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No one ever accused former Enron executives Kenneth Lay and Jeffrey Skilling of shying away from cutting-edge strategies. And now that their lives are on the line in the biggest corporate fraud trial in U.S. history, they are holding true to form. In a unique twist on the traditional see-no-evil defense, which failed so miserably for former WorldCom Chief Executive Officer Bernie Ebbers, Lay and Skilling are promising to prove that their “crimes” were essentially cooked up by zealous press and prosecutors. While conventional wisdom has defendants playing their defense strategy close to the vest, both Skilling and Lay have taken their case directly to the public in advance of trial-either talking through their lawyers or, in the case of Lay, speaking out himself-and spelled out what is basically an all-or-nothing gambit as they try to convince jurors that Enron was fundamentally a sound operation with only a few bad actors. The “run on the bank” defense theory goes like this: Contrary to the media-hyped frenzy that painted Enron as a financial house of cards built on a foundation of sham accounting, it was a solid business that fell victim to a combination of CFO Andy Fastow’s greed, a slumping economy and the media’s penchant for first building things up and then tearing them down. The bad press set off a panic among banks, creditors and investors that overwhelmed the company. Dealing with the previous pleas This leaves the defense team with an interesting dilemma: how to explain the 16 former Enron executives who have pleaded guilty to participating in varying degrees in a massive scheme to falsely inflate Enron’s finances. The monumental task for the defense here is to convince jurors that-with the exception of Fastow and Michael Kopper, his assistant, who were lining their own pockets in these off-book partnership arrangements-the government’s stable of cooperating witnesses pleaded guilty to serious crimes that they did not commit. Defense lawyers live for the chance to rip into convicted felons who suddenly get religion after years of lying, cheating and stealing and testify for the government in exchange for a lighter sentence. The witnesses begin their testimony by confessing their crimes, and the defense jumps all over their admitted misdeeds. Here, Lay and Skilling will argue just the opposite. Once witnesses admit their role in the Enron fraud, defense attorneys will try to convince them-and the jury-that they really did no wrong. After first portraying the prosecution as being on a jihadlike mission to bring down Lay and Skilling, the defense will argue that prosecutors left the hapless former Enron executives-turned-witnesses with no real options: Take the deal, admit your crime (whatever the prosecutors say you did wrong) or face certain financial ruin and the possibility of years in prison. Using these heavyhanded tactics, the defense theory goes, prosecutors essentially bullied innocent witnesses into pleading guilty. Will this strategy work? It won’t be easy, but it may be their best chance. Whatever the outcome, the lessons played out in the trial may have a broader message. Whether Lay and Skilling were more cheerleaders than ringleaders will be up to the jury to decide. The real question is: Did they cross the line between spinning and lying? Every CEO tries to put the best face on the company for analysts and investors, but when the hype becomes misleading, it very quickly becomes major fraud. And therein lies the danger. The problem is compounded by the complexities of modern accounting methods which, in certain situations, allow financial transactions to be booked in different ways that have different effects on the company’s finances. Some are permitted; others are fraud. In the end, the Enron verdict may carry with it a lesson not just for Lay and Skilling, but for other CEOs who are faced with the task of leading their company without misleading the public. Robert A. Mintz, a former federal prosecutor, heads the securities litigation and white-collar criminal defense practice at Newark, N.J.-based McCarter & English.

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