By Frank Ahrens
Washington Post Staff Writer
Thursday, April 6, 2006 7:03 PM

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.

But Hueston said Vinson & Elkins did not have the expertise to adequately investigate the complex Raptor and Condor off-balance-sheet transactions that Arthur Andersen eventually flagged.

Hueston asked why Derrick did not instruct Vinson & Elkins to request certain e-mails and documents and interview Enron employees the government believes were essential to the probe.

"This wasn't our investigation," Derrick said.

Derrick said that neither Skilling or Enron founder Kenneth Lay, who is facing six fraud charges and is scheduled to take the stand after Skilling, ordered any of the earnings reports to be doctored to appear more favorable. Skilling also did not overrule Arthur Andersen and Vinson & Elkins, Derrick said, to change the reports.

Skilling did not act like a man with something to hide, Derrick said.

"Did you ever hear Mr. Skilling make the dramatic admission, 'They're on to us?' when your office was just 20 feet away from his?" defense lawyer Mark Holscher asked, referring to testimony from a previous prosecution witness.

"No," Derrick said, "I did not."

Skilling and Petrocelli briefly appeared before the media outside of the federal courthouse during the lunch break. Petrocelli took most questions, at one point saying, "I will speak for" Skilling.

When someone asked Skilling, "When will you speak for yourself?" Skilling smiled and answered, "Soon enough."

Petrocelli eventually deferred to Skilling, who allowed he'd "rather being doing something else" than facing federal fraud charges, but that he looks forward to telling his story soon.

Staff writer Carrie Johnson contributed to this report.