Enron prosecution begins closing arguments

updated 6:21 p.m. ET May 15, 2006

HOUSTON - Enron Corp. founder Kenneth Lay and former Chief Executive Jeffrey Skilling instigated a massive fraud before the company collapsed in one of the biggest corporate scandals in U.S. history, a federal prosecutor said on Monday.

Lay and Skilling committed crimes “through accounting tricks, fiction, hocus-pocus, trickery, misleading statements, half-truths, omissions and outright lies,” prosecutor Kathryn Ruemmler told jurors and a packed courtroom in closing arguments.

“In this courtroom, ladies and gentlemen, the cover stories have been blown. Mr. Lay and Mr. Skilling are still clinging to the cover stories,” she said.

On a large screen, Ruemmler displayed for jurors a comment Lay made during his often contentious testimony that she said encapsulated the Enron culture that the two men nurtured and embraced:

“Rules are important, but they should not ... you should not be a slave to the rules either.”

Ruemmler, pacing before the jury box as the eight-woman, four-man panel listened intently, said Lay and Skilling “lied over and over and over again” and “bent rules, pushed rules and then pushed over the line” in the years before Enron sought bankruptcy protection in December 2001.

CNBC VIDEO Enron prosecution begins closing arguments May 15: Former Enron CEO Ken Lay faced a blistering attack from a federal prosecutor in Houston today. CNBC's Scott Cohn reports on the day's proceedings and what happens next. CNBC

The collapse left thousands jobless and wiped out billions of dollars from investors who believed their claims.

“That is a fraud. That is why we are here. That is why this matters,” Ruemmler said.

Jurors will hear from the defense on Tuesday and begin deliberations Wednesday after getting the last word from prosecutors in the case, which lasted more than 14 weeks and featured 54 government and defense witnesses.

Ruemmler said Lay and Skilling repeatedly lied to pump up Enron’s stock price and win adoration from Wall Street and their peers.

When Enron’s stock price was high, “these men and their lieutenants were on top of the world,” Ruemmler said.

But throughout 2001 the stock price fell steadily. Skilling abruptly resigned in mid-August that year after only six months as CEO, leaving Lay to resume the role in addition to being chairman.

At that juncture, both men could have told investors that the company’s broadband unit had failed, the retail energy business was awash in losses, financial structures designed to lock in gains from assets and investments were crumbling, and asset values were overblown, Ruemmler said. Instead, both assured Wall Street and investors that Enron was in the best shape ever.

“They chose to lie,” she said.

Ruemmler reminded jurors of a slew of written warnings Lay received from employees after Skilling’s departure that questioned Enron’s accounting integrity. He also received updates from top lieutenants that Enron was weak, which Lay disputes. Yet Lay continually reassured employees that the company was strong and would survive an increasing storm of public scrutiny in the fall of 2001.

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