Skilling Never Meddled in Enron Earning Reports, Witness Says

HOUSTON, April 6 -- Prosecutors in the government fraud case against top Enron executives worked to undermine the credibility of a defense witness who said the collapsed energy giant's books were clean.

Former Enron general counsel James Derrick spent the entire day on the witness stand, mostly testifying for the defense, which tried to use Derrick to show that former chief executive Jeffrey K. Skilling never meddled with the company's books to hide growing losses from 1999 to 2001, as the government alleges.

Skilling, who faces 28 counts of fraud, has maintained his innocence, saying Enron's collapse was caused by a failure of investor confidence leading to a "run on the bank." He was expected to take the stand in his defense this week, in one of the most anticipated moments of this 10-week trial, but remained at the defense table through the week.

After the proceedings adjourned for the weekend, Skilling's lawyer, Daniel Petrocelli, promised his client would take the stand Monday. He expects testimony to take a week.

Asked about the delay in his testimony, Skilling replied: "It's been five years. I think it can wait another weekend."

Early in the day, under defense questioning, Derrick testified that Enron earnings reports contained no "false or misleading" information.

But later, government prosecutor John C. Hueston took over and asked Derrick if his expertise on the earnings reports was limited to matters of litigation. Derrick said it was. Hueston followed by asking: "If there were misleading statements, you wouldn't have a basis for knowing that if they were outside of litigation, right?"

"I think that is a fair statement," Derrick said.

Hueston went on to ask if Derrick knew the reasoning behind Arthur Andersen's refusal to approve an audit of an Enron earnings report because the accountants thought the company had improperly booked a deal.

Derrick said he could not remember the reasons why Andersen had refused to sign the audit.

Hueston also hammered Derrick on his handling of an investigation launched to look into accounting concerns raised by Enron whistleblower Sherron Watkins. Derrick chose Houston law firm Vinson & Elkins -- Enron's primary outside counsel -- to run the probe.

Derrick said no other law firm knew Enron and its personnel adequately to complete the probe swiftly, saying it would take another firm months or longer to simply learn the complex company.