Some charges dropped as Enron prosecution rests

Government lawyers finish after eight weeks of testimony; defense lawyers for Lay, Skilling to start their case Monday.

By Shaheen Pasha, CNNMoney.com staff writer
March 28, 2006: 3:22 PM EST

NEW YORK (CNNMoney.com) - The judge in the Enron case dismissed three counts against former Enron CEO Jeffrey Skilling and one count against founder Kenneth Lay as the government rested its case against the two former executives Tuesday morning.

Samantha Martin, spokeswoman for the Justice Department's Enron Task Force, said Judge Sim Lake granted a motion by federal prosecutors to dismiss two charges of securities fraud and one charge of lying to auditors from the indictment against Skilling.

Judge Lake also dismissed one charge of securities fraud against Lay. In a statement, Martin said the government asked for the charges to be dropped "for the purpose of economy," as well as other reasons.

Thomas Ajamie, a securities law expert, said prosecutors ask for a dismissal of certain accounts if they believe that they were unable to provide the jury with enough evidence for a conviction. Each count is presented as a separate question to the jury, but if the jury were to issue a guilty verdict on a charge that the government knew it hadn't provided enough substantiating evidence on, it could open the door for appeal and possibly overturn a verdict.

He said that in the wake of the highly-publicized reversal of the Arthur Andersen conviction last year by the Supreme Court, and the more recently overturned conviction in the Frank Quattrone case last week, Ajamie said the government was taking extra care to make sure that it doesn't provide the defense with any cause for appeal.

"It shows good lawyering," said Ajamie. "The government is obviously very confident in their case."

Judge Lake denied the defense's motion for acquittal on the remaining counts of the indictment. Combined, Lay and Skilling still face about three dozen fraud and conspiracy charges accusing them of lying to investors about the company's financial state while they enriched themselves by selling millions of dollars in stock.

In theory, given the number of counts on the indictment, both Lay and Skilling could face decades and decades in jail if found guilty on each charge. However, in white collar crime cases such as this one, it's more likely that the defendants face between 20 and 30 years behind bars if convicted.

Government prosecutors rested their case after more than eight weeks of testimony. They called 22 witnesses in a bid to portray the former leaders of Enron as the puppeteers of one of the largest corporate frauds in U.S. history.

Among the witnesses were former financial chief Andrew Fastow, who pleaded guilty to two counts of wire and securities fraud in 2004, and former Enron treasurer Ben Glisan, who is currently serving a five-year jail sentence for his role in the fraud. He is expected to be released this fall.

Both high-ranking executives testified that Lay and Skilling had been aware of the company's disintegrating financial state but continued to mislead investors and Enron's own employees about the company's true financial health.

The defense team for Lay and Skilling requested a few days to prepare its portion of the trial and is scheduled to begin presenting its case on Monday. The defense presented the court with a list of over 100 potential witnesses that may be called. While that's over half the number previously presented, Judge Lake -- who has assured jurors that the court would try to wrap up the case by the end of April -- asked the defense to pare the number of witnesses to a more reasonable figure.

By all accounts, however, legal observers expect the defense to face a rough road ahead after the prosecution managed to simplify the accounting complexities in the case, and provided a stream of corroborating witnesses that fingered both Lay and Skilling as active participants in the fraud which led to Enron's bankruptcy in December 2001. (Click here for that story.)

The defense is expected to call both Lay and Skilling to testify on their own behalf -- a move, Ajamie said, that shows that the defense realizes its in trouble.

"In normal criminal cases, you don't call your client unless you absolutely have to," he said. "Defense lawyers feel that the case has drawn some blood from Skilling and Lay and feel compelled to put them on the stand."

And for Lay, the end of one trial marks the beginning of a second criminal trial in which he will face four charges of bank fraud.

Enron was once the seventh largest corporation in the U.S. until it declared bankruptcy in December 2001, costing 4,000 employees their jobs and resulting in millions of dollars in losses for investors.
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