Bernie Ebbers’ honest idiot defense fails as he is convicted on all counts.
The conviction is further bad news for former Enron chairman Ken Lay and former CEO Jeff Skilling who are claiming — as did Mr. Ebbers — that former Enron CFO Andrew Fastow kept them in the dark regarding the dire implications that Mr. Fastow’s creation and management of several off-balance sheet partnerships had on Enron’s true financial condition.
In fact, in many respects, Messrs. Lay and Skilling’s defense is harder than Mr. Ebbers’ because both Lay and Skilling supported Fastow’s involvement in the off-balance sheet partnerships and their co-defendant — former Enron chief accountant Richard Causey — approved the dubious accounting relating to the partnerships. It is going to be risky for Messrs. Lay and Skilling to criticize Mr. Causey’s accounting for Fastow’s machinations with off-balance sheet entities during a trial in which all three are defendants. The bet here is that Mr. Causey cops a plea prior to trial and Messrs. Lay and Skilling end up defending the case between themselves. In that regard, Mr. Ebbers’ defense counsel — Reid Weingarten — is one of the lawyers on Mr. Causey’s defense team.
However, a key difference between the Ebbers theory of the case and that of Messrs. Lay and Skilling is that the latter two are not arguing that they were left in dark because of ignorance, but because of Mr. Fastow’s desire to hide the enormous income that he was making from managing the partnerships. Thus, where Mr. Ebbers was forced to argue that he simply did not understand WorldCom’s complicated accounting, Messrs. Lay and Skilling are contending that Mr. Fastow’s greed to generate huge income from Enron’s off-balance sheet partnerships incentivized him to lie to Lay and Skilling regarding the true nature of Enron’s off-balance sheet partnerships. Of course, a complicating fact in Messrs. Lay and Skilling’s defense is that they engineered the Enron board’s dubious approval of Fastow’s management of the partnerships, but that’s another issue.
Moreover, another difference between the Ebbers case and the case against Mr. Lay is that the government’s indictment against the three former Enron executives attributes a much larger role in the alleged crimes to Messrs. Skilling and Causey than to Mr. Lay. Messrs. Skilling and Causey are charged charged with crimes all the way back to 1999, and are identified as the men who “spearheaded” the purported conspiracy to hide Enron’s true financial condition from the marketplace. On the other hand, the charges against Mr. Lay are focused on his actions during the months following following Mr. Skilling’s resignation as CEO in August, 2001, when the government alleges that Lay “took over leadership of the conspiracy.”
This past weekend, Mr. Lay continued an unusual public relations campaign that he has mounted since his indictment in which he has claimed that he was ignorant of wrongdoing at Enron. During an interview on CBS’ 60 Minutes, Lay contended that Enron was a huge company in which senior management was delegated enormous trust to do the right thing. Mr. Lay contended that Mr. Fastow had “betrayed that trust” and “ultimately caused Enron’s collapse. To the extent that I did not know what he was doing, and he obviously didn’t share with me what he was doing, then indeed I cannot take responsibility for what he did.”
Similarly, although Mr. Skilling has not been spoken publicly since his indictment, he did raise eyebrows in legal circles by testifying before Congress in February 2002 in which he asserted that “while I was at Enron, I was not aware of any financing arrangements designed to conceal liabilities or inflate profitability.”