Ken Silverstein EnergyBiz Insider Editor-in-Chief

Ironically, Enron once symbolized the "New Economy" where knowledge and technology would combine to create opportunities across several sectors. And while the concept is still applicable, the way that Enron implemented it has been discredited. In other words, the company manipulated financials and lied to investors in an effort to show that it was alive and kicking. Now, the Houston-based entity is the sign for all that can go wrong with corporate America if hungry executives are left unchecked.

Prosecutors allege that former Enron Chair Ken Lay and former Enron CEO Jeff Skilling knew the company's true financial condition but chose to conceal it, thinking the enterprise could rebound. The two face multiple fraud charges that could land each in prison for decades if they are convicted.

"To the outside world, Enron appeared to be a picture of corporate success," says Assistant U.S. Attorney John Hueston, in his opening remarks to the jury. "Inside the doors of Enron, things were terribly wrong."

The government says that Lay unfairly enriched himself through a number of "schemes." Between 1998 and 2001, Lay received about $300 million from the sale of Enron stock options and restricted stock, netting a more than $217 million profit. He was also paid $19 million in salary and bonuses. Skilling, meantime, is charged with 42 counts that include insider trading and securities fraud. All told, he is said to have taken home $150 million during the same time period.

Defense attorneys counter that the top two chieftains were duped by shady subordinates. Those lawyers place most of the blame on former CFO Andrew Fastow, who has already pled guilty to defrauding investors and who is now spending 10 years in prison. Fastow, one of 16 former Enron execs who have pled guilty to corporate crimes while at Enron, has agreed to testify against his former bosses.

"Failure is not a crime," Mike Ramsey, Ken Lay's lawyer, told the jury. "Bankruptcy is not a crime." Skilling, who resigned in August 2001, right before Enron's eventual collapse in December 2001, publicly said he left because he was "tired." The company, he added, was not in any "imminent financial peril" at that time. In testimony before Congress, he attributed Enron's fall to a "classic run on the bank -- a liquidity crisis spurred by a lack of confidence in the company."

Perfect Storm

Before Enron declared bankruptcy on Dec. 2, 2001, it was the seventh largest corporation in the country. But federal investigations discovered it was all a ruse and that it had tried to hide at least $1 billion in debt through a complex set of transactions. The company's stock shot up from $30 a share in 1998 to about $80 a share in January 2001 -- all before it became worthless after its bankruptcy.

Former execs are lining up to testify against Lay and Skilling. Kenneth Rice, who used to run Enron's broadband unit and who has pled guilty to securities fraud has given some damning testimony. That unit was rocked by red ink. Rice, who has yet to be sentenced, said Skilling ordered managers to predict smaller losses. For example, Enron's broadband unit forecast a loss of $35 million when it was actually expected to incur a $146 million loss, the former broadband chief told jurors.

At the same time, Rice struck at the heart of Skilling's defense, saying that the former CEO was in total control. That's a position also maintained by Sherron Watkins, the former Enron accountant who is best known for tipping off Chairman Lay that the company might topple. In earlier testimony before Congress, she called Skilling a rugged manager who must have had full knowledge of the illicit partnerships that were financed with Enron stock and contrary to typical accounting procedures.

"Mr. Skilling would simply say, in fact he did say, 'This is what the number's going to be,"' Rice testified. "So we'd walk away and say 'All right, we're going to try and hit it.' Mr. Skilling was very engaged in the business, he was very hands-on."

Insiders say that the company preached ethical values but did little to practice them. With millions in bonuses at stake for corporate managers, the primary incentive was to increase profits at all costs. Corporate ethicists say that it's tantamount to playing sports where teamwork is essential. If any of the individuals in a business setting become more concerned with their own performance at the expense of the enterprises' well-being then defeat is almost certain.

As a consequence of misplaced values, the system of checks and balances broke down allowing corporate managers to work with the auditors, investment bankers and lawyers to pursue deals that violated the Enron's own codes of conduct. The forces ultimately converged to create one of the largest bankruptcies in American history.

"Strong individuals can take an organization diametrically opposite to where it needs to go," says Cal Clemmons, author of the "The Perfect Board." "But those who will stand up and be counted will be proven right in the end."

Lay and Skilling are innocent unless proven otherwise. But, they are responsible for Enron's demise. Indeed, twisted priorities misdirected the innovation and energy that Enron sought from all workers. That same creativity was employed instead to manipulate numbers and to sell a false public image. Greed and arrogance subsequently prevailed, resulting in Enron's now implacable image as the symbol for corporate malfeasance.

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