Enron Trial Update

Washington Post staff writer Carrie Johnson was online from Houston to answer your questions on the ongoing 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 folllows.

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Carrie Johnson: Top o' the morning to you. And, perhaps in a nod to the holiday, the witnesses in the Enron trial this week certainly had the gift of gab. With two more weeks remaining in the government's case, anticipation is mounting for the defendants themselves to take the witness stand. Let's go!

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New York City: Hi Carrie

Happy St. Patrick's Day. Is Causey going to be called as a prosecution witness? or a defense witness?

Bruce

Carrie Johnson: Thanks, Bruce. Right back atcha on the St. Patty's greeting. This is a great question.

You refer to former Enron chief accountant Rick Causey, who pleaded guilty late last year on the eve of this fraud trial after having spent more than a year and a half asserting his innocence alongside Jeff Skilling and Ken Lay.

Causey does not appear on either the government or the defense witness lists, but prosecutors have said they reserve the right to add witnesses at later points during the trial.

In truth, Causey may be something of a double edged sword. He had frequent contact with Lay and Skilling (and former finance chief Andy Fastow) but he also told friends, neighbors, and the government for years that he did not believe he had committed a crime at Enron (which fits into the defense theory of the case). He ultimately changed his mind about that last Christmas and under the terms of his agreement he faces as many as seven years in prison (or as few as five if he cooperates fully with prosecutors).

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Baltimore, Md.: Why did the prosecution put Ms. Watkins on the stand? Although her memo does in fact support many of the prosecution's assertions about the problems going on at Enron, her testimony seemed to aid Mr. Lay's defense in that after he met with Ms. Watkins he did take some action (e.g., internal investigations, unravel Raptors, etc...) to address her concerns.

Carrie Johnson: The government put Sherron Watkins, who has been described as Enron's whistleblower, on the stand to show that Ken Lay was on notice about serious problems with the company's accounting and with former CFO Andy Fastow's ethics starting in mid August 2001, as he made optimistic statements about the company's prospects and its stock price. Prosecutors say Lay lied to keep up the stock price and avoid public detection of severe problems at Enron.

On cross examination, defense lawyers for Lay tried to show that he took seriously her concerns, mounted an internal investigation, and that he relied upon the fact that auditors at Andersen as well as lawyers approved the Fastow-led business partnerships she questioned. While that certainly helped Lay, Watkins repeatedly pointed out that Andersen and outside lawyers were in essence reviewing their own work, in her view making that internal probe toothless, and that in the end, the partnerships she red-flagged did play a big role in the company's descent into bankruptcy.

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Fairfax, Va.: Have you been able to evaluate Fastow's testimony and its apparent effect on the jury after both sides have had a crack at him? Who is the next most anticipated upcoming witness?

Carrie Johnson: It's hard to say how the jury will come down on the issue of Fastow's credibility. He spent some long, hard days on the witness stand. And under direct examination from prosecutor John Hueston, Fastow admitted to all manner of sins--large and small--including lying to his bosses and stealing millions from the company.

Fastow was upfront about basically ruining his own life and hurting his family, sending his wife to prison for a year, and putting himself in a situation where he will eventually serve 10 years behind bars.

Defense lawyers highlighted his opportunism, his lies, and his thievery but Fastow held firm in his central allegations that other members of Enron's senior management engaged in their own form of stealing: pumping up the stock price using his partnerships, then cashing in in the form of bonuses, high salaries, and stock options.

He was not destroyed in the way that some observers thought he might be, and that alone was good news for the government.

As for the next big witness, I'd say it's Ben Glisan, the company's former treasurer who pleaded guilty and has already served several years in prison for his work on one of the business partnerships in question. Insiders say Glisan is one of the smartest and most articulate people who ever worked at Enron, and that's saying something.

Glisan testified in the trial of some former Merrill Lynch bankers last year and his turn on the witness stand was a high point for prosecutors. I believe government lawyers are relying on him to play a similar role in this case, since he had contact with both Skilling and Lay.

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West Chester, Pa.: Sherron Watkins was predicted by some to be a discreditable witness because she sold some Enron stock on insider info - and that this would make her seem dishonest, hence, not to be believed in other testimony. Do you feel that she has been a net positive for the prosecution?

Don

Carrie Johnson: This was perhaps the most substantive point of the defense cross examination of Watkins. She sold stock in August and October 2001--for a total of about $47,000. On the witness stand, she was upfront about her sale, which she said was "wrong" because she had information that had not been released to the marketplace about Enron's problems. She has not been charged with a crime--a point defense lawyers highlighted.

But Chip Lewis, a lawyer for Lay, could not or would not go too far down this line -- because Lay himself used Enron stock during this same period to pay down a line of credit he had to the tune of $70 million, I believe.

When defense lawyers pointed out that Lay's sales were not voluntary, Watkins snapped back that he could have used cash or sold some of his Aspen homes, rather than Enron stock, to cover those obligations.

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Centreville, Va.: If Ken Lay and Jeff Skilling are found guilty will they go to jail right away or will they still be walking around and eating steak with red wine a year down the road like Bernie Ebbers, the Adelphia gang, and others who appeal and delay as long as they can?

Carrie Johnson: If Lay and Skilling are convicted, it is all but certain they will appeal. They have already signaled they disagree with the judge's decision to hold the trial in Houston, which is home to thousands of people hurt by Enron's collapse. They also complained about their inability to ask detailed questions of potential jurors. And they each have appellate law experts at the ready to raise objections during the course of the trial to preserve issues on appeal, if necessary.

Judges typically weigh the merits of success in deciding whether to let convicted defendants remain free over the course of an appeal. That's why John Rigas, Bernie Ebbers and Frank Quattrone have not yet reported to prison despite their convictions.

Worth noting that Martha Stewart chose to serve her time pending an appeal--which she eventually lost. The decision came down after the domestic entrepreneur had already served her sentence.

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Vienna, Va.: Will the prosecution include people who had worked for Enron and lost their jobs, careers and/or retirements as a result of the activities of the management team?

Are there any documented linkages between people who suffered subsequent stress induced illnesses -- including fatalities resulting from strokes and such?

Carrie Johnson: Two victim type witnesses have already testified for the government, including a former worker on Enron's pipelines who gave rather emotional testimony about his stock and retirement losses this week. Under direct questioning by prosecutor Robb Adkins, the man said he had relied on representations by Ken Lay that the stock would return to previous highs and that he had "lost everything" when Enron filed for bankruptcy protection.

Before their case ends in the next couple of weeks, prosecutors are likely to bring to the witness stand a few more victims of Enron's collapse. Such testimony can have a powerful impact on jurors.

I'm not familiar with any scientific studies about the negative health effects of such an experience on employees and investors.

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Washington, D.C.: Has the government done anything to freeze the finances of either of the two defendants to possibly recoup any of the losses for the employees of Enron who had stock?

Also, do you think the government will get a conviction?

Carrie Johnson: Certain assets of both Skilling and Lay have been frozen by the government at the time of their indictments. Both men are paying living expenses right now off the interest on the frozen accounts, which contain about $66 million total from Skilling alone, if my recollection is correct.

If prosecutors win a conviction, those assets will be returned to investors. But no one expects that people who lost money in Enron's collapse will ever be made whole.

It's also worth mentioning that plaintiff lawyers representing Enron shareholders have won billions of dollars in settlements from investment banks and others that helped Enron present a rosy picture of its finances. Much of that money eventually will go back to investors as well.

As for what the jury is thinking, I must admit I'm dying to know, but I'm too cautious to venture a guess. Both defendants have promised to testify and that will be an important point in this trial.

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Daytona Beach, Fla.: Why is the government not going to call Causey to testify? Since he was originally to stand trial with Lay and Skilling, I thought he would be the nail in the coffin.

Carrie Johnson: See earlier response. The government still reserves the right to call former chief accountant Rick Causey, who had many dealings with Fastow, Skilling and Lay, as far as I understand it.

To date prosecutors have called 15 witnesses to the stand, a small fraction of the scores of witnesses they included on their proposed list before the trial. It's not unusual to shed witnesses as time goes on, especially in a trial as complex as this one, where the government is trying to keep it simple so as not to lose its focus on alleged misstatements by the defendants.

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Enron documentary: I just watched "Enron: The Smartest Guys in the Room" on DVD this week. Great movie. My question is: What about people who were hurt by the power outages in California? There were people in car accidents after traffic lights went down, etc. Are Skilling and Lay or anybody at all at Enron being held accountable for shutting down the power in California?

Carrie Johnson: The activities in California are not a central part of the government's case. Three former Enron traders have pleaded guilty for playing a role in manipulating the Western electricity markets in 2000 and 2001, including one, Tim Belden, who testified briefly in this trial.

Prosecutors had hoped to introduce tapes of Enron traders laughing about bilking consumers in California, but the defense objected and the judge agreed.

Alex Gibney, who directed the documentary, showed up in court one day this week to watch former chief financial officer Andy Fastow on the witness stand.

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Washington, D.C.: Has anything come out so far linking Enron's improper business dealings to the Bush family?

Carrie Johnson: Enron's political connections have been mentioned in passing, a few times.

In his opening statement, a defense lawyer for Ken Lay put up photos of Lay with many luminaries, and former energy secretary Mossbacher appears on a list of potential witnesses for him.

At another point, in a taped meeting, Jeff Skilling apologizes for his voice, citing a cold he picked up attending the president's first inaugural ceremony.

Finally, jurors have heard that Tom White, a former Enron executive, went on to become Secretary of the Army.

But all of those are brief asides, often brought up by the defense in an effort to show that Lay and Skilling were not engaged in a massive criminal conspiracy that infected Enron's ranks.

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Sacramento, Calif.: I've read just about every book written on the Enron debacle, and there seem to be no end of villains in the epic collapse - analysts, bankers, and Enron brass - no heroes here. But it seems to me that the prosecution in this case has Skilling dead to rights on two issues - Skillings actions to transfer Kaminski, saying that they didn't need cops, and that though SPEs are legal, the SPEs Fastow setup were illegal, and Skilling was told that by several people. He therefore lied to investors. Game, set, match. And Fastow and Watkins have nailed Lay on the narrow charges prosecutors actually brought against him. Thoughts?

Carrie Johnson: Well, prosecutors certainly presented risk analyst Vince Kaminsky as a hero, at one point putting up an email from another witness who called for "Vince for president!" in 2001 after he spoke up at an executive meeting about the need to "come clean."

Skilling's lawyers tried to suggest that, the "cops" comment aside, Kaminski didn't mind the transfer to a new division because he pretty much continued on a course for promotions and high bonuses. They also suggested Kaminski sometimes exaggerated his language in an effort to make a point. Not clear how jurors interpreted that.

Prosecutors have suggested that several insiders went to Skilling to complain about Fastow and the business partnerships but that Skilling always fell back on the fact that the board and others had approved them.

As for Lay, the government will put on a few more witnesses this week, including two former Andersen accountants and former treasurer Ben Glisan, who are likely to testify about Lay's handling of an issue related to goodwill on Enron's failing water business in 2001 as well as his activities in the company's final months

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Houston, Texas: It seems to me that Ken Lay's goose was cooked when it came out that one of his responses to his meeting w/Sherron Watkins was to clandestinely seek grounds to terminate her. How did this play out at trial?

Carrie Johnson: Goose? Cooked? You've got the wrong holiday Houston.

Seriously, it's hard to say how jurors interpreted that--a memo from outside lawyers advising Enron executives how to handle Watkins, including advice on how she might be let go. She wasn't, ultimately, as defense lawyers highlighted.

But your broader point is insightful. Prosecutors have tried to show with two witnesses this week, Watkins and Kaminski, that people who spoke up at Enron feared negative consequences, including job transfers and possible job loss.

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Carrie Johnson: Thanks for the questions. Sorry I couldn't respond to all of them today but I'll look forward to talking Enron with you all again soon. In the meantime, wishing you a happy holiday.

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