Ex-<B>Enron</B> CEO Skilling Charged

The disgraced former Enron CEO is cuffed and led into a courthouse for arraignment.
By Matthew Goldstein ,

Updated from 11:26 a.m. EST

Disgruntled

Enron

investors got some of the revenge they've been longing for Thursday with the arrest and indictment of Jeffrey Skilling, the energy company's disgraced former chief executive, on securities fraud and insider trading charges.

Skilling surrendered to federal authorities in Houston and later pleaded not guilty in a federal courtroom. The 42-count indictment alleges that Skilling helped engineer a massive accounting fraud that led to the downfall of Enron, whose bankruptcy in late 2001 impoverished thousands of employees and investors.

The 50-year-old executive was led handcuffed to a Houston courthouse after surrendering at dawn.

Skilling was added as a defendant to a superseding indictment against Richard Causey, Enron's former chief accounting officer. Last month, Causey was charged with helping to orchestrate a massive fraud to manipulate Enron's earnings and mislead investors about the company's true financial health. Causey pleaded not guilty to those initial charges.

The Causey indictment came about after federal prosecutors reached a plea agreement with Andrew Fastow, Enron's former chief financial officer, who masterminded the off-balance-sheet partnerships at the heart of the company's sprawling fraud.

Federal authorities contend that both Skilling and Causey knew by the fourth quarter of 1999 that Enron was not meeting its budget targets and that the company only appeared to be profitable because of the many schemes they and others concocted to juice reported earnings. The two men specifically are charged with concealing large losses in two of the company's divisions: Enron Broadband Services and Enron Energy Services.

In a separate civil complaint that mirrors many of the criminal charges, the

Securities and Exchange Commission

charged that Skilling sold Enron stock while in possession of material, nonpublic information that generated unlawful proceeds of about $63 million. The SEC is seeking to force Skilling to disgorge the profits he made from selling Enron stock.

Skilling's indictment was a long time in the making, coming more than two years after the bankruptcy and only after a parade of underlings were brought to justice.

Two years ago this month, a defiant Skilling appeared before a congressional committee to defend himself and claim he knew nothing about any accounting shenanigans at Enron. Skilling -- whose profane excoriation of a short-seller on an April 2001 conference call was the first chink in Enron's armor -- resigned four months before the accounting scandal unfolded.

Skilling's testimony was notable because he was one of the few former top Enron executives to testify before Congress. Most other former Enron executives, including Kenneth Lay, Enron's former chairman, refused to testify, asserting their Fifth Amendment right against self-incrimination.

Immediately following Skilling's arraignment, his high-powered legal team appeared outside the courthouse and offered a strenuous defense of its client. Los Angeles criminal defense attorney Daniel Petrocelli said Skilling had done nothing wrong and recently submitted to a lie detector test in order to prove his innocence. He accused prosecutors of making a "scapegoat" of his client.

"He did not steal. He did not lie. He did not take anyone's money. Jeff Skilling did nothing wrong," said Petrocelli. "I guess they need a scapegoat and Jeff Skilling is their scapegoat."

Philip Hilder, a Houston attorney who represents Sherron Watkins, the former Enron executive who tried to alert Lay of the impending accounting scandal, said given Skilling's prior defiance, he expects the former executive to fight the charges.

With Skilling under indictment, Lay remains the last of Enron's big fish not to be charged either criminally or civilly in the accounting scandal.

Hilder said the charges against Skilling don't necessarily mean prosecutors will be able to bring a criminal case against Lay.

"These counts are going to be unique to Mr. Skilling's activities and those that are directed to a conspiracy. I wouldn't think they are referring to Lay," said Hilder.

Hilder said any trial of Skilling would be long and complicated and require the prosecution to walk jurors through the inner workings of Enron's off-balance-sheet ventures.

Several securities lawyers have suggested that if the Department of Justice's Enron Task Force decides it doesn't have enough evidence to criminally prosecute Lay, prosecutors could opt to file civil fraud charges because of the lesser burden of evidence needed to gain a conviction. The SEC also might choose to pursue a civil prosecution of Lay.

The Enron scandal also opened a window into Wall Street's role in enabling corporate wrongdoers to use sophisticated financing deals to deceive the public. A number of financial firms, including

Merrill Lynch

(MER)

,

Citigroup

(C) - Get Report

,

J.P. Morgan Chase

(JPM) - Get Report

and

Canadian Imperial Bank of Commerce

(BCM) - Get Report

, all have paid big fines to securities regulators over their role in the Enron mess.

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