the judge and swear under oath that they would give up their homes if their dad did not meet the conditions of his release and fled the jurisdiction.

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DC: Skilling and Lay ruined countless lives through their deception and fraud.( People like this are far more dangerous, IMHO, than muggers and robbers.) Do you think this will be taken into account when they are sentenced.

Carrie Johnson: The numbers of so called victims are often taken into account in sentencing decisions.

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Kingwood, Texas: Carrie: Congrats on your superb coverage.

I heard Lay & Skilling spent $70 million on their defense. Is that true? Are there any figures on what the government spent?

Also: Fastow got 10 years and cooperated. These two don't show the least bit of remorse. Do you expect stiff sentences?

One more: What's the consensus on any basis for appeals?

Carrie Johnson: Hi Kingwood,

They have never released a full accounting but the $70 million estimate has been provided to me by people involved in the case. Some is their own money, much of the rest comes from insurance policies.

The Justice Department has declined over the years to tell us how much they have spent on the four and a half year investigation, since lawyers and FBI agents and other personnel from around the nation continued to be paid out of the budgets of their home offices. Nonetheless the cost was no doubt extensive.

Keep reading the Post for more on appeals.

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Hyattsville, Maryland: Hi, Carrie,

Thanks so much for doing this chat. I don't mean to sound cynical, but how long before "Kenny Boy" gets a parden from President Bush? I hope the press pushes Pres. Bush as to whether or not he'll commit to refusing a pardon for Mr. Lay and Mr. Skilling.

Carrie Johnson: For any White House reporters out there...

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Burlington, VT: What is the likelihood that either Lay or Skilling will actually serve jail time? There is a lot of fanfare about these convictions but it seems the offenders get to spend years out on appeal followed by a lengthy trial followed by a lengthy time before sentencing. For example, look at John Rigas. Thanks.

Carrie Johnson: Aged and infirm Adelphia founder John Rigas is free pending the status of his appeal on multiple fraud charges. But if an appeals court upholds the Skilling and Lay convictions, there is no doubt both men will serve prison time. The only question is how long they will remain free before that day arrives.

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NY, NY: So what did the HealthSouth guy's lawyers do that Lay & Skilling's lawyers didn't? That guy seemed just as obviously guilty as these two -- how did he get off?

Carrie Johnson: HealthSouth's Richard Scrushy is one of the few corporate titans to be fully acquitted of the fraud charges against him. Many observers attribute his acquittal to a variety of factors, including his appeal to African American and religious communities in Birmingham, a savvy defense orchestrated by Donald Watkins, Art Leach and Jim Parkman, and some rather unusual rulings by Judge Karon Bowdre, who had handled few criminal cases before Scrushy's.

It is important to note that while five former finance chiefs pleaded guilty and testified against Scrushy, the prosecutors had few documents tying him to the fraud. And most crucial of all, he stayed off the witness stand--unlike Skilling and Lay.

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All I Can Say Is . . .: Yay. I'm so glad justice was served.

What is the reaction of the investment community to the verdict? It was amazing to see in the Enron movie how the investment firms went along with the Enron execs' demands--everything from allowing Enron not to show its balance sheets to firing analysts who Enron was displeased with.

Carrie Johnson: Investment banks that did business with Enron have paid through the teeth for what prosecutors and plaintiff lawyers say was helping the company disguise its financial troubles. Whether yesterday's verdict, and previous settlements with NY Attorney General Eliot Spitzer, have a lingering effect on Wall Street behavior is an open question.

A few years back the Senate Permanent Subcommittee on Investigations did an interesting report on the role of investment banks in Enron's collapse. It is worth reading and should be available online.

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Bethesda, MD: Well, maybe we won't have to worry about the proletariat disemboweling us and stringing us up by our small intestines.

How fortunate we are that someone saw those two as the lying, thieving scumballs they are. I wish two things: there was some way to recover all the money they lost & squandered and to put them in a real hard-time federal pen.

Carrie Johnson: Yikes-it's a little early in the morning for talk about innards. Thanks for your (apparently) passionately felt comment.

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Chevy Chase, DC: I hate to think these criminals will remain free on bond for years while their appeals meander thru the system. Would it be your guess that that will be the case? Any chance they start serving on 9/11?

Carrie Johnson: There is a chance that Lay and Skilling could be remanded into custody on Sept. 11, the day they are to be sentenced. Judges consider multiple issues including flight risk and chances of success on appeal in making that decision. Several NY federal judges have allowed corporate executives including Bernie Ebbers, Frank Quattrone, and the Rigases to remain free on appeal.

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Washington, DC: Does this judge have a history of letting convicted defendants stay out of prison while they prepare their appeal?

Carrie Johnson: I believe Judge Lake sent Dynegy executive Jamie Olis (wrote more about him earlier in this chat) directly to prison while he appealed his long, long prison sentence.

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Falls Church, VA: I read that one of Lay's daughters acted as his attorney. Is she an expert in white collar criminal defense? Isn't this unusual? And, is it ethical? Does it protect anything he may told her in a father-daughter conversation under attorney-client privilege?

Carrie Johnson: Elizabeth Lay Vittor, one of Ken Lay's daughters and a lawyer in her own right, assisted with his legal defense. She was complemented by a team of veteran attorneys including Michael Ramsey, George "Mac" Secrest, Bruce Collins, Chip Lewis and others.

I do not have any evidence that this is unethical. It may be unusual.

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Jim, Massachusetts: Does Ken Lay or Jeff Skilling have to give any money back to the shareholders now that they have been convicted of fraud? What about their families if they passed it onto them? Have they created legal structure making their ill-gotten gains difficult to retrieve?

Carrie Johnson: Hi Jim,

I'm not aware of either defendant secreting assets away in the Cayman Islands or anything like that. Prosecutors definitely want their houses, some of their vehicles, money left in their bank accounts, and other assets.

Here's a precedent which may or may not be helpful. WorldCom founder Bernie Ebbers settled jointly with prosecutors and plaintiff attorneys, striking a deal that required him to hand over millions and millions of dollars (90 percent or more of his holdings, if memory serves) though his wife was allowed to keep one house and what prosecutors called a modest living allowance/pension.

Lay and Skilling have yet to resolve massive shareholder lawsuits against them.

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Austin, TX: Ken Lay has made much of his Christianity. (I'll leave unsaid what I think of his version of the faith.)

Did that help him or backfire? Or did everyone tune it out?

Carrie Johnson: Hey Austin,

None of the jurors mentioned Lay's faith in their extended chat with reporters yesterday. Two ministers, Ed Young and Bill Lawson, testified as character witnesses, as did former Houston mayor Bob Lanier.

Several jurors said they were aware, however, of Lay's charitable and civic contributions to Houston over the years. Those jurors said that those magnanimous acts made it more heartrending to convict Lay, but they nonetheless did so.

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Houston: Why will it take so long for the sentencing? What all is involved to cause such a delay?

Carrie Johnson: As I think I mentioned earlier, pretrial services personnel at the courthouse need to look into Lay's and Skilling's background and prepare a long report to the judge. Both sides in the case get to make their own comments. And they will likely solicit experts to provide information to the judge about the amount of loss that should be pegged to the defendants' actions. That all takes a while.

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San Luis Obispo, CA: Carrie:

Thanks for your great coverage of the Enron trial.

I was surprised to read several quotations from the pre-trial jurors' questionnaire indicating that some of the jurors thought that the defendants were likely guilty, but these jurors were seated on the jury any way. The jury selection was very fast. Could this be the basis for an appeal?

Carrie Johnson: Hi California,

Could be the basis for an appeal, but Judge Lake questioned each of the prospective jurors at the bench before they were seated in the case, and he asked them to answer honestly whether they could be fair and impartial. The jurors said they could.

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Houston: Any discussion about the complete abdication of the board of directors, the supposed stewards of the enterprise for the shareholders?

Carrie Johnson: Lay and Skilling used the board of directors as a plank in their defense, arguing that the board was informed of many deals and other actions along the way at Enron. No board member has ever been charged with wrongdoing, though many of them have paid out of pocket to settle shareholder claims and a Labor Department probe.

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Columbia, MD: They cannot appeal the verdict, only the proceedings of the trial or some such miscarriage that led to an erroneous verdict. What if anything do you feel will be appealed?

Carrie Johnson: Thanks for clarifying. In my race to answer as many questions as possible I sometimes take shortcuts. Please stay tuned for more Washington Post coverage on the appeals issue.

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Carrie Johnson: And lest I forget (again) it came to my attention that in last week's chat I did not include the names of the folks on the government side who did graphics and projection work, all very important in the trial. They include Necole and Dani at the Huck Group and Mike Denno as well.

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Carrie Johnson: Sorry that our time is up and that I could not respond to all of your questions. Covering this trial has been loads of fun and our Friday back-and-forths have only added to the experience. Thanks and have a great long weekend.

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