Judge Drops 3 Counts Against Skilling, One Against Lay

HOUSTON – A federal judge on Tuesday dropped three of the 31 counts against former Enron Chief Executive Jeffrey Skilling and one of the seven counts against company founder Kenneth Lay.

As the prosecution rested its case Tuesday, U.S. District Judge Sim Lake dropped two counts of securities fraud and one count of lying to auditors against Skilling, leaving 28 criminal counts against him; the judge also dropped one securities fraud count against Lay, a government prosecutor said.

All the dropped counts against Skilling pertain to crimes that allegedly occurred in the first quarter of 2000. Prosecutors didn't present evidence dealing with that time span. The dropped count against Lay pertains to a November 2001 conference call.

None of the counts can be refiled, the prosecutor said.

The defense is scheduled to open its case on Monday, which is expected to feature testimony from both defendants. Defense lawyers have pared down their witness list to about 100 from more than twice that, though one-fourth or more of the remaining witnesses are likely to testify.

The government presented 22 witnesses since testimony began Feb. 1, which included eight former executives who have pleaded guilty to crimes, one with an immunity deal, one who settled regulatory allegations and three who said they voiced concerns about financial peril that fell on deaf ears.

As the government wound down its case, it left jurors with a taste of the large salaries Lay and Skilling raked in — almost $375 million between them — as the company slid toward bankruptcy proceedings.

Skilling earned more than $151.7 million from Enron Corp. from 1999 to 2001, the year he resigned and the company collapsed. He also sold stock for more than $41 million.

In the same three years, Lay earned more than $222.8 million from the company.

The indictment spans 1999 through 2001.

The government sought to bolster its allegations through the memories of witnesses, audiotapes of conference calls with Wall Street analysts and videotapes of employee meetings. Prosecutors say Lay and Skilling repeatedly lied about Enron's financial health, spouting ebullient optimism about the strength of the company and its various ventures, when they allegedly knew accounting maneuvers propped up an image of success.

The two men counter that there was no fraud at Enron other than that by a few employees who skimmed money for themselves from secret scams, including former Chief Financial Officer Andrew Fastow. They say they did nothing wrong, and attribute Enron's failure to negative publicity coupled with a loss of market confidence.

The government took a brick-by-brick approach in presenting its case, but lacked tangible proof such as e-mails, documents or notes. Neither Lay nor Skilling was known to use e-mail at Enron.

Prosecutors instead relied on witnesses — some of whom had pleaded guilty to related crimes — to explain that the optimism Lay and Skilling expressed to analysts, employees and investors through conference calls, meetings and media interviews hid Enron's true financial state.