Business Analysis: Enron, the trial: Ken Lay strides into court as the circus hits town

Lay and his wife, Linda, strode across Smith Street, in the heart of the city's business district, without so much as a glance at the sunlight glinting off the steel-and-glass exterior of the old Enron skyscraper a few blocks away.

A slight smile crept across Lay's face as mounted police officers ordered a bevy of photographers and television crews back on to the pavement. One former Enron employee, standing glaringly alone, held up a tatty cardboard sign saying "Ken Lay Is Not Guilty". Another, a former member of Enron's gas pipeline group who badly wants to see his old boss called to account, was busy promoting his new career as a rapper called Nrun and handing out free copies of a CD called Corporate America.

Someone shouted out to Lay: "Where's your Rolex?" But Lay did not take the bait. If the circus had come to the town where once he was lord of all he surveyed, he wanted no part of it.

Inside Judge Sim Lake's cavernous courtroom, where 100 prospective jurors waited to be assessed, challenged and whittled down to a panel of 12, the atmosphere was similarly businesslike. "I can assure you I won't waste anybody's time," Judge Lake declared in his opening remarks. He intended to complete jury selection in one day flat - almost unheard of in a trial of this magnitude and public interest - and told the court he had revised his estimate for the length of the trial down from four to six months to four months at the very most.

Lay, once the confidant of congressmen and Texas state legislators, and a mentor to George Bush in his ascent to the White House, faces seven charges of fraud and conspiracy over his role in Enron's collapse four years ago. Jeff Skilling, his chief executive until just a few months before the final debacle, faces 31 charges. If convicted, both men could well spend the rest of their days in prison.

Perhaps more significantly, the trial is a key test of the US government's ability to prosecute white-collar crime at the highest levels. Nobody doubts the woeful impact done by Enron's deceitful web of false accounting, off-the-books partnerships, hidden debts and overinflated profits: shareholders were robbed of billions of dollars, employees were stripped of their jobs and their company pensions and Enron's outside auditors, Arthur Andersen, were wiped out entirely.

Whether the prosecution can assign criminal responsibility and prove their case against Lay and Skilling beyond a reasonable doubt is another matter. The obstruction of justice trial that put Arthur Andersen out of business in 2002 - based on the allegation that Andersen shredded Enron-related documents in autumn 2001 to cover up its collusion in producing misleading company results - led to an agonisingly close guilty verdict that has since been overturned by the Supreme Court.

Another Enron-related trial, concerning alleged fraud at the company's broadband internet service, collapsed last year - in part because the jury got lost in the evidence and had difficulty understanding the charges.

Lay and Skilling are, however, in a different category from either of the previous sets of defendants. They are readily identifiable public personalities, as reviled in the popular imagination now as they were lionised and adored by Wall Street during the heyday of their energy trading business in the 1990s. The prosecution's team of lawyers, many of whom have worked on the Justice Department's Enron Task Force forfour years, are expected to focus on what they see as inconsistencies and deceptions in public statements made by the two men during Enron's final months.

For example, Mr Lay told a conference call of analysts and investors on 26 September 2001: "The third quarter is looking great. We will hit our numbers." Less than a month earlier, senior vice-president Sherron Watkins had written a memo to Lay telling him something was very badly amiss with the company's accounting figures - one indication, according to the prosecution, that Lay knew his upbeat September assessment was off the mark.

Ms Watkins is expected to be one of several high-profile witnesses for the prosecution - although unlike many of the others she has not been accused of wrongdoing herself.

Other star witnesses are likely to include Andrew Fastow, Enron's chief financial officer who agreed to co-operate in the trials of Lay and Skilling in exchange for a 10-year sentence he has begun serving, and Richard Causey, the company's chief accountant, who pleaded guilty to fraud charges and signed a co-operation agreement just last month.

The defence has assembled its own stellar team, including Michael Ramsay, a longtime Lay associate, and Daniel Petrocelli from the powerful California law firm O'Melveny & Myers. The defence strategy is no secret. Lay believes Andrew Fastow is to blame for just about everything, and that the big mistake he and Skilling made was to trust him with the company's finances so wholeheartedly.

Lay has also accused the government of squeezing guilty pleas out of men such as Causey by threatening unending legal costs and charges carrying the threat of decades behind bars. "Only those who have seen its teeth truly grasp the arbitrary power of the Enron Task Force to threaten, browbeat and intimidate those witnesses it may select," Lay wrote on his website, www.kenlayinfo.com, in reaction to the Causey plea deal.

It will be up to the jury, of course, to decide if such fulminations pass the smell test. Support groups representing former shareholders and employees have been little short of incredulous at his oft-repeated I-know-nothing mantra. As David Tonsall, the Enron employee turned rapper, put it yesterday: "If you're a man, if you're the man of the house, you know what's going on."