The two most prominent leaders of Enron, the energy company whose dramatic rise and fall become emblematic for one of the darkest chapters in U.S. corporate history, face life in prison after a jury issued numerous guilty verdicts against them Thursday.
Enron Chairman and founder Ken Lay was found guilty on all six charges against him, including conspiracy and wire fraud. Former Enron CEO Jeffrey Skilling was found guilty on 19 of 28 counts he faced, including charges of wire fraud and making false statements. He was found guilty on one count of insider trading and acquitted on nine other charges of trading on inside information.
Life Behind Bars
Both men likely face the prospect of living out the remainder of their lives in prison, with the sentencing guidelines for the six counts Lay was convicted on carrying a recommended penalty of 165 years in prison.
The verdicts came after nearly six full days of deliberations and a trial that lasted four months.
The major victory for the U.S. Department of Justice may help draw a curtain on the period at the very end of the stock market boom of the late 1990s, when several of the country’s largest companies collapsed under the weight of accounting fraud, bookkeeping sleight-of-hand and other executive malfeasance.
In addition to scores of criminal complaints, dozens of shareholder lawsuits and other actions, the scandals gave rise to significantly tougher regulations on corporate accounting, with Sarbanes-Oxley and related legislation aimed at making it more difficult for top executives to deny they knew about such malfeasance.
One of a Kind
While other scandals grabbed headlines — WorldCom in the telecommunications industry and Adelphia in the cable sector — Enron was largely seen as the poster child for the greed and dishonesty that took over the highest reaches of corporate America in the late 1990s, when the stock market soared to unprecedented heights.
The convictions mean a jury believes that both Lay and Skilling were responsible for fostering a culture of lying and manipulation at Enron, and led to the company’s stock continuing to rise even as the firm’s performance started to drop off.
Enron grew to become the sixth-largest company in the U.S. only to plunge into bankruptcy in 2001, leaving hundreds of employees without salaries or benefits while Skilling and Lay continued to live well-documented lives of luxury. Enron has since reorganized and is now operating, in a much diminished form, as Prisma.
“You have reflected on this evidence for the last few days and reached a very thorough verdict, and I thank you,” U.S. District Judge Sim Lake told jurors, according to pool reporters’ accounts. Lay’s wife reportedly broke down in tears as the jury read off the guilty verdicts against her husband.
Both men will remain free on substantial bonds until their sentencing, which the judge set for Sept. 11.
Prosecutors have also won guilty pleas from more than a dozen other top Enron executives, with several testifying during the trial. Lay and Skilling tried to argue that their lieutenants in the corporate hierarchy were running scams that let them skim millions from the company till, but that they were unaware of those activities until it was too late.
Part of Enron’s success story was its use of the Internet to enable a far greater volume of trades in energy and energy derivative products. After Enron entered bankruptcy, UBS Warburg bought EnronOnline, making the e-commerce platform one of the first assets of Enron to be resold.
During its heyday, Enron was known for its risk-taking, which ironically could also be seen as its demise, as books and documentaries about the company have cited the culture of envelope-pushing as a factor in its downfall.
Enron may well be one of the last giant corporate scandals, with Sarbanes-Oxley and enhanced oversight from the Securities and Exchange Commission making it very unlikely another company could ever become corrupt enough to have widespread fraud taking place without anyone blowing the whistle.
Before Sarbanes-Oxley, CEOs had a level of deniability that’s now been taken away, Gartner analyst John Bace said.
“Sarbanes is the most sweeping legislation to affect publicly traded companies since the reforms during the Great Depression and compliance should tighten controls in companies significantly,” he said.