PROSECUTORIAL CHORUS

Former Enron CEO Kenneth Lay abruptly canceled eagerly anticipated testimony this week before Congress because events of the weekend made it likely “the tenor of the hearings will be prosecutorial.” Mr. Lay would do well to give a closer listen – it’s become a full-blown chorus.

The events cited for Mr. Lay’s sudden change of mind – his testimony would have been voluntary – were comments by several members of Congress on the Sunday morning TV newsmaker programs suggesting securities fraud and other criminal acts already had been determined. According to Mr. Lay’s lawyer, the final straw was Rep. Billy Tauzin, Republican of Louisiana and chairman of the House Energy and Commerce Committee that was to hear from Mr. Lay today, making reference to somebody going “to the pokey.”

Like so much to do with Enron, the worries about prejudice may be a smoke screen for a bigger problem – the report released Saturday night by a special committee appointed by the Enron board of directors. And the bigger problem is not the committee’s finding that Mr. Lay either was a clueless CEO who was oblivious to the shenanigans that destroyed the life savings of thousands while a few executives got rich or who was an active participant. It is the report’s shift in focus from the balance sheet to the income statement.

This shift from the complicated world of assets and liabilities to the more straightforward one of revenues and profits move the Enron affair to much more solid ground for criminal prosecution. To prove any case against Enron executive, prosecutors would have to establish intent to commit a crime. Thanks to the complex web of accountancy and legal services that surrounded each of the hundreds of shell businesses Enron set up to hide debt and thus inflate value – an impenetrable asset and liability jungle – defendants could claim that they were acting in good faith but on bad advice.

The income statement directly ties each executive’s holdings, investments, interests and, ultimately, bank accounts, to each of the hundreds of questionable transactions. In just the few months the Enron committee had to work – it was formed in late October – and without subpoena power or the ability to compel testimony, it uncovered dozens of situations in which executives cut deals that made absolutely no business sense but that did falsely inflate earnings reported to investors and directed million of dollars, sometimes tens of millions, into their own pockets.

The Enron committee has made the trail of intent to commit crime – securities, mail and wire fraud for starters – much easier to follow. Mr. Lay and the other Enron and accounting firm executives who have declined appearing before Congress voluntarily essentially have dared Congress to use its powers of subpoena and, if necessary, to press contempt charges. It is a dare Congress should accept.