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Sentences Are Likely to Be Drastic
Experts Say Enron Executives Should Expect No Mercy
FINANCIAL TIMES
By Sheila McNulty
May 27, 2006

When Ken Lay and Jeffrey Skilling, the former Enron executives, are sentenced in September for their crimes, legal experts expect the stiffest prison terms permitted.

The two former high-fliers were convicted on Thursday for their roles in the collapse of the once sprawling energy trader.

Mr Lay, Enron's former chairman, was found guilty on six counts of wire fraud, securities fraud and conspiracy. He was also found guilty on four counts of bank fraud in a separate case that was argued last week without a jury.

Mr Skilling, former chief executive, was found guilty on 19 counts of conspiracy, securities fraud and making false statements. He was acquitted on nine of 10 counts of insider trading.

Federal guidelines provide a formula by which Judge Sim Lake - who has a reputation as an aggressive judge - will arrive at the sentences. This formula includes: the number of convictions; their central role in fraud and conspiracy; the billions of dollars lost; and the multitudes affected.

He will have some leeway in, for example, deciding how much of the losses to blame on the convicted men and how far-reaching were their crimes. And that is where legal experts say the defendants should expect no mercy.

"These guys are going to get the stiffest sentence in history for corporate crime,'' said Jacob Zamansky, a legal expert.

The fraud and conspiracy charges on which they were convicted undermined investor confidence, destroyed billions of dollars in wealth and cost Enron's 25,000 employees their jobs.

It would be hard to overstate the impact of the 2001 collapse of the US' then seventh biggest company.

"This judge has shown a strong inclination to not just throw the book, but the entire bookcase, at the defendants,'' said Jacob Frenkel, a legal expert who has followed the trial.

Mr Lay, 64, faces up to 45 years, and Mr Skilling, 52, faces up to 185 years. Mr Frenkel has worked out an aggressive sentence, based on the guidelines, and expects they each will be sentenced to 27-34 years in prison.

However, Sheldon Zenner, a legal expert, said they could get time off for good behaviour and believed the prison conditions would not even be too bad.

"They will be going to Club-Fed,'' he joked, referring to the prison camps some liken to Club Med, the holiday camps. "You usually meet your local politician, your bank president and, nowadays, your corporate CFO there.''

This is because their crimes were not violent. The prison camps tend to be refurbished army barracks, without bars or cells. Prisoners wear casual clothes, not prison jumpers. And they are assigned light work, such as cleaning the grounds.

However, legal experts warn that where the Bureau of Prisons sends prisoners often comes down to "bed space'', and they may end up in minimum-security prison rather than "Club Fed".

Mr Zamansky, a legal expert, fully expects such a prison for the men, where they could well make license plates and perform other unskilled labour.

Either way, Mr Lay and Mr Skilling will have plenty of time to mull over what went wrong at Enron.

The focus of their criminal trial was whether to punish them for wrongdoing at Enron. Their civil cases have focused on recovering funds from the men.

"What brought the company down is more of an academic study than the subject of litigation," Mr Frenkel said.

The litigation certainly discussed problems at Enron, from the declining value of its international assets to the crisis of confidence that arose after this bad news began to emerge.

Jurors heard about an executive meeting in the final months about the poor business decisions at the company.

And they heard how the board let Andrew Fastow, the chief financial officer, run the off-balance-sheet partnerships where the company hid losses, despite the conflict of interest.

In the end, it seems, the "smartest guys in the room,'' as Enron's executives considered themselves, were as over-hyped as the business they were hyping.

And, indeed, few might not want to hear any more about it following the four-year investigation and four-month trial.

"I don't think there is a hell of a lot about Enron that people don't know,'' said Jamie Wareham, a legal expert.

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