Witness Says He Warned Skilling

Enron Played 'Fast and Loose,' Ex-Trading Chief Testifies

Jeffrey K. Skilling is accused of misrepresenting Enron's health. (By Richard Carson -- Reuters)

HOUSTON, March 1 -- A former Enron Corp. official warned Jeffrey K. Skilling, then chief executive, that an accounting move "lacked integrity" and testified that the company played "fast and loose" with the rules, jurors heard this week in the fraud trial of Skilling and former Enron chairman Kenneth L. Lay.

David W. Delainey said Skilling responded by asking him, "What do you want to do?" The former trading chief interpreted that as an admonition to "get in line" with the plan to improperly shift hundreds of millions of dollars in losses into another division in early 2001.

The remark attributed to Skilling was far from a direct command to break the law, as defense lawyer Daniel M. Petrocelli pointed out Wednesday. Like half a dozen other witnesses who preceded him in this fraud and conspiracy trial, Delainey offered no smoking gun e-mails or recordings to back up the government's central allegations: that Skilling and Lay misrepresented Enron's financial health in the months before the company descended into bankruptcy protection.

Instead, the Justice Department's Enron Task Force is painting with repeated strokes a company on the verge of disaster, hoping that jurors will send both men to prison for the rest of their lives based on a steady accumulation of indirect evidence that they resorted to fraud to avert it. The bulk of the government case revolves around former insiders, many of whom have pleaded guilty and are testifying in exchange for reduced sentences.

In what has quickly become a pattern, defense lawyers have been dissecting the motivations and interpretations offered by witnesses in blistering days-long cross-examination. Their aim? To convince jurors that Enron collapsed amid a market panic, not a fraud designed to cover up its troubled operations. Petrocelli told jurors in opening statements that "no document, not a single one," ties Skilling to fraud.

Michael W. Ramsey, lead attorney for Lay, asked the jury: "What would you do if your family welfare, your freedom and all of your assets were threatened in such a fashion? Any one of the people you are going to hear testifying could have been cast in this pit of a courtroom today but for their willingness to cooperate."

The biggest challenge for defense lawyers, experts say, may be overcoming the sheer number of guilty pleas -- 16 -- from company insiders who testify that Enron's former leaders engaged in financial manipulations and misstatements to meet Wall Street earnings targets and keep its stock price high.

In recent weeks, the government has used witnesses as building blocks, putting on the stand accountants and traders to explain technical concepts and introduce financial documents to the jury.

These lesser-known insiders set the stage for executives who had more contact with Skilling and Lay. Prosecutors said they plan to call former chief financial officer Andrew S. Fastow to the stand as early as next week. Fastow, who is considered a crucial witness, pleaded guilty to two criminal charges in exchange for a 10-year sentence.

The scheduling decisions also give prosecutors the side benefit of what some trial lawyers call water torture: the drip, drip, drip of allegations as they are repeated.

"That's the game; that's what you're trying to do -- witness after witness who basically explains variations on the same theme," said Sheldon T. Zenner, a securities lawyer at Katten Muchin & Rosenman LLP in Chicago.

That strategy has been on display this week. On Monday, former Enron accountant Wesley Colwell testified about Enron's improper release of funds held in rainy-day reserve accounts, as well as other maneuvers the company used to engineer financial results -- long after the books had closed for the quarter.