Former Enron CEO Skilling's sentence cut to 14 years

By Kristen Hays and Anna Driver

HOUSTON (Reuters) - A federal judge slashed 10 years off of his prison sentence of former Enron Corp Chief Executive Jeffrey Skilling on Friday, a decision that could set him free as early as 2017.

U.S. District Judge Simeon Lake reduced his term to 14 years from 24 years, accepting a deal struck between prosecutors and Skilling's lawyers that will end years of appeals.

Under the deal, more than $40 million of Skilling's fortune, which has been frozen since his conviction in 2006, will be distributed to victims of Enron's collapse.

"This is not an easy decision," Lake told the hearing before he acknowledged both the gravity of Skilling's crimes and his charitable works in Houston, and in prison, where he reads to a blind inmate and teaches English and Spanish. He has also held a job fair for inmates about to be released.

In May 2006, a jury had convicted Skilling of 19 counts of conspiracy, securities fraud, insider trading and lying to auditors for his role in maintaining a facade of success as Enron's energy business crumbled.

Enron founder Kenneth Lay also was found guilty of multiple counts of conspiracy and fraud. He died of heart failure six weeks after the trial ended, prompting Lake to throw out the conviction.

"We are relieved that we can now see the light burning at the end of the tunnel," Daniel Petrocelli, Skilling's attorney told reporters after the hearing.

Skilling, who looks much as he did when last seen in public in 2006 save a graying beard, thinner hair and eyeglasses, appeared relieved. His wife, former Enron corporate secretary Rebecca Carter, as well as his brother, Mark Skilling, and sister, Sue Skilling, all wept when Lake announced the new sentence.

Petrocelli hopes his client will be freed in 2017, which is possible with credit for good behavior and completion of an alcohol-abuse treatment program. Skilling is only now eligible for rehab, since a prisoner must have 10 years or fewer to serve.

Diana Peters, one of the thousands of Enron workers left jobless when the company collapsed, told the hearing that Skilling betrayed employee and investor trust. "I pray that your decision is to give Jeff Skilling the maximum sentence for his crimes," she said.

Skilling's resentencing had been pending since 2009, when a federal appeals court ruled that Lake wrongly added years to his sentence because Skilling's actions had jeopardized a financial institution.

In the interim his legal team pursued more appeals and sought a new trial, reaching the U.S. Supreme Court in 2010.

His lawyers were on their third such effort when they and U.S. prosecutors in May forged a deal for a 14- to 17-1/2-year sentence to end the litigation for good.

Skilling still has the longest sentence of more than two dozen former Enron executives, including Chief Financial Officer Andrew Fastow, and others who pleaded guilty or were convicted of Enron-related crimes. All have served their prison terms.

More than 12 years after Enron's 2001 collapse threw thousands out of work, sparked federal probes and prompted Congress to crack down on corporate accounting, Skilling is a remnant of an era of scandal that landed several CEOs in prison.

Those include former WorldCom CEO Bernard Ebbers, who is serving a 25-year term for fraud and conspiracy in Louisiana - the only top executive to get a longer term than Skilling during that wave of prosecutions.

Skilling's new prison term comes amid a debate on how sentencing guidelines apply in white-collar crimes, where the penalty is often tied to the financial loss caused.

The American Bar Association recently established a group to look at those guidelines, while critics, like U.S. District Judge Jed Rakoff in Manhattan in March, have urged they be scrapped. The U.S. Sentencing Commission has identified looking at how the guidelines apply to economic crimes as a priority.

RISE AND FALL

A graduate of Southern Methodist University and Harvard Business School, Skilling had been a star McKinsey & Co consultant when he caught Lay's eye in 1990 and joined Enron.

He led Enron's transformation from a staid U.S. natural gas pipeline company to a global energy-trading juggernaut that reached No. 7 on the Fortune 500. In 2000, Enron claimed to have $100 billion in revenue.

Skilling succeeded Lay as chief executive in February 2001 but abruptly resigned that August, just two months before Enron revealed hundreds of millions of dollars in third-quarter losses and a massive writedown in shareholder equity. Enron went bankrupt that December.

At his trial alongside Lay, Skilling insisted he had quit because he was worn out and troubled by Enron's sinking share price, not because he knew years of murky accounting were about to come to light.

"I am absolutely innocent," he said almost immediately after taking the witness stand. He told jurors he was devastated by the company's failure, saying "I bled 'Enron blue,'" referring to the color of the company logo.

Prosecutors called him a liar and crook who minimized or hid bad news in 2001 to keep analysts and investors bullish.

On Friday as U.S. trial attorney Patrick Stokes recounted Skilling's lies to investors and Enron employees, Skilling listened intently, his jaw tight, and once looked down in apparent frustration.

When the prosecutor and, later, Petrocelli noted that both of his parents and his 20-year-old son had died during his incarceration, Skilling's face went white and haggard.

He did not make a statement, leaving his written comments to Lake sealed from public view.

Fastow pleaded guilty to fraud in 2004, admitting to skimming millions of dollars from Enron through shady deals and kickbacks, and helped prosecutors secure indictments against Skilling and Lay.

He agreed to serve 10 years, but another judge reduced his term. Fastow went to prison in September 2006 and was released in 2011.

Since his release, Fastow has shunned media interviews but gained traction on the speaking circuit.

Next Wednesday he is slated to speak at the Association of Certified Fraud Examiners' global fraud conference in Las Vegas, and last year he spoke to business students at the University of Colorado and Dartmouth College.

The ACFE website notes under Fastow's biography on the conference agenda that the organization "does not compensate convicted fraudsters."

(Reporting by Anna Driver and Kristen Hays in Houston; Additional reporting by Eileen O'Grady; editing by Prudence Crowther)

[Former Enron Chief Executive Jeffrey Skilling (2L) and attorney Daniel Petrocelli (L) talk to reporters as former Enron Chairman and CEO Kenneth Lay (R) and his wife Linda leave Federal court in Houston April 19, 2006. REUTERS/Richard Carson]