- The Washington Times - Friday, May 26, 2006

HOUSTON (AP) — Just how much time former Enron Corp. chiefs Kenneth L. Lay and Jeffrey Skilling spend in prison could hinge on how much of the more than $60 billion lost in the company’s crash is deemed their responsibility.

Under federal sentencing guidelines, the newly convicted felons easily face more than 20 years in prison if investor loss tied to their actions exceeds $80 million. And the judge who will sentence the disgraced corporate chieftains has made clear he will rely on those guidelines even though they are advisory.

“The amount of loss drives the sentence under the guidelines,” U.S. District Judge Sim Lake told Lay, Skilling and their legal teams Thursday within minutes of announcing that a jury had found Lay guilty of all and Skilling guilty of most of the counts in the premier case to emerge from the government’s sprawling Enron investigation.

The judge said he expected both sides to consult specialists regarding how much investor loss could be tied to the two men’s crimes, and left plenty of time for such studies to be conducted before sentencing on Sept. 11.

Jacob Frenkel, a former federal prosecutor, said the sentences could range from less than a decade to more than 30 years.

“The biggest area for latitude for the judge in sentencing, if he wants to offer some level of leniency in what is otherwise going to be a stiff sentence anyway in the guidelines, is to lower the loss calculation,” Mr. Frenkel said.

And while the guidelines are advisory, “few judges if any are prepared to cast aside the guidelines for fear of a reversal,” he said.

Enron plummeted into bankruptcy proceedings in December 2001 amid revelations of hidden debt, inflated profits and accounting tricks. Jurors determined after a 16-week trial that both Lay and Skilling repeatedly lied to investors and employees about the company’s health when they knew their optimism masked fraud.

The collapse obliterated more than $60 billion in market value, almost $2.1 billion in pension plans and, initially, 5,600 jobs.

“Because they were at the top of the pecking order at Enron, they are going to get the heavier end of the scale,” said Nancy Rapoport, outgoing dean of the University of Houston Law Center.

“And [Judge Lake] is such a no-nonsense judge, that I think he’s going to take their personalities out of it at this point and really look at the ramifications of what that company ended up doing to so many people,” she said.

Skilling was convicted of 19 counts of conspiracy, securities fraud, lying to auditors and insider trading. Jurors acquitted him of nine counts of insider trading regarding a series of Enron stock trades in 2000.

Lay was convicted of six counts of conspiracy, securities fraud and wire fraud. In a separate case tried before Judge Lake without a jury, the judge convicted Lay of one count of bank fraud and three counts of making false statements to banks.

Judge Lake gained attention from white-collar crime attorneys across the country more than two years ago when he sentenced former Dynegy Inc. finance executive Jamie Olis to 24 years in prison for his role in pushing through a 2001 scheme to disguise debt as cash flow.

At the time, Judge Lake was bound by mandatory sentencing guidelines that required harsh sentences for defendants held responsible for $100 million or more of investor losses tied to the crime.

Early last year, the U.S. Supreme Court ruled that the guidelines were strictly advisory, and later an appeals panel deemed the loss amount in the Olis case unreasonable and ordered that he be resentenced.

Judge Lake had intended to resentence Olis before the Lay-Skilling trial began Jan. 30. But the judge decided to hold off until specialists hash out how long Olis remains behind bars based on the loss amount.

Woes facing the 64-year-old Lay and the 52-year-old Skilling stretch beyond the specter of a prison term that would amount to a life sentence for both.

Skilling faces more than $18 million in fines, while Lay faces nearly $8 million for their crimes.

Skilling set aside $23 million for his defense when he was indicted in February 2004, but testified that his legal costs exceeded that amount and he owes his lawyers.

His lead attorney, Daniel Petrocelli, has declined to specify how much Skilling has spent on his defense or his financial status.

Lay testified that his net worth, once $400 million during Enron’s halcyon days, has fallen to a negative $250,000 with his legal costs.

Judge Lake showed no sympathy when he increased Lay’s $500,000 bond to $5 million upon the ex-chairman’s conviction.

Lay’s daughter and stepchildren put up their property to secure the bond.

Skilling put up $5 million in cash for his bond when he first appeared in court more than two years ago.

The government intends to seize about $57 million in Skilling’s assets that have been frozen since he was indicted in February 2004, including his $5.1 million Mediterranean-style mansion in Houston.

Also marked for seizure is Lay’s $5 million condominium in one of Houston’s most exclusive high-rises, which has been frozen since his indictment was handed up in July 2004.

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