Enron Trial Update

Washington Post staff writer Carrie Johnson was online from Houston to answer your questions on the trial of former Enron executives Kenneth L. Lay and Jeffrey K. Skilling .

Coverage on Enron's collapse and the legal proceedings against its former executives, including regular audio reports from Carrie, is available in a special report online here .

A transcript follows.

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Carrie Johnson: Good morning! Thanks for logging in today to talk Enron. The good news: The first two weeks are behind us. The bad news: We're still hearing from the first witness. Fire away with your questions and comments.

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Houston, Texas: Who was the friend of Mark Koenig's that supposedly reported that he said he never committed a crime? Also, any surprises for the first full week of the trial?

Carrie Johnson: Thanks for reading! The woman Lay's defense lawyer, Michael Ramsey, mentioned to try to rebut the witness is named Joanie Williamson, who worked closely with the witness in Enron's investor relations unit for years before moving to work for Lay in the office of the chairman. The witness, Mark Koenig, told the jury yesterday that she was a "dear friend" but denied he ever told her he was not guilty of wrongdoing. We'll see whether she shows up as a witness when the defense case begins a couple months from now.

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Chicago, IL: Hi Carrie,

I've enjoyed your articles; will you be doing a weekly chat on the latest developments?

And, can you explain the reasoning behind the defense's very odd strategy: 'no one at Enron (except Fastow) committed a crime'?

Carrie Johnson: Thanks, we're planning weekly chats as news and interest warrant.

The defense strategy (that there was no massive fraud at Enron, and that the company collapsed in a panic created by short sellers, skeptical media accounts, and rumors about CFO Andy Fastow) is indeed an unusual one. It stands in opposition to arguments successfully advanced by former HealthSouth CEO Richard Scrushy, who was acquitted last year after blaming his subordinates and claiming ignorance about a $2.7 billion accounting fraud.

One of the oddest aspects of the trial this week was watching Web casts and listening to audiotapes of Enron executives when they were still flying high in early 2001, proclaiming that they would soon be at the helm of the world's largest company, a powerhouse to rival General Electric Co. Instead, four years later, they were watching themselves wistfully, and on trial for their lives.

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Seattle, Wash.: Headline in The Washington Post:

"Former Enron Investor Relations Chief Defends Guilty Plea"

Uh, has the Post joined with the Lay and Skilling defense teams to put the accusers on trial?

Carrie Johnson: Not the last time I checked. The headline, which I didn't write, accurately reflects the tenor and the substance in the courtroom yesterday.

Defense lawyers Dan Petrocelli and Michael Ramsey pushed the witness hard, the witness pushed back just as hard--if not harder. It's a bit weird to see someone on the witness stand defending his own guilty plea and taking responsibility for misconduct--indeed, trying to convince jurors that he was sometimes a bad guy.

It's up to the jury to decide whether the government has met its heavy burden of proving that Skilling and Lay are guilty beyond a reasonable doubt. There is certainly heavy legal firepower--and a more than fair amount of talent--on both sides of the case.

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Arlington, Va.: I thought the judge was going to speed the process along. Has he made any attempt to get the current witness off the stand? Were you expecting him to be grilled for so long? Thanks

Carrie Johnson: The judge, Simeon Lake III, is known for his efficient, no nonsense style.

The problem (speaking from the sense of drama and news value) is that the government's first witness was intended to provide jurors with an overview of what was going on at Enron in 2000 and 2001. He's one of the few witnesses who stayed at the company through Skilling's brief tenure as CEO, through Lay's return to the helm, and even through the December 2001 bankruptcy.

As a result, both sides are using the witness, Mark Koenig, to argue the broad themes of their case, and to play audio and videotapes of the statements Lay and Skilling made to analysts and employees before the company's collapse. It has been a really rough slog this week, sometimes unbearably so.

But by Thursday afternoon Judge Lake was pushing defense lawyers to pick up the pace and to limit their cross examination to topics that the witness covered in direct questioning by Assistant US Attorney Kathryn Ruemmler. That means, I pray, that he will be off the stand as early as Tuesday and we can get this show on the road again.

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Bethesda, Md.: Are Kenneth Lay and Schmit currently in jail or are they sipping martinis somewhere on Miami Beach?

Carrie Johnson: Did you have a martini this morning? Who the heck is Schmit?

The defendants are Kenneth Lay, former chairman who occupied a grand place in Houston's social and political circles, and Jeffrey Skilling, a former McKinsey consultant known for his intellectual firepower. They are accused of fraud and conspiracy in connection with allegedly false and overly optimistic statements they made before Enron plummeted into bankruptcy in December 2001.

Both men are free on bond pending the results of their trial. They staunchly maintain their innocence and argue that business failure is not a crime. They have spent more than $40 million on their legal defense.

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Fairfax, Va.: You said earlier this week that cross-examination was becoming increasingly combative. How's Koenig holding up?

washingtonpost.com: Enron Insider Spells Out Company Line (February 9, 2006)

Carrie Johnson: Koenig did not have the warmest and fuzziest of reputations at Enron but he has held his own on the witness stand.

He showed some real emotion--anger--yesterday. Hard to say how that came across to the jury but clearly after six days on the witness stand the guy is getting fed up. Who wouldn't?

Koenig clashed with Dan Petrocelli, Skilling's lawyer, who was trying to argue that Koenig pleaded guilty to "pretty thin" allegations of misconduct. Then he clashed again with Mike Ramsey, Ken Lay's lawyer, who asked him why Koenig met with law enforcement for more than 100 hours in advance of the trial but why he refused to sit down with the defendants.

The witness said he did help Ken Lay for a couple of months in late 2001/early 2002. But, he said, he saw little need to help the defense teams once they started questioning his credibility and his truth telling after his August 2004 guilty plea to aiding and abetting securities fraud.

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Seattle, WA: Is Timothy Belden, who devised many of the schemes to remove money from Western ratepayers, and who is among the Enron execs who have plead guilty, expected to testify during the trial?

Carrie Johnson: Tim Belden is on the witness list for the government, as is a former Enron lawyer named Richard Sanders, who allegedly had at least one conversation with Jeff Skilling about abusive trading strategies on the West Coast in 2001.

Belden pleaded guilty, but Sanders has never been accused of wrongdoing. California is an interesting subtheme in this trial. Yesterday Ken Lay's lawyer, Mike Ramsey, mentioned Lay's role in trying to broker talks between former California Gov. Gray Davis (D) and the Bush Administration about the energy crisis. But the point was not a major one, and was intended to demonstrate that Lay was off doing political work and not focusing on accounting practices.

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Washington, D.C.: Has interest in the press stayed high? Are you planning to stay there for the entire trial, or go back down to cover the "big name" appearances?

Carrie Johnson: The first week was a media circus. In fact there were far more reporters and TV cameras than former Enron employees!

Things have calmed down somewhat, although the wire services and several major daily newspapers and local radio, TV and print reporters still show up on a regular basis.

I'm in Houston for the long haul. Just bought a "Don't Mess With Texas" magnet for my refrigerator. Now I just need to learn how to navigate those underground tunnels before it turns 90 degrees with 100 percent humidity.

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Atlanta: Hey - you're the CEO, chairman of the board, whatever, YOU are responsible - no matter what. If you don't understand accounting, fraud, whatever, then you shouldn't have accepted the position. No exceptions. The CEO of healthsouth sure pulled a fast one. With the money/options/prestige/benefits of the position come some obligations and responsibilities. No exceptions. I mean, come on, really.

Carrie Johnson: Interesting comment.

Lawmakers certainly took offense at the ignorance defense I(which also was advanced unsucessfully by former WorldCom CEO Bernie Ebbers). It's one of the reasons Congress forced chief executives and chief financial officers to vouch for the accuracy of their financial reports in the 2002 Sarbanes Oxley Act. For their part, prosecutors are homing in on this point as well. Assistant US Attorney John Hueston stressed to the jury that Lay and Skilling each made over $100 million at Enron.

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Middletown, New York: Do you get a sense that the prosecution is successful presenting this complex case to the jury in a way that is clear and understandable?

Carrie Johnson: It's hard to tell at this point.

The jury (eight women, four men) is a pretty well educated bunch. But after listening to more than six hours of tapes this week in which such concepts as IBIT, weather derivatives, and consensus estimates have been discussed, it is plausible to think that the jury's interest has waned or at least been diverted, which may be exactly what the defense teams intend.

That being said, I was surprised as all get out after the first trial of former Tyco executives Dennis Kozlowski and Mark Swartz. Several jurors in that trial had finance backgrounds and they were actually back there in the jury room crunching numbers and evaluating explanations Swartz had provided on the witness stand.

So I guess my moral is that it's best to never underestimate a jury.

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Northern Va.: It's interesting that the defense team has chosen to portray witnesses as having been intimidated by pressure from prosecutors whose careers depend on this case. In general, why don't you see this sort of defense more often in all kinds of conspiracy trials -- why don't more defenders just say, "Nothing bad happened. My accusers are lying to protect themselves"? Or maybe, why do these kinds of strategies usually fail, and does that apply to this trial?

Carrie Johnson: Those sorts of strategies can work in run of the mill drug and gang trials, where government lawyers must rely on witnesses who themselves have shady and criminal pasts. Putting the accuser on trial can work in such cases.

Whether the defense strategy will work in this case, which has been the subject of overwhelmingly negative publicity for more than four years, is an open question. Enron is synonymous with fraud and across the Houston area thousands of people lost their jobs and retirement savings when the company collapsed. That's one reason Lay and Skilling were eager to move the trial away from this area and into a less polarized city. But the judge rejected the idea.

In the case of a conviction, look for the jury selection process to be the focus of a major appellate battle mounted by the defense.

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Catheys Valley, CA: To what extent, if any, can the prosecution utilize the extremely credible reporting in the books "The Smartest Guys in the Room" and "Conspiracy of Fools"? Or actual news reports and interviews from which they were written? These chronologies and their quotes on record from accused are irrefutable.

Carrie Johnson: The most important statements from the accused will likely come when they take the witness stand, as both Lay and Skilling have promised to do. In fact, that may be the "make or break" moment of this case. It will be a unique chance for the jury to assess the defendants' arguments and their credibility.

The government and the defense teams are introducing some newspaper and magazine articles so far to support certain points they are making. No appearance yet by either of the two books you mention, which draw different conclusions about Enron's collapse and who is (criminally) responsible for it.

It's worth noting that Ken Lay, at least, is putting the Wall Street Journal on trial here, too, blaming the WSJ for writing stories that induced market panic in October 2001. We'll see if jurors buy that or not.

Also, a few reporters appear on the government witness list but it's unclear at this point how many actually will be called to testify.

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Mt. Lebanon PA: What happened to that woman who had ENRON marbilize the whole 4th floor of her building - used to run one of ENRON's ponzy schemes? Is she going to be a DEFENDANT?

Are she and Jeff Skilling after each other's skulls?

What happened to the floor?

Sounds fitting for ENRON high priests and priestesses to be buried in a pyramid.

Thanks much. HLB

Carrie Johnson: Sorry, I have NO IDEA what you are writing about. THANKS.

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Simi Valley, CA: Being unfamiliar with US law, it seems to me that this is a battle of attrition decided by sufficient funding. Who has to pay for the prosecution costs if the accused are convicted?

Carrie Johnson: If Lay and Skilling are convicted, they will very likely be ordered to forfeit tens of millions of dollars in assets (cash, brokerage accounts, homes, land) that the government froze under court order at the time of their indictment. The Justice Department and the SEC have never disclosed how much they spent investigating and prosecuting this case. Last I checked, Mr. Skilling alone had some $66 million of assets under freeze.

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Mt. Lebanon PA: One of the high and mightys was a woman involved in that silly Indian power plant deal that our government had to go over and try to get the Indians to swallow whole because she and ENRON had their parts exposed.

Can't recall her name. Model looks, model brains.

She and Skilling HATED each other so Jeff boy managed to get her removed to her own water outfit (England, and all) in another building that she started decorating to make the Taj Mahal look like a Hindu drugstore.

She had marble laid down on the flooring of her office high up in a high rise.

That's the woman I'm talking about.

Thanks much. HLB

Carrie Johnson: Thank you--now I know what you mean: Rebecca Mark, who headed Enron's international unit and vied with Skilling for control of the company. Lay chose Skilling, Mark left Enron and sold all of her stock--making her millions of dollars richer before the share price took a nose dive. Rebecca Mark has never been charged with a crime for her work at Enron.

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Beverly Hills, CA: Why did it take so long for Lay and Skilling to be brought to

trial? Is this at least partly due to Bush White House attempts

at protecting Lay in particular?

Carrie Johnson: It took so long mostly because prosecutors relied on testimony from key insiders at Enron to unravel what went on at the company. The first plea came from Michael Kopper, a top deputy to former finance chief Andy Fastow. Fastow eventually pleaded guilty too, along with former heads of a few of Enron's operating units and two officials in its investor relations division. Securing those pleas, and figuring out what went wrong at Enron, took prosecutors at least three years. The case was delayed for another several months because of scheduling conflicts.

There is no credence to the idea that the case was delayed for political reasons.

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Salt Lake City, UT: Will Rebecca Mark be testifying for the prosecution? She was

top and center at Enron with Lay and Skilling and set up for

failure by Skilling -- she has both inside knowledge and a

personal vendetta to justify testifying against them. Thank

you for your superb reporting.

Carrie Johnson: Thank you for the kind words.

Rebecca Mark does not appear on the government witness list. Her name is on the most recent defense witness list but it's unclear whether she will be actually called to testify given the past bad blood between she and Jeff Skilling.

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Carrie Johnson: Thanks very much for your excellent questions and for paying such close attention to the white collar case of the century. Hope to hear from y'all again soon.

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