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A federal prosecutor told jurors hearing the criminal case against former Enron Corp. Chairman Kenneth Lay and Chief Executive Officer Jeffrey Skilling that the two executives used accounting tricks, fiction, trickery, half truths, omissions and outright lies to paint a dramatically distorted picture of Enron’s true financial condition. Kathryn Ruemmler, an assistant U.S. attorney on the Enron Task Force, told jurors Lay and Skilling repeatedly lied to investors and employees of the once high-flying Houston energy company. That conduct is criminal, she told jurors during her closing argument on May 15. “Why did the defendants lie?” Ruemmler asked rhetorically. “It’s a simple story, ladies and gentlemen. The deception kept the story alive and the stock price up. You have heard from both Mr. Lay and Mr. Skilling that the stock price was critical.” Ruemmler argued for three hours and 50 minutes on May 15 to jurors who will decide the criminal charges against Lay and Skilling. The trial in U.S. District Judge Sim Lake’s courtroom in Houston began nearly four months ago. Prosecutors allege Skilling and Lay participated in a conspiracy to misrepresent the true financial condition of Enron, but the defendants have blamed Enron’s problems on criminal acts by former Enron Chief Financial Officer Andrew Fastow, who pleaded guilty to two criminal charges and agreed to a 10-year prison sentence. Skilling faces 28 criminal charges of fraud, conspiracy, making false statements and insider trading. Lay faces six conspiracy and fraud charges in the trial in United States v. Jeffrey K. Skilling, et al. Lay and Skilling have pleaded not guilty. On May 15, Lake spent one-and-a-half hours reading the jury instructions and the charge to the jury. Defense lawyers for Skilling and Lay will deliver closing arguments on May 16 and federal prosecutor Sean Berkowitz, the director of the Enron Task Force, will deliver the remainder of the government’s closing argument on May 17 before the case goes to the jury. During her closing, Ruemmler told jurors they will not have to figure out what caused Enron to file for bankruptcy in December 2001, even though the defense hammered on that theme during the trial. During his testimony, Lay blamed the collapse of Enron on Fastow’s criminal acts, short sellers and a series of critical stories printed in The Wall Street Journal beginning in October 2001. “The defendants want you to focus on the short seller/Wall Street Journal conspiracy because it takes the focus off them. It’s a diversionary tactic,” Ruemmler said. Lay and Skilling aren’t charged with causing the bankruptcy of Enron, she said. “What they are charged with is misleading and lying to the investing public for the two years leading up to Enron’s collapse,” she said. Ruemmler told jurors to keep three things in mind when engaged in deliberations. She said to look at all of the evidence together and decide how particular pieces of testimony fit in with other pieces of testimony. She also told jurors to use common sense and avoid getting distracted by reported short-selling conspiracies and passion and outrage. “Focus on the key issue in the case, which is whether or not Mr. Lay and Mr. Skilling deceived investors,” Ruemmler said. Ramsey Returns Aug. 14, 2001, the day Enron announced Skilling’s resignation as CEO, was a critical day, Ruemmler told jurors. She described it as a day when the chickens were coming home to roost. “On that day, Jeff Skilling and Ken Lay told investors the company was in the strongest shape it had ever been in. It wasn’t. That wasn’t the truth and they knew it,” Ruemmler said. Ruemmler said Lay and Skilling knew on that day that Enron Energy Services and Enron Broadband Services were struggling, Enron Corp.’s wholesale business was taking on increased risk by making bigger trading bets to meet earnings targets, the company was unable to sell international assets that were then worth only about half of what they were listed at on the company’s books, and the company’s water business was a “colossal disaster.” In the few weeks after that, Ruemmler argued, Lay, who had returned to the CEO job after Skilling’s departure, began to receive disturbing news about Enron, including a warning from former Enron vice president Sherron Watkins. Watkins told Lay she feared the company might collapse in a wave of accounting irregularities. Shortly after that, Lay “quietly” began to sell millions of dollars of stock back to the company — he testified last month it was because he needed cash to meet margin calls — and on Sept. 15, 2001, Skilling sold 500,000 shares of stock, making a profit of $15 million. “When the chickens were coming home to roost, Mr. Lay and Mr. Skilling chose to put themselves above Enron’s investors and employees. They chose to cover their own interests and not reveal any of these issues,” Ruemmler told jurors. Ruemmler talked about Fastow’s credibility, saying that he clearly “did bad stuff” and lined his own pockets. But she told jurors that his so-called “global galactic agreement,” which was Fastow’s handwritten list of side deals between Enron and the LJM off-balance-sheet entities, is legitimate despite defense attempts to discredit it. Ruemmler warned jurors that defense attorneys would try to convince them otherwise. “The global galactic [agreement] makes LJM a total sham,” Ruemmler told the jury. Fastow testified the agreement detailed guarantees from Enron that LJM would not lose money on particular transactions. He testified that former Enron Chief Accounting Officer Richard Causey initialed the agreement and told him that Skilling had approved it. Causey, who was indicted along with Lay and Skilling, pleaded guilty on Dec. 28, 2005, to securities fraud. His plea bargain calls for an 84-month sentence. Neither side called him to testify during the trial. Ruemmler’s argument was continuing as of presstime on May 15. On May 16, Skilling’s defense lawyer Daniel Petrocelli, a partner in O’Melveny & Myers in Century City, Calif., is expected to argue for three hours and 20 minutes. Three of Lay’s defense lawyers will take the rest of the six hours of time allotted to the defense for closing arguments. Those attorneys are Houston solo practitioners Michael Ramsey and Chip Lewis and Bennett & Secrest partner George “Mac” Secrest of Houston. The closing will mark Ramsey’s active return to the trial. He missed several weeks of the trial due to heart problems.

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