Previewing the Enron Trial

Over at Fortune, Peter Elkind and Bethany McLean, authors of The Smartest Guys in the Room, offer of preview of the Enron trial that starts in two weeks. Even though Kenneth Lay and Jeffrey Skilling are on trial together, their defense strategies and personalities will hardly be in sync:

But in truth, Ken Lay and Jeff Skilling never much cared for one another. The charming Lay wasn't comfortable with Skilling's sharp edges; the brainy Skilling considered Lay a lightweight glad-hander. And each has, at various points, sought to cast some measure of blame on the other for the 2001 bankruptcy of what was once the seventh-largest company in America -- an implosion that wiped out 4,500 jobs and $70 billion of investors' money while Lay, Skilling, and other top executives walked away with hundreds of millions of dollars.

Both men are likely to make much of the fact that that CFO Andy Fastow stole millions from the company, which is true. They will also argue that Enron was in fine shape up until the end, which is ridiculous. The fun will come when they defend their own conduct at the expense of the other. Lay will claim that Skilling screwed up his company, and that he didn't realize it until Skilling's abrupt departure in July, 2001. Skilling will argue that everything was fine, and that the collapse happened in the months after his departure when Lay returned as CEO.
A good way to get a sense of how screwed up things were is to read Enron's classic press release of November 8, 2001 announcing that the company was restating its financial results for the years 1997 to 2001. The release offers a chilling snapshot of Enron's collapse, including a $1.2 billion reduction to shareholders’ equity, $591 million in bogus earnings and the revelation that unwinding just two of the many off-balance sheet entities required the company to acknowledge $2.5 billion in hidden debt.
After filing for bankruptcy on December 2, Enron told its creditors that its told off-balance sheet debt totaled $6.971 billion as of November 16. The company's total debt was reported to be $28.977, compared to the figure of $10.229 from its 2000 annual report. In other words, Enron's reported debt increased $18.748 billion from December 31, 2000 to November 16, 2001.