The Enron trial and its link to Sarbanes-Oxley.

• Author: Cunningham, Colleen
• Position: Ken Lay and Jeff Skilling cases of fraud

As you read this, the long-awaited trial of former Enron Corp. CEOs Ken Lay and Jeff Skilling is likely to be in full swing. Ken Lay is charged with seven counts of conspiracy and fraud, while Skilling is charged with 31 counts of fraud, conspiracy and insider trading. As we are all well aware, Enron's demise, as well as other scandals, such as the accounting blowups at WorldCom Inc. and HealthSouth Corp., led to the passage of the Sarbanes-Oxley Act of 2002.

The results of the trials completed for previous top executives have been mixed. The government's track record from its crackdown has included wins, losses and a few mistrials. At this point, only a few of the top executives accused of corporate wrongdoing have been sentenced to prison. Bernie Ebbers, former CEO of WorldCom, is going to jail for 25 years. Yet, Richard Scrushy walked. (Not only was he acquitted last year, but now he is suing HealthSouth for severance pay!)

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Still, this Enron trial is really the capstone event, and its outcome will impact the perception of how Sarbanes-Oxley and other reforms are working. If Lay and Skilling go to jail, the perception will be that the new law is working as intended, even though, technically, they are not being tried under Sarbanes-Oxley, which was passed after Enron's collapse. If they walk, the perception may be that Sarbanes-Oxley is not enough (I shudder to think!).

It is interesting to point out that in most cases, the financial executives have pled guilty and received lesser sentences for cooperating in the prosecution of their former bosses. These former finance executives have proved to be the key prosecution witnesses.

Causey Plea Changes the Dynamic

In Enron's case, former Chief Financial Officer Andrew Fastow pled guilty and received a sentence of 10 years in return for his testimony. Just before the trial was scheduled to begin, Richard Causey, Enron's former chief accounting officer, agreed to a plea with a reduced sentence of seven years, which could drop to five years, depending on how useful he is as a witness in this trial.

The fact that Causey has pled guilty and will not be tried alongside Lay and Skilling could change the whole dynamic of the trial. It cuts out the need for the prosecution to elicit long days of complex accounting testimony. The...