Disgraced Enron executives go on trial for first time

The trial will be the first opportunity for justice for the investors who lost billions of dollars in the biggest corporate swindle in history.

Nobody is arguing that the financial executive Daniel Boyle and accountant Sheila Kahanek, plus four fellow defendants from Enron’s bankers, Merrill Lynch, were directly responsible for the firm’s collapse and subsequent bankruptcy.

But the scam they are alleged to have pulled, which involved the $12 million (6.52 million) sale of two Nigerian power-generating barges, was typical of the kind of accounting skullduggery that inflated profits, disguised debts and eventually led to the implosion of the Enron empire in October 2001.

"There will be bigger trials to come, involving far more senior members of the company," said David Berg, a Houston lawyer. "But what these six are charged with was indicative of the corporate culture of that time."

Created in 1985, Enron grew quickly into one of the world’s largest energy conglomerates before branching out into the financial marketplace.

At its 2000 peak, Enron’s annual revenue topped $100 billion (54.39 billion), the company employed 21,000 people worldwide and its top executives lived the good life. The founding chairman, Kenneth Lay, boasted that his company was "the Microsoft of the energy world".

But the profits were an illusion. Enron was actually losing money hand over fist, all cleverly disguised in a complex web of financial trickery that fooled investors, customers and even the United States’ financial regulators, until a vice-president of the company turned whistle-blower in 2001. The affair also brought down Enron’s auditors, Arthur Andersen.

Since the crash, the Enron saga has remained a black cloud over Houston, where the once mighty company was based. Thousands of workers lost their jobs and pensions, while the disgraced executives responsible for the scandal filled their pockets by dumping their stock options.

Public anger was stoked further this week by the release of obscenity-laden recordings of Enron employees boasting how they had ripped off California’s energy consumers during the 2000-1 crisis, when soaring bills and power blackouts were commonplace.

Meanwhile, other former Enron executives who will soon be in court themselves will be watching developments in Houston closely. Among them will be Jeff Skilling, the former president and chief executive, who faces 325 years in prison and an $80 million (43.51 million) fine on 35 counts of insider trading, securities fraud, wire fraud, conspiracy and lying on financial statements.

Andrew Fastow, the financial wizard who set up the elaborate network of "special partnerships" that disguised Enron’s losses, accepted a ten-year sentence and handed back $24 million (13.05 million) in a plea bargain. Fastow, who had faced 98 charges, will probably testify against Skilling. Fastow’s wife, Lea, Enron’s former assistant treasurer, was jailed for a year last month for a false income tax declaration.

Investigations into Kenneth Lay’s role continue.

Enron, meanwhile, could emerge from bankruptcy later this month under the new name of Prisma Energy.

The Houston trial will hear that Boyle and Kahanek arranged a crooked deal to sell Merrill Lynch the oil barges for $12 million (6.5 million), so the money could appear in Enron accounts as profit, but that they secretly arranged to buy back the boats in an off-the-books transaction.

Kahanek’s lawyer, Dan Cogdell, fears that the jury could hold the pair responsible for the whole Enron collapse. "It’s not about Andy Fastow, it’s not about Jeff Skilling, it’s not about Ken Lay, but I think the public thinks that it is," he said.