It was a bad week for the CEO class.
Two and a half years after Enron collapsed under the weight of a massive accounting scandal, its founder and former chairman, Kenneth Lay, was indicted on federal charges that he knowingly misled investors about the true state of the company's business and finances.
The 11-count indictment was narrow in scope and thin on details, suggesting that prosecutors may have a hard time disproving Lay's claim that he was as much a victim of financial fraud perpetrated by former chief financial officer Andrew Fastow as any other Enron shareholder. In a news conference after his arraignment, Lay said he believed Enron's basic business was sound, relying on advice of other Enron executives and outside accountants.
But on the basis of memos and testimony from Fastow and other cooperating witnesses, prosecutors will try to prove that Lay knew the company was carrying $7 billion in debt not recorded on its books while facing an earnings shortfall and a cash crunch. A separate civil suit filed by the Securities and Exchange Commission demanded the return of $90 million that Lay earned from selling Enron stock during the last year of his tenure.
Lay's lawyers will seek to have him tried separately from Jeffrey Skilling, the former consultant Lay picked to succeed him as chief executive, and former chief accounting officer Richard Causey. Prosecutors allege Fastow and Skilling masterminded the fraud.
In New York, meanwhile, 79-year-old John Rigas was found guilty of looting the cable television empire he had started in 1952 with a $300 investment. Jurors largely sided with prosecutors, who claimed Rigas family members had used Adelphia Communications as their own ATM, flying themselves and friends around in the company jet and using company funds to finance personal investments and lavish lifestyles. Rigas family members claimed the money they withdrew was either theirs or loans that they intended to pay back. John Rigas appeared to be stunned by the decision, remaining in his chair for half an hour after the verdict was read.
One son, Timothy Rigas, the former chief financial officer of the now bankrupt company, was convicted on the same fraud counts as his father, but the jury was unable to reach a complete verdict regarding a second son, Michael.
On the same day as the convictions, in the same courthouse, another judge rejected Martha Stewart's appeal of her conviction on charges of lying to investigators about a stock sale. The lifestyle doyenne faces 10 to 16 months in jail under sentencing guidelines.