HOUSTON - Jeffrey K. Skilling, the former chief executive of Enron Corp., a once-staid pipeline business that he transformed into a global energy-trading giant, was arraigned yesterday on charges that he conspired to disguise the company's troubled financial performance while profiting from sales of stock inflated by false earnings reports.
The indictment against Skilling was unsealed yesterday, making him the highest-ranking Enron executive to face criminal charges after the company's collapse more than two years ago. He pleaded innocent to 35 counts of fraud, insider trading and conspiracy.
The accusations range from outright criminal violations that significantly affected reported profits to more subtle earnings-management techniques widespread in corporate America in the 1990s.
The allegations depict Enron as a struggling enterprise that grew deeply dependent on accounting manipulation to maintain its image as a financial powerhouse.
Prosecutors have assembled a case that appears to depend not so much on the specific effect of any one accusation but instead on the overall impact of a range of activities over many years.
In quarter after quarter, Enron is portrayed in the indictment as struggling to find another one-shot technique to lift its earnings to meet or exceed Wall Street projections, helping the stock price continue what had been an almost uninterrupted climb over more than a decade.
The Skilling indictment brings to 29 the number of people have been charged with crimes related to the collapse of Enron, including 20 former executives.
Of those, nine have pleaded guilty, including Andrew S. Fastow, the former chief financial officer who structured a series of off-the-books partnerships that were used to manipulate the company's financial performance.
The Skilling charges were added to an already-filed indictment against Richard A. Causey, Enron's former chief accounting officer.
Skilling, 50, surrendered just before 7 a.m. yesterday to FBI agents at the Houston field office.
Agents then led him in handcuffs to the federal courthouse, where he appeared before Magistrate Judge Marcia A. Crone.
After entering his plea, he was ordered released on a $5 million bond and surrendered his passport.
$66 million sought
The government said it will seek forfeiture from Skilling of $66 million in cash and real estate, and will seek assets of $6 million from Causey.
Prosecutors hailed the charges as a demonstration of the strength of their pursuit of wrongdoing at Enron.
"The indictment of Enron's CEO shows that we will follow the evidence wherever it goes - even to the top of the corporate ladder," said Christopher A. Wray, an assistant attorney general, at a news conference in Washington.
His lawyers lash out
However, in the first salvo of what is sure to be a long-running legal battle, Skilling's lawyers lashed out at the prosecution, saying that the charges were the result of a predetermined effort to indict their client that was set in motion when the Justice Department created a task force to investigate the company's collapse.
"From the moment the Enron task force was designated, there was a decision to go after Jeff Skilling and demonize this company," said Bruce Hiler, one of Skilling's lawyers. "The government's role is to investigate cases, not to create cases."
Outside the courthouse, Daniel Petrocelli, another Skilling lawyer, criticized the prosecution for what he said was a failure to account for information that could establish his innocence.
"I guess they needed a scapegoat, and I guess Jeff Skilling is that scapegoat," he said. "Jeff Skilling did nothing wrong."
Petrocelli said that soon after Enron's collapse, Skilling submitted to a polygraph test administered by a former coordinator for the FBI's polygraph program. He said that a copy of the polygraph report was provided to prosecutors earlier this week.
Asked about dealings
The polygraph report shows Skilling was asked whether he knew of improper financial dealings hidden from the board, received undisclosed payments, believed in the accounting for certain off-the-books entities, or engaged in a particular stock sale based on inside information.
In his answers, Skilling denied all knowledge or participation in wrongdoing, and the examiner found no indication of deception.
Still, the polygraph test will not play a role in Skilling's courtroom defense. Under the federal rules of evidence, lie detector tests are not admissible in court because of concerns about their reliability.
While the general public perception has always been that the ultimate target of the Enron investigation was Kenneth L. Lay, Enron's former chairman, Skilling has always been viewed by investigators and lawyers in the case as more likely to be the subject of a criminal indictment.
That is because many of the underlying accusations of wrongdoing at Enron - including those that have already resulted in guilty pleas - involved associates and allies of Skilling.
Moreover, Skilling was always perceived as being far more involved in the daily operations of Enron than Lay ever was.
There is no mention of Lay, either by name or title, in the Skilling indictment. However, he is still under investigation.