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 .

In an article today , Johnson examines Daniel M. Petrocelli, the California attorney who is acting as a criminal defense lawyer on behalf of former Enron Corp. chief executive 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 from Houston, where the air is thick with pollen--and anticipation. The prosecution rested its case Tuesday after nine weeks of mostly circumstantial evidence and testimony from Enron insiders. Starting Monday, it will be the defense's turn, as Jeff Skilling and Ken Lay prepare to take the witness stand and persuade jurors of their innocence. Let's go!

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Arlington, VA: Have there been any hecklers, such as former employees, outside the courthouse building when Lay and Skilling arrive? I could imagine people shouting a few choice words, since Lay and Skilling might not have much sympathy from those affected by losing all their retirement savings.

Carrie Johnson: At the start of the trial, in late January, occasionally people would drive by the courthouse and shout remarks at Jeff Skilling and Ken Lay.

But since that early stretch, there have been few protesters and former employees standing outside to offer criticism or praise. Skilling walks to and from court each day with his lawyer. They are trailed by cameramen and TV reporters. Lay often strolls hand-in-hand with his wife Linda down the street.

Neither defendant has been accosted by passers-by as far as I can tell.

The courtroom is filled now, more than before, with interested Houston residents, who learned they can get a seat without too much trouble so long as key witnesses are not on the stand. But few of those spectators have lashed out at Skilling or Lay.

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Minneapolis, Minnesota: After reading as much as I can about the Enron trial, I am still confused about one central issue: Were the partnerships that Andy Fastow set up legal or illegal? (forget about his skimming millions for himself)

Also, why isn't the board of directors sharing some liability? They waived their conflict of interest policy to let Fastow loose. How can that be condoned in the slightest?

Carrie Johnson: Good question. Many of Fastow's partnerships were vetted by outside lawyers and accountants, as well as in house Enron experts, making them legal on their face.

But prosecutors contend that most of the deals were a sham because Fastow entered into secret oral promises with Enron insiders that guaranteed he would not lose money on the transactions. Those promises, known as "bear hugs" in trial parlance, violated accounting rules that require both sides to have skin in the game and to be at risk financially.

Other of the partnerships, including one infamous one known as Southampton after a tony Houston neighborhood, involved a plot by Fastow to bilk Enron and outside banks and to line his own pockets and those of his favorite employees. Those deals were explicitly illegal and fraudulent.

Defense lawyers for Skilling and Lay painted Fastow as a scoundrel who misled top executives at Enron on deals such as Southampton. But they argued the other partnerships were valid and they should not face criminal penalties for them.

The board of directors waived Enron conflict of interest rules to allow Fastow to run the partnerships at the same time he served as the company's chief financial officer. That disastrous move helped precipitate Enron's collapse into bankruptcy protection in 2001.

Board members were sued by shareholders and the Labor Department. They settled using insurance proceeds and some money out of their own pockets. No board member has faced criminal charges for wrongdoing but many of them have suffered reputational damage.

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Fairfax, Va.: Didn't the judge drop a couple of the counts against Skilling and Lay? Seems like that didn't get a lot of attention.

Carrie Johnson: At the request of prosecutor Sean Berkowitz, the judge dismissed three counts against Skilling and one count against Lay on Tuesday at the close of the government's case.

Skilling still faces more than 30 charges, Lay 6, as well as a separate bank fraud case when the main trial is over. (I wrote a story about Lay's next trial earlier this week that's available online.)

The dismissal of the charges in and of itself was not a major news break because both men still face more than a decade in prison if they are convicted on the other counts.

As expected, defense lawyers moved to throw out the case on Tuesday but the judge summarily rejected that bid.

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Houston: Your coverage has been great. What's the mood of the jurors? After 8 weeks are they staying with it? Can you tell what's gotten their interest? Are the still taking notes?

Carrie Johnson: Thanks! It's hard to tell what the jurors (eight women, four men, four alternates) are thinking at any given moment. I try to watch them from my perch in the third row but they are pretty good at keeping poker faces.

So far, it's fair to say they are a very solid group. Most of them pay attention and keep their eyes open even during very technical testimony. One or two jurors appear to be losing interest but I believe they may be alternates who could be dismissed if the rest of the panel remains intact when the case ends next month or in early May.

Jurors do continue to take notes, some more than others. They perked up when former finance chief Andy Fastow took the witness stand and they listen closely during cross examination though fewer of them appear to jot notes then.

I suspect that, like the rest of we spectators, they are eager to hear the defendants tell their story and to watch them face questions not only from their own lawyers, but also from prosecutors.

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Beaumont, Texas: Enron lost tons of money selling off E.O.G NYSE (Enron oil and gas)curent market cap $17 billion and selling pipelines to former employee, Frank Kinder who started Kinder, Morgan Inc. NYSE (KMI)market cap $12 billion. To make up for these stupid decisions they scammed the public and bankers with crazy and ridiculous ventures to makeup for the tens of billions in stupid decisions. Thank you Ken Lay.

Carrie Johnson: Putting this out there. Emotions about Enron's demise remain strong in many quarters. And perhaps you mean Rich Kinder, who recently appeared on a list of the mega wealthy in a national magazine?

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washingtonpost.com: Lay Faces a Second Trial, Alone

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Fairfax, VA: What is your impression after hearing the prosecution's case and having a little bit of time to digest it? Do you think they have established their case? What are you hearing as to who we might expect as defense witnesses? Is anyone more anticipated than any other? Do we still expect to see/hear Skilling and/or Lay on their own behalf?

Carrie Johnson: U.S. District Judge Sim Lake earlier this week ruled prosecutors had presented a sufficiently strong case that it should go to the jury.

The government in nine weeks put forth 22 witnesses, including former investor relations officials, the leaders of two key business units, and other employees who warned things were awry with Enron's risky trading business and its outside business partnerships.

None of the witnesses could point to documents tying Ken Lay or Jeff Skilling to fraud. Several top level insiders talked about meetings in which the company's severe problems were discussed, but they recounted few explicit statements by either defendant that would acknowledge the alleged fraud.

In short, the government build its indirect case carefully, hoping jurors would buy a portrait of a company rife with problems and ethical lapses at the same time Lay and Skilling told investors Enron was ship-shape.

The defense is going to attack that premise by pointing out the lack of documents, arguing that Enron was not a continuing criminal enterprise but instead a company where employees and their clients tried to do the right thing in the face of business challenges.

Defense lawyers bemoan the fact that several possible witnesses are invoking their Fifth Amendment right against self incrimination rather than testifying. So the defense team is putting together a witness list composed of low level Enron workers, outside experts, character witnesses and most importantly Skilling and Lay themselves.

The defendants, far and away, will be the most important witnesses in this trial.

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Burke, Va.: Based on what you've seen so far, do you think one of the defendants could be found guilty while the other walks? Did the prosecution portray them as a team?

Will each one's defense will try to blame the other?

Carrie Johnson: There has been more evidence presented against Jeff Skilling, who ran day to day operations at Enron for several years. Ken Lay took over after Skilling abruptly resigned in August 2001 and the bulk of the testimony against him focuses on meetings between August and December, leading up to the company's bankruptcy filing.

The prosecution very much portrayed both Skilling and Lay as part of a conspiracy to mislead the public about Enron's financial health.

So far, the defendants have stuck together despite possible benefits they could reap by pointing the finger at each other. (See today's WPost story on the defense strategy and the defense lawyers themselves.) Lawyers for Skilling and Lay insist their clients will not blame each other when they take the witness stand.

Sure, it is possible that one defendant could be convicted while the other is acquitted. We won't know for sure how jurors are assessing the situation until they talk to us in the coming weeks after they render a verdict.

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washingtonpost.com: Skilling Lawyer Could Be Key for Lay, Too

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Arlington, Va.: Hi Carrie,

Who faced a touger time on the stand - Fastow or Glisan?

Thanks

Carrie Johnson: You refer to former finance chief Andy Fastow and former treasurer Ben Glisan.

Fastow, by far, faced more venom. Defense lawyers excoriated him as a liar, a thief, and a man so despicable that he would involve his wife and children in criminal conduct. That said, he rarely if ever lost his temper on the witness stand and he blamed himself repeatedly for destroying his own life and placing his family in harm's way.

Glisan, who has already served 2 1/2 years in prison, mostly faced hostile questions about his cooperation with the government, which has granted him half a dozen furloughs to spend time with his family. Defense lawyers also picked apart his account of damaging statements he said Lay and Skilling made, and they used minutes from Enron board meetings to cast doubt on his recollections and "truthiness." (Thank you Colbert Report.) But he was not raked over the coals in the same way Fastow was.

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washingtonpost.com: Glisan Insists Lay Misled Investors

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Northern Va.: I'm sure you don't want to get into making predictions about outcomes, but when the defense starts putting people on the stand, it looks like it's going to be an "our word against theirs" situation -- can you speak to what we should be looking for to tell if things are tilting one way or the other?

Carrie Johnson: One sure way of assessing how concerned defense lawyers were during the government case was how willing they were to attack key witnesses in mini press conferences outside the courthouse.

For many reasons, I doubt the government will do the same during the defense case, leaving us with a less than reliable worry-o-meter.

I'd watch to see how the defense witnesses hold up on cross examination--and the most telling instances will be the days-long cross examination of Skilling and Lay themselves.

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Arlington, VA: Has Greg Whalley come up? He was appointed president right at the time of the implosion, I think because they needed someone who they thought would be decisive in a crisis. He headed a couple of their trading desks during the "good" times. Is he in any jeopardy?

Carrie Johnson: Greg Whalley has come up regularly in testimony by government witnesses, who talked about statements he made in meetings in 2001, his use of rainy day reserve accounts, and his subtle signal to stop Enron risk wizard Vince Kaminski from taking further potshots at management in the fall of 2001 at an employee meeting over which Ken Lay presided. We've also seen him in brief glimpses in videotapes of meetings at Enron.

Whalley has not been charged with wrongdoing. Defense lawyers would like him to testify, but I don't see that happening.

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Arlington, Va.: Is this trial creating any stars, or is the lack of direct video coverage just too big a hurdle to overcome for ambitious attorneys?

Carrie Johnson: No cameras allowed in the courtroom, only outside. So the potential for star-making is limited, as you aptly note.

Lay's lead defense lawyer, Mike Ramsey, already is widely known in Texas circles where he has spent the bulk of his more than 40 year career.

Skilling's lead defense lawyer, Dan Petrocelli, drew national attention when he represented the family of Ron Goldman in a civil lawsuit against O.J. Simpson. He is recognized on the street in Houston.

The key members of the Justice Department's Enron Task Force (director Sean Berkowitz, deputy director Kathy Ruemmler, and assistant U.S. attorneys John Hueston and Cliff Stricklin) mostly keep a low profile by their own design.

Overall, the quality of the lawyering in this case has been quite strong (says a person who has witnessed Scrushy, Tyco, and other such major corporate fraud cases).

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D.C.: What happens, technically, if Lay and Skilling do end up turning on each other? How can they and their teams sit at the same table if they start plotting the other's destruction?

Carrie Johnson: Heaven only knows. If that happens, we should all run for cover (and I will race online to tell you all).

Seriously, veteran defense lawyers joke about trials in which they literally have moved so far away from their codefendants while seated at the same table that they gave the appearance they were headed for the exits. Not subtle, but it sometimes works!

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Carrie Johnson: Thanks very much for all your questions. Look forward to chatting again soon. We should have plenty of material with the start of the defense case next week. Hasta luego!

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