Bad Bets

Bad Bets

Bad Bets unravels big-business dramas that have had a big impact on our world. In Season 2, we delve into the story of Nikola founder Trevor Milton, who promised a future of zero-emission trucks but was taken down by a ragtag bunch of whistleblowers and short sellers. Season 2 is hosted by Ben Foldy.

TUESDAY, NOVEMBER 23, 2021

11/23/2021 6:00:00 AM

Enron, Ep 7: The Trial

After years spent building its "lies and choices" case, the Department of Justice's Enron Task Force took Enron executives Ken Lay and Jeffrey Skilling to court. In this episode, the unprecedented trial that became something of a litmus test for all of corporate America. How much did Lay and Skilling know about the crimes that occurred at Enron, and when did they know it?

Full Transcript

This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.

John Emshwiller: You're listening to Bad Bets, a podcast from the Wall Street Journal that unravels big business dramas that have had a major impact on our world. This season, we're looking at the collapse of Enron. I'm John Emshwiller. Enron's bankruptcy in December 2001 led to unprecedented investigations, both by Congress and the Department of Justice. The DOJ special Enron task force spent years digging up evidence of alleged crimes by former company execs. Those investigations culminated in charges against ex CEOs Ken Lay and Jeff Skilling that could have put them in prison for life. Finally, four years after Enron's fall, Lay and Skilling would have their day in court, and the world was watching. Stay with us. January 30th, 2006, Houston. The first day of one of the highest profile white collar trials in American history.

Speaker 2: Together, Ken Lay and Jeff Skilling led Enron, once the nation's seventh largest company, and today, together, they went on trial for fraud and conspiracy in its collapse.

John Emshwiller: Downtown, TV trucks and news media swarm the Federal courthouse.

Adam Gershowitz: If any of the litigants left the building, 20 reporters would follow them across the street with microphones, with cameras.

John Emshwiller: Adam Gershowitz is a law professor at William and Mary Law School. At the time, he was teaching in Houston and stopped by the courthouse to watch parts of the trial close up.

Adam Gershowitz: It looked like a raincloud that was moving, like you ever see in a cartoon, the raincloud only covers one person, right? It would just follow them down this street.

John Emshwiller: I got to the courthouse before dawn hoping to secure one of the few press passes that would allow you to sit in the courtroom. There was already a line. Fortunately, I snagged one of the golden tickets.

Adam Gershowitz: There were so many people trying to get in to watch this thing. It was the only game in town. It was the thing going on there.

John Emshwiller: Ken Lay and Jeff Skilling were center stage the moment they arrived, both flanked by lawyers in security. Lay, hand in hand with his wife Linda was trailed by cameras and reporters.

Speaker 4: Mr. Lay, what would you say to the folks that used to work for your company?

John Emshwiller: Skilling walked in with his lead lawyer, Daniel Petrocelli, smiling, confident. Petrocelli had already made a name for himself by successfully suing OJ Simpson in connection with the wrongful deaths of Ronald Goldman and Nicole Brown Simpson. In a previous criminal trial Simpson had been acquitted of their murders. The defense team was followed by the three lead prosecutors from the Enron task force, Sean Berkowitz, Kathryn Ruemmler, and John Hueston.

John Hueston: And I remember thinking, what have I gotten myself into

John Emshwiller: Ruemmler was also feeling the heat.

Kathryn Ruemmler: It was really, really visible, and there was a huge amount of attention at the Justice Department and making sure we did it right.

John Emshwiller: The Enron task force had spent years building a case against Lay and Skilling, built in large part around the idea that the two men had made false statements to the public, to investors, to auditors. The legal teams for Lay and Skilling, which included attorneys, Bruce Collins and Daniel Petrocelli, had a pretty straightforward defense. Enron's financial maneuvers were legal, approved by outside auditors and lawyers, and any crimes committed at Enron, such as those former Chief Financial Officer Andy Fastow had already admitted to, had occurred without their knowledge. But the defense team had their work cut out for them. Going up against the government is never easy. The prosecution can offer witnesses immunity, cut plea deals, and even compel testimony. The defense can't. And Bruce Collins, one of Lay's attorneys, says the Enron probe was unprecedented.

Bruce Collins: It never happened before that a task force was formed to criminally prosecute one company, so we knew it was an uphill battle.

John Emshwiller: Collins, Petrocelli, and the rest of the defense team were also worried about the venue. They thought that the jury in Houston would be biased against Skilling and Lay from the get go, given the thousands of layoffs and other economic damage that Enron's collapse had caused in the city.

Bruce Collins: There was pervasive bad publicity throughout the country, but it was extraordinarily intense in Houston.

John Emshwiller: Still, Skilling's and Lay's wealth ensured they'd have a more vigorous defense than most accused could muster. When it was all over, the defendants would spend tens of millions of dollars in legal fees.

Adam Gershowitz: It was like a war between two very well-equipped sides.

John Emshwiller: Adam Gershowitz again.

Adam Gershowitz: It was like going to the Super Bowl or the World Series where you have two very good teams that are going to fight it out.

John Emshwiller: The Enron trial would decide the fate of two very wealthy and now infamous men, but it would also be something of a litmus test for all of corporate America. Did Skilling and Lay commit crimes, or was it all legal, the kind of activities done by business executives daily?

Bruce Collins: If he, he really thought that this was all a great fraud about to collapse. Why in the world would he come back and join a conspiracy?

Sean Berkowitz: When you lie about the little things people think you lie about the big things.

Adam Gershowitz: To turn to a jury and basically say the rules are not that important was just a foolish thing to say.

John Emshwiller: You're listening at season one of Bad Bets, the story of Enron's collapse. This is episode seven, The Trial. Prosecutor John Hueston had the floor first. In his opening statement, he cut to the chase. This was a simple case, and it wasn't about accounting.

John Hueston: Both men engaged in lies, and most importantly, made choices, their own choices to lie.

John Emshwiller: I should note, the descriptions of the trial are from interviews with us. The trial itself was not recorded. To drive home his point, Hueston stood in front of the jury and held up a single penny.

John Hueston: As I held the penny up, I could see everybody looking at it, focusing on it. And then I put it down on the banister and stepped back, and I had everybody's attention at that point.

John Emshwiller: He told the jury a story about how Enron executives were so greedy, they'd fight for even a penny of extra earnings. It went like this. In July 2000, enron was preparing for its second quarter earnings report. As you might remember from earlier episodes, these earnings reports were a sort of corporate report card for executives. If you wanted to get straight A's, meeting the earnings expectations of Wall Street analysts wasn't enough. You had to beat them.

John Hueston: Because by beating the expectation, you're emphasizing that you are a growth company and that you are growing faster than expected. Particularly in the frothy years of 1999 and early 2000, meeting or beating expectations could mean all the difference to the entire trajectory of that stock.

John Emshwiller: In that 2000 2nd quarter, the earnings expectation was 32 cents a share, and as Skilling review the Q2 earnings report, that's the number you saw, 32 cents a share. But Hueston said Skilling wasn't satisfied.

John Hueston: And he says, "I want to beat earnings estimates by 2 cents. This isn't good enough."

John Emshwiller: Though the quarter was already over, Hueston told the jury that Skilling instructed some senior execs to pull some cash out of reserve accounts and call it earnings, to bump up that per share number.

John Hueston: And what he effectively did is he asked the executives to reach into that cookie jar of reserves and find two pennies, bring them out of the cookie jar, add them to the bottom line, and create the appearance of profitability and beating earnings that they had not, in fact, rightfully achieved.

John Emshwiller: Just 2 cents. Houston wanted to drive this point home.

John Hueston: This is not a theoretical case. This is a case that's tangible in every sense.

John Emshwiller: Right down to the last penny. Skilling's lawyer, Daniel Petrocelli, says the government was attempting to criminalize ordinary business activities. Things that companies do on the regular.

Daniel Petrocelli: Adjusting reserves happens all the time. And if you have a valid basis for doing so, there's nothing conceivably wrong with that, let alone criminal.

John Emshwiller: Defense attorneys argued that after a quarter ends, companies routinely and legitimately adjust the numbers they plan to report as new information comes in about what happened during the period. To criminalize such activities, Petrocelli told the jury, "We might as well put every CEO in jail." In their opening arguments, the defense told the jury that what had happened at Enron wasn't a crime. It was a business failure. And the reason for that failure, a market panic spurred by bad PR caused by the real criminal, Andy Fastow. During that opening argument, Ken Lay's lead attorney, Mike Ramsey went out of his way to present Lay's good character, saying he was bone solid, church bound all his life, and highlighting his millions of dollars in philanthropy. Ramsey also told the jury something else, that Lay, "never sold one share of Enron stock that he was not compelled to sell." Prosecutor john Hueston says that statement by Lay's attorney would come back to haunt the defense.

John Hueston: It was a statement that we secretly were delighted to see as prosecutors because we knew that we had an extraordinary line of impeachment that we'd be able to explore should Ken Lay take the stand, which of course he did.

John Emshwiller: Mike Ramsey has since died, so I was unable to ask him for comment. After opening statements, the prosecution began its case. Over the first eight weeks of the trial, the team would call over 20 witnesses to the stand, among them were a few people you have heard about in this series, Sharon Watkins, who had taken her concerns to Ken Lay, Johnnie Nelson, the Enron pipeline worker who lost his retirement savings. He remembers a certain dissonance about the proceedings.

Johnnie Nelson: They were running me up and down the servant's elevator, like I was a criminal while Ken Lay was on the corner signing autographs and shaking hands.

John Emshwiller: And, of course, Andy Fastow, financial engineer in chief who had pleaded guilty and was awaiting sentencing. Called to testify six weeks into the trial, Fastow told the jury that Lay and Skilling had definitely heard warnings about giant financial problems inside Enron, problems that public didn't yet know about. He also said that Skilling gave his blessing to secret illegal deals that guaranteed Fastow and his LJM partners wouldn't lose money in their transactions with Enron, transactions that propped up the company's reported earnings. Here's John Hueston.

John Hueston: Fastow's notion was sure I took some money, but Skilling and others knew at least to a degree that I was profiting on the side or had the right to do so as long as I was returning value to Enron.

John Emshwiller: Fastow's testimony backed up the prosecution's claim that Ken Lay had chosen to tell lies to the public about Enron's financial condition. But prosecutors thought Fastow had some credibility issues with the jury. After all, he'd admitted that he stole millions from Enron among other misdeeds.

John Hueston: And along those lines, what was elicited from Fastow, we internally understood would never be enough to bring a case against Ken Lay, one cooperator with as much baggage as he had.

John Emshwiller: Fastow declined to be interviewed for this podcast. The prosecution wanted someone who could not only corroborate Fastow, but who would come across as more genuine, and Hueston says, more credible.

John Hueston: And that person came in the form of Ben Glisan.

John Emshwiller: Ben Glisan was Enron's former treasurer. He was one of the first execs to plead guilty to one fraud count and was already serving a five year sentence. But unlike some of his former colleagues, Glisan didn't reach a deal with the government. As prosecutor or Kathryn Ruemmler puts it.

Kathryn Ruemmler: He was doing his sentence. He didn't have any obligation to cooperate with us.

John Emshwiller: Hueston says they saved Glisan for the end, sort of the cleanup hitter.

John Hueston: We had him set to testify at the end of the case in stark contrast to Andy Fastow's grimacing, whistling, demeanor. Ben Glisan, when he came in and spoke, had a very much a Boy Scout like demeanor

John Emshwiller: And Ruemmler says Glisan wasn't just relying on his memory.

Kathryn Ruemmler: He kept these meticulous journals, so you could go back in time and say, "Okay, well, let's see what you were working on in May of 2000."

John Emshwiller: Glisan, sometimes reading from his own handwritten notes, laid out in detail, his version of events, including conversations with Ken Lay about Enron's finances. The former treasurer testified about various meetings he participated in at Enron and how Lay knew losses were mounting. He also discussed the Raptor transactions, which you might remember helped Enron avoid reporting hundreds of millions in losses. Here's Hueston.

John Hueston: In almost an expert witness's fashion, in a very calm voice, delivered very specific points that Enron was in a weak financial condition, that I informed Mr. Lay that there was mounting debt, that the balance sheet was over levered, that there were cash flow problems, that the international portfolio was saddled with billions of dollars of embedded losses. And he itemized these point by point.

John Emshwiller: Lay and his defense team, strongly disputed Glisan's claims, but Lay's lawyer, Bruce Collins acknowledges Glisan's impact.

Bruce Collins: The jury's going to listen to somebody like him because the kind of demeanor he effects on the stand. He turned out to be probably the most effective witness the government had against Ken Lay.

John Emshwiller: Glisan declined to comment for this podcast. Soon after Glisan's testimony, the prosecution rested its case. The stage was set for the two most anticipated witnesses of the entire trial, Ken Lay and Jeff Skilling. The defense presented 31 witnesses, including former Enron employees and Enron's former General Counsel, but the two most critical defense witnesses by far were Jeff Skilling and Ken Lay themselves. According to their lawyers, the former execs were eager to get on the stand. Now, Jeff Skilling was no stranger to defending himself. Remember, he had willingly appeared in front of Congress during the 2002 Enron hearings when other senior execs in including Lay and Fastow declined. Daniel Petrocelli, Skilling's lead lawyer was normally a polished West LA kind of guy. For the trial in Houston, he'd gone for a more Texas look, wearing cowboy boots. Sometimes even adding a twang when he spoke to make himself more relatable. In the same way, he told us he wanted the jury to connect with Skilling, to see him as a brilliant man with creative ideas, not the arrogant money grabber some in the media had betrayed him to be.

Daniel Petrocelli: Jeff Skilling loved Enron. Jeff Skilling loved the business. Jeff Skilling loved innovating ideas. And Jeff wasn't about the almighty dollar. That's not what motivated him.

John Emshwiller: Skilling took the stand, and at first, things weren't going well.

Daniel Petrocelli: The jury would not look at him. They looked at me, they had their arms crossed, and needless to say, it was a very cold and chilly feeling up there.

John Emshwiller: But as they worked through his testimony over four days, Petrocelli says.

Daniel Petrocelli: The ice thawed, and the jurors arms opened, and they started looking at Jeff on the stand.

John Emshwiller: At one point, Petrocelli says Skilling got so excited in trying to explain a business concept that he lost himself in the moment, asking jurors directly if they understood what he was talking about.

Daniel Petrocelli: He stood up and he had an easel up there that he was writing on, and he was trying to explain it to the jurors. And he said, "Now, does that make sense to you?" And I had to stop him. Jeff, you can't talk to the jury. He lost himself in the process of being so excited about his ideas, that he had forgotten that he was actually testifying for his life in a criminal trial.

John Emshwiller: Now you might think that Skilling would've tried to wash his hands of the financial engineering, the pennies, and the LJM partnerships, the entities Fastow had set up to keep losses off Enron's books, but he didn't.

Daniel Petrocelli: He was not in any way distancing himself from the transactions and claims the government was challenging. To the contrary, his defense was he was fully knowledgeable about them, and there was nothing wrong with them.

John Emshwiller: But Skilling did distance himself from Andy Fastow and has admitted illegal behavior. He claimed he never promised his former CFO anything when it came to the LJM partnerships, disputing Fastow's earlier testimony that Skilling had approved side deals with him to ensure he wouldn't lose money.

Daniel Petrocelli: He was explicit that he never had any conversation with Andrew Fastow about secret side deals. None, never happened. And they had no document to indicate otherwise. It was really just Mr. Fastow and a couple of his colleagues who committed fraud.

John Emshwiller: Prosecutors, Sean Berkowitz was watching Skilling's testimony closely and the jury's reaction.

Sean Berkowitz: I think they liked Jeff Skilling after his direct. He's charming, he's very charismatic, he's very smart, he's very much a visionary, and he had all of those great qualities on display when he testified.

John Emshwiller: On cross examination, Berkowitz tried to take the ball out of Skilling's court, digging into less familiar topics and baiting him.

Sean Berkowitz: The biggest weakness for Jeff Skilling from my perspective was similar to his biggest strength, which was his brilliance and his arrogance, which are two sides of the same coin. He didn't like to not know an answer to something, and he wanted to be right all the time.

John Emshwiller: Berkowitz asked about Skilling's stock trading activity. On September 15th, 2001, about a month after he left Enron, Skilling had sold half a million shares of company stock worth about $15 million. Skilling later told investigators that he made the sale because of the 9-11 attacks.

Sean Berkowitz: And he agonized over the decision, and he loved the company and had no plan to sell before that.

John Emshwiller: But Berkowitz had evidence to the contrary. He played a tape of a phone call between Skilling and his broker for September 6th, during which Skilling tried to sell some of his shares.

Sean Berkowitz: He said that he had, I believe, had forgotten about it. It was a different sale, and it was being done for different reasons, although he just didn't remember any reasons or circumstances surrounding it. So this person, who on direct had been so thoughtful and so thorough and so well spoken, cross examination when confronted with something showing that his testimony about September 11th wasn't entirely accurate, really had no answer.

John Emshwiller: As Berkowitz tells it, Skilling's inconsistent responses about his stock sales undermined his credibility in front of the jury. But perhaps the most dramatic and damaging part of Skilling's testimony on cross examination, actually involved a more personal matter, Skilling's financial dealings with a former girlfriend.

Sean Berkowitz: He had made an investment in her company and that company had done business with Enron. It was a photo company that took pictures for the annual report and things of that nature.

John Emshwiller: The thing is Skilling never disclosed that investment as required by Enron's code of conduct regarding possible conflicts of interest. When Berkowitz brought it up, Skilling seemed taken aback.

Sean Berkowitz: He was very combative about that. He minimized the amount of his investment.

John Emshwiller: The investment only involved tens of thousands of dollars, pocket change in the Enron scheme of things. But Berkowitz used this business and personal relationship to portray Skilling as someone willing to ignore the rules when it suited him. It got under Skilling's skin.

Sean Berkowitz: And he said, "I don't understand what this has to do with fraud and Enron." I believe I said it has to do with your credibility.

John Emshwiller: And ultimately, credibility was at the heart of the battle. Would the jury believe government witnesses who had reason to lie to possibly reduce their prison sentences, or would they trust in the defendants who had reason to lie to avoid prison? So Berkowitz pushed on issues that had nothing directly to do with the alleged fraud at Enron, but everything to do with the believability of Jeff's Skilling.

Sean Berkowitz: And when you lie about the little things, people think you lie about the big things. And I felt like those were moments when I looked at him that I got the raw Jeff Skilling, somebody who deep down was scared about what was going on and didn't have all the answers. And for somebody who believes that they have all the answers, to not have the answers is a really lonely feeling.

John Emshwiller: Skilling spent eight days on the stand. Soon after it was Ken Lay's turn. Much like Skilling, Lay was also eager to testify according to his lawyer, Bruce Collins.

Bruce Collins: This was his chance to tell his side of the story.

John Emshwiller: It was a story about Lay's devotion to Enron, a company that he had essentially founded and helmed for so many years. Lay was the captain, who instead of abandoning the ship, came back on board after Skilling quit.

Bruce Collins: Ken Lay had no obligation to return a CEO. And if he really thought that this was all a great fraud about to collapse, why in the world would he come back and join a conspiracy? Why does anybody run back into a raging fire?

John Emshwiller: Lay testified that he was devastated by Enron's collapse. He insisted all his actions had been legal and any crimes by Fastow had been news to him. And he stuck to his explanation of why Enron collapsed, that it was spurred by a market panic and a big sell off of Enron stock, instigated in part by the Wall Street Journal. Here's his lawyer Collins, again,

Bruce Collins: As those articles came out, you could see the stock reaction, you could see the reaction in the credit markets day by day, and you could see a panic developing.

John Emshwiller: I must admit, I felt a little weird sitting in that courtroom covering the trial and also being a topic of the testimony. Adding to the strangeness, Lay would often give me a friendly hello as he walked into the courtroom. Then he'd get in the stand and lambast the stories Rebecca and I had written. At the core of Lay's testimony was the idea, the assurance that Enron was a solid company. It's what he told the jury, and it's something he'd been saying for a while. Since recording wasn't allowed at the trial, I can't play exactly what Lay said on the stand, but he had been making his case in public for a while by that point. Here he is at a press conference two years earlier in 2004, right after he was indicted.

Ken Lay: I believed and still believe that the fundamentals of our core business, our wholesale business, our retail business, and our pipeline business were very strong.

John Emshwiller: In that same press conference, Lay had thrown Fastow under the bus.

Ken Lay: I think the worst mistake was, in fact, entrusting somebody in the Chief Financial Officer's job that indeed decided to use that position for his own self enrichment. But again, that's 20/20 hindsight. I knew nothing at the time that would even get any suspicion of what was going on. I was not Chief Financial Officer. I was not Chief Accounting Officer. I'm not Chief Risk Officer. I was not General Counsel. There are a lot of things I was not.

John Emshwiller: But he was CEO, head of the company. Prosecutor John Hueston started to dig into these claims and show the jury another side of Ken Lay.

John Hueston: CEOs are not used to being told to sit and listen to questions for as long as the questioner wants. And so it's typically my goal to find a way to get under their skin and to get them to explode while retaining my own composure and balance so that the jury can see that other face.

John Emshwiller: On cross examination, Hueston asked Lay about some investments he'd also made with the photo company owned by Skilling's ex-girlfriend and that was doing business with Enron.

John Hueston: That was when he acknowledged that he failed to follow his own code of conduct that he had signed. And instead of simply admitting, well, I may have made a mistake and I didn't follow my rules, he created a bigger moment for us in the cross examination because he fought it.

John Emshwiller: Lay said he might have notified a senior board member about the investment, but Hueston pushed him on it, noting Enron's rules required wider board approval than that. Hueston recalls Lay's response.

John Hueston: I think we're now getting into form over substance, Mr. Hueston, and that I knew was the opening.

John Emshwiller: Hueston drove through it.

John Hueston: And I said, "Well, that's what you would call your rules then sir, form over substance?" And he said, "No, the rules were very, very important." I said, "Right, the rules were important, but you didn't follow them. Isn't that right, sir?" And his answer, "Rules are important, but you should not be a slave to rules either."

John Emshwiller: Not a slave to rules. It may seem like a small thing, the kind of offhanded comment that in certain circumstances might even draw a nod of agreement from listeners. But in this moment, with Lay on the witness stand and under oath, belittling the rules of financial disclosure at his own company, it was a stunning admission. Law professor Adam Gershowitz was watching it unfold.

Adam Gershowitz: I remember listening to that and thinking, oh my goodness, what a terrible thing to have said under these circumstances. You're in an industry where following the accounting rules makes a big difference, to turn to a jury and basically say the rules are or not that important was just a foolish thing to say. Not a kind of thing that's going to resonate with normal people, right? And so I was sort of shocked that that came out of his mouth.

John Emshwiller: Lay's attorney, Bruce Collins, says his client was merely expressing a "common sense message that this was a small investment and you have to use some judgment in applying rules." For Lay, as with Skilling, failing to notify the Enron board of a minor investment could have seemed like a small mistake in the grand scheme of things, but it was potentially devastating in the crucial battle for credibility with the jurors. If the top two executives didn't see the need to follow their own rules on one matter, how many other times might that have also been true. But a small photo company wasn't Lay's only problem in his confrontation with Hueston. Remember in opening arguments, when Lay's attorney Mike Ramsey declared that his client hadn't sold a single share of stock he didn't have to sell? Well Prosecutor John Hueston had been thinking about that claim a lot.

John Hueston: I knew that if I could convince the jury that he not only sold one share, but many shares that he did not need to satisfy those margin calls that he was getting and was in fact spending them on frivolous luxuries, it would show that he had every choice available to him. I asked him, Mr. Lay, this is what your attorney said, and I quote, "Mr. Lay didn't sell a single share of Enron stock that he was not compelled to sell." Mr. Lay, do you believe that as well? And he said, "I absolutely do." And that's when knew we had him.

John Emshwiller: Lay had borrowed tens of millions of dollars from banks using Enron stock as collateral. As Enron's stock price sank in 2001, he started getting margin calls from the banks to repay parts of these loans. He did this by essentially selling some of his stock back to Enron for cash. But despite these financial problems, Hueston says Lay was still living large.

John Hueston: Time and again, he was spending hundreds of thousands of dollars in buying real estate, buying wine futures, buying season tickets to the Houston Rockets, and then my favorite, chartering a special pleasure cruise on what was called the H.V. Amnesia.

John Emshwiller: The message, Lay could have sold fewer Enron shares and just remembered to cancel Amnesia.

John Hueston: So what I saw over and over and over again is an election to continue living a high-flying lifestyle and even pursue alternative investments by selling, voluntarily selling large portions of Enron stock.

John Emshwiller: Plus Hueston found Lay had other resources, including valuable real estate that he could have been using to meet those margin calls.

John Hueston: And what I was able to then build was a record over the cross of a day that he had other lines of credit available, and in fact, other stock accounts. But each time he chose instead to sell Enron stock, all the time not telling anyone in the public that he was doing so.

John Emshwiller: That's because under SEC disclosure rules, those transactions didn't have to be reported for months. As it turned out after Enron's December 2001 bankruptcy. To clarify, Lay was legally allowed to make those stock transactions with Enron, and Lay's attorney bruce Collins says the "overwhelming evidence showed that his client tried to keep as much Enron stock as possible." But Hueston hoped to use the stock sales to paint Lay as a hypocrite at best and a liar at worst, someone who called Enron stock a great buy in public while selling buckets of it behind closed doors. One example Hueston pointed to was on September 26th, 2001. That day Enron held an online forum with employees where Lay touted the company and the stock. This was less than a month before Enron entered its death spiral.

John Hueston: He portrayed himself in that session as leading the charge in buying Enron stock. What he didn't tell those employees is that he had sold $24 million of stock in a way he knew the employees' investors didn't know about at that time.

John Emshwiller: Remember, the task force was trying to prove a false statements case.

John Hueston: In unloading stock at the same time, he was personally profiting while knowledgeable of another reality. It became a proof point that he, in fact, was engaging in an element of self dealing while lying to the public. What both Skilling and Lay elected to do time and time again, is to go beyond and actually falsely assure the investing public of a state of Enron that didn't exist. That was the crime, put simply.

John Emshwiller: Hueston says that Ken Lay's visible frustration during questioning helped present a different face to a man once beloved by the public.

John Hueston: When the witness gets frustrated, the corporate demeanor goes, the avuncular nature is gone, and then he's snarling, he's snippy, and he's fighting. And when you have a witness doing that, the jury perceives that person as biased, not interested in the truth, and simply trying to do whatever they can to save their own skin.

John Emshwiller: Lay's lawyer. Bruce Collins, acknowledged it wasn't a good look.

Bruce Collins: I do think he probably let the prosecutor or get under his skin more than I would've liked.

John Emshwiller: But Collins says Hueston's line of questioning didn't acknowledge the full reality of Lay's financial situation.

Bruce Collins: You had these lavish purchases here, you were flying around the world here, you were doing this, and by the way, you had this home in Aspen. Why didn't you sell your home to meet margin calls? That's laughable. You can't sell a home to meet a margin call.

John Emshwiller: And Collins says, Lay continued to own large amounts of Enron stock right up to the bitter end. As a result, he saw much of his once vast wealth disappear.

Bruce Collins: So, the big picture we were presenting is that this is a guy that believed in Enron.

John Emshwiller: But would the jury see it that way? Three and a half months after the trial started, the jury began its deliberations. Freddy Delgado was one of those jurors.

Freddy Delgado: A lot of us thought they were guilty of all counts, but then you had people that would say, no, I don't agree because of X, Y, and Z.

John Emshwiller: The jurors deliberated for six days, but Delgado says in the end.

Freddy Delgado: We surprisingly had a verdict pretty soon. The evidence presented was overwhelmingly, there's no way you didn't know this.

John Emshwiller: In the end, they convicted Ken Lay of fraud and conspiracy, all six counts. In a separate trial in front of the judge but not the jury, Lay was also found guilty of four counts of bank fraud. Jeff Skilling faced more than two dozen charges. He was found guilty of fraud, false statements, insider trading, and conspiracy, 19 counts in all. I remember Lay and Skilling supporters crying out when the verdicts started being read. Soon after, Lay with family and friends gathered in a corner of the courtroom to pray. A local pastor and Lay supporter invoked the story of Jesus and how he was "convicted and even executed." Quite a comparison. The judge set a $5 million bond for Lay, ordering him to surrender his passport. Skilling had a similar bond already in place. At a press conference after the verdict, Lay said.

Ken Lay: Certainly, we're surprised. I think probably more appropriately to say we're shocked. Certainly this was not the outcome we expected. We believe that God, in fact, is in control, and indeed he does work all things for good for those who love the Lord.

John Emshwiller: Skilling was, by most accounts, stoic.

Jeff Skilling: Obviously I'm disappointed, but that's the way the system works.

John Emshwiller: His lawyer, Petrocelli says, even now it's emotional to think about.

Daniel Petrocelli: It was crushing. I was despondent. So I lost the Enron case, and my client had to go to jail for it. And I'll never live that down.

John Emshwiller: The prosecutors were relieved. They felt like the verdict sent of message to corporate America. Here's John Hueston.

John Hueston: There is no one, no matter how rich or how high they stand in the corporate world, that stands beyond the grasp of the Department of Justice.

John Emshwiller: But Hueston acknowledges it was bittersweet.

John Hueston: These are sad moments. When you get those verdicts, it's a victory for your team, but it's a loss for the families and others that are connected with these people.

John Emshwiller: Prosecutor Kathryn Ruemmler agrees.

Kathryn Ruemmler: It wasn't happy feeling. It's much more heavy, a very heavy feeling.

John Emshwiller: However, after the trial, the prosecutors got the hero treatment.

Kathryn Ruemmler: For at least a good two years after that case when I was in Houston, I would get asked for my autograph. I would get recognized at the airport or at other places around Houston.

John Emshwiller: Many in the public felt like justice had been served. Lay and Skilling had been found guilty and were both out on bail awaiting sentence. But then about six weeks after the convictions, a new shock hit the Enron saga.

Speaker 14: This news today came as a big surprise. Kenneth lay, the founder of Enron, died suddenly in Aspen, Colorado. He was 64.

Speaker 15: The Enron founder in his family were vacationing at his Colorado home when Lay suffered a massive heart attack. He died early this morning.

John Emshwiller: Lay had a heart condition. His lawyer, Bruce Collins, believed the trial worsened his health.

Bruce Collins: The stress and the turmoil inside had to have been extraordinary, and it only got worse after the conviction.

John Emshwiller: Some found the timing of his death just six weeks after the conviction suspicious. Lay was awaiting sentencing and was facing the rest of his life in prison. Here's Hueston again.

John Hueston: FBI agents rushed to Aspen and wanted to examine the body and were presented with ashes. And a number of them felt that there was some sort of ruse to allow Lay to escape.

John Emshwiller: But no foul play ever surfaced. Lay was never sentenced, and his conviction was vacated since he died before he could appeal. A few months later, Andy Fastow and Jeff Skilling were sentenced. Fastow got six years in prison instead of the 10 he'd agreed to in his plea deal. The judge in his case was unexpectedly easy on him. The same could not be said for Skilling. He was sentenced to 24 years in prison, the longest sentence of all those who were convicted. Former Enron taskforce, director, Andrew Weissmann, put it simply.

Andrew Weissmann: Look 24 years is a lot.

John Emshwiller: Petrocelli agreed.

Daniel Petrocelli: I was gravely disappointed.

John Emshwiller: Seven years later, after an appellate battle that included a trip to the Supreme Court, Skilling sentence would be reduced to 14 years as part of an agreement to end further appeals. He was released two years ago in 2019. So was justice done? It's a question that many have asked and not just with regards to who was sentenced and how long they served. Skilling and Lay's lawyers maintain that their clients didn't get a fair shake, in part because of the systemic imbalance of power in the criminal justice system, even when the defendants are as rich and lawyered up as Ken Lay and Jeff Skilling.

Nancy Gertner: The prosecutor has an enormous amount of tools.

John Emshwiller: That's former federal judge Nancy Gertner. She says one of the biggest tools is the power to give witnesses immunity from prosecution in exchange for their testimony.

Nancy Gertner: It is a nuclear weapon that a prosecutor has.

John Emshwiller: That power was on display at the Lay Skilling trial with the testimony of former Enron Treasurer Ben Glisan. He had already pleaded guilty to an Enron related crime and was serving prison time, but he had never struck a cooperation deal with the government. To get him to testify, the prosecutors granted him immunity, protecting him from being further prosecuted for things he said on the stand. In the eyes of many observers, Glisan was the government's most effective witness. The defense had also requested immunity for witnesses, eight in total, who they argued could help their cause. None of their requests were granted. None of those individuals testified. Here's Skilling's lead attorney Daniel Petrocelli.

Daniel Petrocelli: We, on the defense side, had a stunning lack of access to witnesses.

John Emshwiller: He says that happened in part because a lot of the potential defense witnesses had been scared off. Before the trial, the task force had said it had a list of about 100 unindicted co-conspirators in the case, people it might still go after, but the government didn't release the names.

Daniel Petrocelli: That created terror in the minds of the witnesses that they might be indicted if they did not cooperate with the government.

John Emshwiller: The task force prosecutors say basically that these tactics are par for the course. Defense witnesses are almost never given immunity, and having a large number of unindicted co-conspirators is common in a big criminal case, and the names normally aren't released to protect individual's privacy. And law professor Adam Gershowitz agrees. The government's actions were fairly typical.

Adam Gershowitz: I definitely thought the prosecution team played hardball. They played aggressively. Do I think they engaged in prosecutorial misconduct the way that we traditionally define it? I do not.

John Emshwiller: He says the main reason the prosecution in the Lay Skilling trial came under scrutiny was because the defendants were public figures with money and high powered lawyers, something the average defendant doesn't have. But Gershowitz says it speaks to a much bigger question, one that goes beyond this trial.

Adam Gershowitz: Is this really the way the rules should work?

John Emshwiller: As a reporter, I'll leave others to debate that question. However, I can say that as someone who sat through the Lay Skilling trial, I would've liked to have heard the testimony of those eight possible defense witnesses who never made it to the stand. With the trial, sentencing, and Ken Lay's death in the rear view mirror, the major plot points of the story of Enron were complete. Its legacy was still taking shape.

Speaker 18: Enron was the rock in the water whose waves far beyond the confines of Houston, Texas.

John Emshwiller: The Enron scandal led to increased scrutiny of corporate America and reforms. But today, 20 years after the company's collapse, it's fair to wonder, are things really better?

Speaker 19: We're seeing financial engineering enter into some of these transactions again. We're seeing a lack of transparency. It's starting to feel a lot like what led up Enron.

John Emshwiller: That's next on Bad Bets. This episode of bets was hosted by me, John. Emshwiller. The original reporting on which this season is based, was done by Rebecca Smith and me. We also relied extensively on other reporting by Wall Street Journal reporters. Bad Bets is production of the Wall Street Journal. This season was produced in collaboration with Neon Hum Media. From the Wall Street Journal, Kateri Jochum is the Executive Producer of this podcast. Dan Rosen is the Co-executive Producer of WSJ Studios. Anthony Galloway is the Global Head of Video and Audio at the Wall Street Journal. From Neon Hum Media, Muna Danish and Haley Fager reported wrote and produced this season. Nafula Kato is the Associate Producer. Additional production support from Liz Sanchez. Story Editing by Annie Gilbertson and Vikram Patel. Sammi Allison is the Production Manager, Sound Design and Engineering by Scott Somerville, and the Executive Producers from Neon Hum are Shara Morris and Jonathan Hirsch. This episode was fact checked by Justin Kloczko. The theme song and many of the tracks you hear in this series were composed by Hansdale Hsu. The other music in this season of Bad Bets is from Epidemic Sound and Blue Dot Sessions. Subscribe and listen wherever you get your podcast. I'm John Emshwiller. Thanks for listening.

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