If convicted on all 35 counts, Skilling, 50, faces a maximum sentence of 325 years in prison, millions of dollars in fines, and forfeiture of more than $66 million in allegedly ill-gotten gains (see BW Online, 2/19/04, "Jeff Skilling's Morning in Court"). "No executive is too prominent or too powerful -- and this shows no scheme is too complex or too fancy -- to avoid the long arm of the law," Comey told reporters. The charges include conspiracy, securities fraud, wire fraud, and insider trading, all stemming from the accounting scandal that drove the once high-flying energy company into bankruptcy in 2001.
Federal officials also announced multiple counts of similar charges -- conspiracy, securities fraud, wire fraud, and insider trading -- against Richard Causey, Enron's former chief accounting officer, who was indicted in January.
IS KEN LAY NEXT? Comey says the prosecution's case details a "massive conspiracy to cook the books and create the illusion [Enron] was a robust company with limitless potential." The reality, he notes, was that it was "a troubled business kept alive by a series of gimmicks."
According to the indictment, Skilling, Causey, and other Enron executives allegedly concealed enormous energy-trading profits made during the California energy crisis by placing the earnings in fraudulent reserve accounts. They also allegedly hid large losses and failures in two units, Enron Energy Services and Enron Broadband Service. Prosecutors contend that these units manipulated Enron's "segment reporting," used reserved energy-trading profits to hide EES's losses, and manipulated expense accounting to hide the extent of EBS's losses. The indictment also alleges that Skilling used secret partnerships to hide debt and inflate Enron's stock price.
Skilling, who ran Enron for six months in 2001, is the latest and most prominent former company official to be charged by the Enron Task Force, a joint effort of the Justice Dept., the FBI, and the IRS, in cooperation with the Securities & Exchange Commission. Comey declined to speculate about whether former Enron Chairman Kenneth Lay would be next in the crosshairs of federal prosecutors.
BEHIND THE CURTAIN. In addition to Justice's criminal charges, the SEC also announced civil charges against Skilling with multiple counts of securities fraud and insider trading. The SEC's complaint alleges that Skilling, along with other top Enron officials, engaged in a wide-ranging scheme to defraud investors by manipulating the company's publicly reported financial statements. The SEC further alleges that Skilling used insider information to reap approximately $63 million from his sales of Enron stock from April, 2000, through September, 2001.
The SEC is seeking disgorgement of all Skilling's alleged ill-gotten gains as well as unspecified monetary penalties. The agency also wants to bar him from ever again serving as a director or officer of a publicly traded company.
"Mr. Skilling was quick to take credit for the 'innovations' behind Enron's spectacular rise and its apparent transformation into a 'new economy' powerhouse," says Stephen M. Cutler, director of the SEC's Enforcement Div. "Of course, many of these so-called 'innovations' were, in truth, nothing more than fraudulent business practices."
Cutler adds: "We are by now all too familiar with the phenomenon of executives who put themselves at the center of what would appear to be great corporate achievements, but who then loudly proclaim their ignorance when the appearance of success gives way to the reality of corruption. Let there be no mistake that today's enforcement action against Mr. Skilling places accountability exacty where it belongs."
DAUNTING BATTLE. However, securing guilty verdicts against Skilling won't be easy (see BW Online, 2/19/04, "The Case Against Jeff Skilling"). He maintains he's innocent of the charges and will be able to point to numerous approvals from Enron's board, its lawyers, and its accountants of some of the special partnerships that are at the heart of the government's case. Such assurances will make it hard for prosecutors to allege Skilling knew the deals were illegal.
Pinning insider-trading charges on Skilling could also be tough because he crafted an automatic stock-sale plan, authorizing his broker to sell 10,000 of his Enron shares weekly, in November, 2000. But legal sources say prosecutors will be able to show that Skilling's fraudulent actions and misrepresentations predated the stock-sale plan. That could undercut his ability to use the program as a defense against insider-trading charges.
Skilling is expected to return to a federal courtroom in Houston in early to mid-March for the beginning of pre-trial motions. Borrus covers financial regulation from BusinessWeek's Washington bureau