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Ex-Enron chief takes the offensive

By Krysten Crawford, CNN/Money Staff Writer

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Lay indicted by a grand jury in Houston. CNN's Ed Lavandera reports (July 7)
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NEW YORK (CNN/Money) -- For a man who had just been portrayed as a scheming mercenary who looked out for No. 1 as Enron Corp. crumbled in late 2001, Kenneth Lay was forceful but calm as he appeared before television cameras to insist he did nothing wrong.

In fact, the former chairman and CEO of the Houston-based company appeared eager for a speedy trial that he said he hoped would begin by early September.

"Not only are we ready to go to trial, but we are anxious to prove my innocence," said Lay.

Legal experts said Thursday that federal prosecutors were smart to keep their case against Lay focused on his actions in the months before Enron stumbled into bankruptcy.

Previous charges --including those brought against former CEO Jeffrey Skilling and former chief accounting officer Richard Causey -- have centered on a broader range of time and more complex dealings than the indictment against Lay states.

Specifically, the government's case zeroes in on Lay's efforts to reassure Enron employees and credit rating agencies of the company's long-term health even as its stock price was falling.

"To the extent that [Lay] is making a statement of opinion, the government has to show not only that that statement was false but that he knew it to be false," said John Coffee, a securities law professor at Columbia University.

"The problem with doing that is that Lay did make some significant purchases of Enron stock and held onto all of his Enron stock except for those shares he sold pursuant to margin calls."

Lay: Hear no evil, see no evil

In public comments made in the past and reiterated Thursday, Lay has made it clear he's pursuing what one legal expert called the "ostrich head-in-the-sand" defense.

"Basically his defense will be that Fastow was a secretive Svengali who devised, orchestrated and implemented a pervasive fraud under his nose and without him being aware of it," said Orin Snyder, a former federal prosecutor now with Manatt, Phelps & Phillips in New York.

Andrew Fastow, Enron's former chief financial officer, has already pleaded guilty and is cooperating with prosecutors in exchange for a 10-year prison term.

Although prosecutors have public statements made by Lay to use as evidence against him, only a handful of executives -- including Fastow -- know what was said behind closed doors in Enron's executive suite.

As a result, observers expect Lay and his defense team, led by Michael Ramsey, to mount a fierce attack on Fastow's credibility.

"At the end of the day, this case most likely is going to turn on Fastow's testimony," said Kirby Behre, a former federal prosecutor now in private practice at Paul, Hastings, Janofsky & Walker in Washington, D.C.

"He has to go after Fastow continually and try to undermine his credibility."

Pointing fingers

One of the worst possible developments for Lay at this point would be for either Skilling or Causey to cut their own plea deals with the government.

Deputy Attorney General James Comey deflected a reporter's question about such a possibility during a press conference Thursday afternoon. But former prosecutor Snyder said it's a real possibility.

"I would bet that one of the two will do that when this gets closer to crunch time and the pressure gets too heavy," said Snyder. From the government's perspective, "it's always better to have two people say 'That was him. I saw him steal the wallet.''"

Meanwhile, Lay could mount two logistical challenges before his trial, which probably won't begin before next year.

One possible move by Lay, according to legal experts, would be to separate himself from an indictment that also names Skilling and Causey.

With Causey and Skilling seated next to him at the defendants' table, Lay is "significantly disadvantaged," said Coffee.

"They could all be pointing fingers at each other. It's rather difficult to try to convince a jury that none of them knew anything."

Handicappers in the legal community, however, put low odds on the chances of Lay winning a stand-alone trial.

He's also unlikely to succeed if he attempts another common maneuver: a court order moving his trial away from Houston, where so many Enron employees lost their jobs and their savings and where the general hostility toward Lay & Co. could run high.

But a change of venue is probably another long-shot. "Enron is synonymous with fraud everywhere in America," said Snyder.

"I don't think he'll get more of a fair or less of a fair trial in Kansas than he will in Houston."

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