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 .

A transcript follows.

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 .

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Carrie Johnson: Good morning from Houston, where the Enron trial is reaching its peak. Jurors heard from mercurial former chief executive Jeff Skilling for two weeks. Company founder Ken Lay steps up to the plate on Monday. We're well into the big show, folks. Happy San Jacinto Day. Let's go.

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Washington, D.C.: I am not sure of the numbers but I believe that Arthur Andersen employed about 186.000 people worldwide and most if not all of those people lost their jobs. Enron executives should be ORDERED to compensate for each and everyone that had to go out and look for employment. It is not easy finding a job. Plus when you do you will probably have to take a pay cut. Including the employees at Enron.

Carrie Johnson: Thanks for your question. Andersen employed about 28,000 people in the United States and a total of 85,000 worldwide if my memory serves.

The auditing firm essentially went out of business after its 2002 indictment and obstruction of justice conviction based on tampering with documents related to client Enron Corp. The Supreme Court last year overturned the conviction based on faulty jury instructions. But Andersen partners already had scattered to other firms.

Many former Andersen employees continue to be upset with the government for bringing the charges in the first place. Others (sounds like you're one of this bunch) are irked that Enron's demise took other once-prestigious businesses with it.

For what it's worth, Jeff Skilling did not mention Andersen in his testimony, only talking offhand about how he relied on auditors' opinions on accounting issues and disclosures, too.

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Erie, PA: Does it appear that jurors are looking at the defendants in this case with suspect eyes?

Carrie Johnson: The jury (eight women, four men, four alternates) has been quite attentive during the trial, which is about to enter its 13th week.

They paid close attention to former chief executive Jeff Skilling when he gave them lectures about trading issues and other business concepts last week. They seemed to open to him for a while, at least. But many jurors stopped looking at him earlier this week, during cross examination, as he tried to explain why he could not recall his personal investment in a company run by a woman he once dated.

Fellow defendant Ken Lay tries to make eye contact with the jury on a regular basis. It'll be fascinating to see whether jurors warm to Lay, who has a much more social, outgoing, and charming demeanor than Skilling by all accounts.

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Tokyo, Japan: It was my impression that this case may turn, in the jurors minds, on oddly peripheral events. The press made much of jurors reaction to "PhotoGate", Skilling's undisclosed investment in a girlfriend's photography business. Skilling seemed flustered. Did it seem that significant in the courtroom or is this our tabloid mentality emerging? Also, Berkowitz revisited it on two days.

Carrie Johnson: Thanks--Apt point.

You refer to Skilling's $180,000 investment in an online photo business called PhotoFete, which was led by a former Enron photographer who dated Skilling over a year or two in the late 1990s.

Skilling, who had been incredibly well prepared for most of his testimony, by his own admission was taken aback when the subject came up on cross examination by prosecutor Sean Berkowitz. He initially said the investment was too small to remember and said that he did not believe he had violated Enron's ethics code, an assertion on which he backed away as Berkowitz returned to the subject yesterday.

Prosecutors are trying to use the incident as a proxy for Skilling's overall credibility as a witness.

Defense lawyers say the issue is minor and that Skilling has never been charged with breaking tax laws for allegedly backdating checks to avoid paying gift taxes, as Berkowitz argued.

But some legal experts argue that when a defendant takes the witness stand, catching him or her in even one lie can sometimes make the difference to a jury.

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washingtonpost.com: Enron Trial Story Archive

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New York, New York: A most intriguing part of Jeffrey Skilling's performance on trial was his testimony that most of the high Enron officials who pled guilty and testified against him were perfectly innocent of any criminal conduct but had been coerced by the government into committing perjury about their own conduct, first when entering their guilty pleas and then again at trial.

These people were well educated, highly sophisticated. They could and did retain accomplished and expensive lawyers. In these circumstances, one might wonder what the government may have had to against them which it used as leverage to have these innocents convict themselves out of their own mouthes.

I don't know if the prosecution covered that part of Skilling's testimony in its cross-examination of him. It should certainly touch upon it in its summation.

Roland Thau - Staff attorney, Federal Defender of New York

Carrie Johnson: Hi Mr. Thau,

Task Force director Sean Berkowitz raised the point indirectly with Skilling on cross examination, by showing the jury a series of slides with the title "Different Recollections."

The graphics contrasted testimony by Skilling with testimony by cooperating witnesses including former business unit chief David Delainey and onetime investor relations officials Mark Koenig and Paula Rieker, all of whom have pleaded guilty. As one might imagine, the accounts were quite different on issues such as the allegedly improper use of cash reserves and on alleged last minute tricks that helped Enron meet or exceed earnings targets in 1999 and 2000.

Washington based prosecutor Kathy Ruemmler also raised the issue in questioning many of those same witnesses during the government's case in chief. She is handling the summation for the government and I think it is safe to expect she will make hay of this point. In all the government secured 16 guilty pleas from Enron insiders, even as Jeff Skilling and Ken Lay argue most of them were coerced and that no widespread fraud took place at Enron.

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San Antonio, Texas: If Enron was in such good shape at the end of 2001, as Mr. Skilling says it was, why didn't Dynegy exercise their option to take it over?

Carrie Johnson: Skilling left Enron for what he said were personal reasons in August 2001. He testified over the past couple of weeks that he watched with alarm as short sellers and reporters began to attack the company, even going so far as to call insiders to tell them to fight back and to "open the kimono," or answer any and all questions with force.

He also testified that he wanted to bail out Enron by creating a consortium to raise $3 billion, but that the efforts floundered after the potential merger with Dynegy came to the fore. That merger ultimately tanked after Dynegy officials realized the extent of Enron's problems. By that time, Skilling said, the company was too far gone to save. He continued to insist Enron was felled by market panic, not any inherent instability or riskiness, as prosecutors contend.

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Twincities, MN: Prosecutors don't have a smoking gun to nail either defendant, but they are showing a pattern of deceipt and wrong doing which is, frankly, startling (sure seems like they did their homework these past 4 years). Skilling on the hand has been very deft at forcefully defending his position that nothing was wrong at Enron and he was not in the know about the fraud. Any idea which side has the upper hand? If it wasn't so tragic, this is a very exciting case to follow (and I am not a Law & Order fan either!). Thanks.

Carrie Johnson: Thanks Twincities. This case is closer than many people think. Remember that the government needs all 12 jurors to agree on at least one charge. Only one juror can cause a mistrial.

That said, Skilling didn't blow up on the witness stand, but he showed aspects of his personality and his intellect that could be viewed as negative, depending upon one's preconceptions about him.

The government highlighted in particular his memory lapses about personal stock sales and investments, in contrast to his detailed recollection of trading issues and business practices.

This case is indeed tragic on many levels--the retirement savings lost, and the specter that two men who once stood near the top of the business world could spend the rest of their lives behind bars if they are convicted.

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Fairfield, CT: It's incredible that the government can criminalize executives because as lawyers they don't understand numbers and accounting. witness the prosecutors' denial of allowing Skilling to explain accounting issues. is the government afraid of the truth?

Carrie Johnson: That's exactly what Skilling and his lead lawyer, Dan Petrocelli, argued this week.

It was pretty fascinating to watch prosecutor Sean Berkowitz, a Harvard educated lawyer, cast himself as a foil to Skilling. After hours of frustrating exchanges in which Skilling insinuated or said flat-out that prosecutors just didn't understand Enron's business, Berkowitz adopted that rhetorical posture.

At one point, he said, in essence, maybe I'm dense Mr. Skilling, but if I can't figure out these risk disclosures, and neither can investors at the big fund Alliance Capital, what were average investors to believe? Skilling, as you might expect, did not like that line of questioning.

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Athens, GA: Carrie I'm interested in your thoughts on the Dick Foster issue. It seems that Mr. Skilling got body slammed on this. He was Enron's CEO for all of 6 months, suffered extreme burnout and now he's thinking about running Lucent - which was a basketcase itself ? Also, Foster says he called Lay and an Enron board member who were both "incredulous" upon learning of Skilling's plans. Speculate for me how Lay handles this issue when he is under cross examination, the issue seems problematic for him.

Carrie Johnson: This issue came up earlier in the week, as prosecutors argued that Skilling lied about his reasons for leaving Enron. He told folks he left for personal reasons, then entertained conversations with a headhunter about taking over the reins at Lucent Technologies. Skilling apparently mentioned this idea to his then friend at McKinsey & Co., Dick Foster.

Prosecutors claim Foster flipped out and called Ken Lay and board member Pug Winokur, who were "incredulous" at the idea.

On the witness stand, Skilling testified that he never seriously considered the idea but that he mentioned it offhand to Foster because it was kind of flattering. He added that he and Foster were no longer friends, for reasons just such as these.

It's possible Lay will be asked about this issue when he faces cross examination next week but I'm not sure what he'll say. Both defendants have maintained a fairly tight alliance so far.

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Leesburg, Va.: I read with interest your response to Herndon's question last week. I guess some of us just feel the government seems to be trying not let the jury hear all of the truth and after the way they "pressured" Fastow and his wife and children. I thought the government had an obligation to search for the truth. It seems they only want the jury to hear part of the truth.

washingtonpost.com: April 14 Chat Transcript

Herndon, Va.: I understand that the Defense want to call a number of witnesses but the government is intimidating them to remain silent or face jail. Doesn't this prove the weakness of the government's case and shouldn't the jury know of this deception on the government's part?

Carrie Johnson: Defense lawyers have argued passionately that their hands have been tied because the government has branded scores of former Enron executives as unindicted coconspirators, frightening those people into not taking the witness stand.

Several executives whose names have come up frequently in testimony (including chief operating officer Greg Whalley, former finance chief Jeff McMahon, trading official John Lavorato, and retail executive Lou Pai) will not appear at the trial as a result, the defense argues.

Judge Lake has ruled that the government did not engage in misconduct and has barred defense lawyers from arguing that to the jury.

Prosecutors would probably note at this point that they have secured guilty pleas from 16 people at Enron, including a pair of investor relations officials, heads of its broadband and wholesale operations, and two people from the finance unit including CFO Andy Fastow.

The jury may be instructed on the legal implications of this issue, known as the "missing witness" issue, depending on where Judge Sim Lake comes down on jury instructions later in the case.

Carrie Johnson: Thanks for your comment. There are certainly people out there who share your view (including the Enron defendants). You might be interested to know the broader issue of how the government treats unindicted coconspirators, and the impact that can have on a white collar criminal trial, has been raised in the appeal by former WorldCom chief executive Bernard Ebbers. The U.S. Court of Appeals for the Second Circuit is considering his arguments now.

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Charleston, SC: Not so sure about the specter of 2 men at the height of their power being brought down is viewed as tragic by the majority of the public. There is a certain aspect of schadenfreude (sp?) here that appeals to many of us. The tragedy is not only the loss of retirement for many people, but the bilking of the rest of the country by underhanded overpricing of energy and undue influence on energy policy to the detriment of consumers.

Carrie Johnson: Thanks for this....

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Arlington, VA: Hi Carrie,

It seems that Skilling and Berkowitz have had some testy exchanges this week, what's your take on how the jury is receiving the cross examination? Do the jury members seem to be taking sides at all?

Carrie Johnson: I think some of the jurors enjoyed a good fight, based on my reading of their facial expressions (about as unscientific as it gets, admittedly). Berkowitz goaded Skilling into losing his cool at least once, but under certain circumstances, I could imagine some jurors viewing that as a man righteously defending himself. The prosecutor's point, of course, was to depict Skilling as intolerant of dissent and under complete mastery of the details he wished to know--confirming a point several government witnesses had made.

The jury didn't warm entirely to Skilling from what I saw. We'll see how they treat Ken Lay this week.

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Fairfax, VA: What was your impression of Skilling after both sides have had an opportunity question him? Did the prosecutor seem to score any points on cross? Is it Lay that we look forward to next week?

Carrie Johnson: See above for your first couple questions--

And yes indeed Ken Lay will take the witness stand as early as Monday morning. He'll probably testify for most if not all of the week. His testimony is eagerly awaited by spectators and I'll bet, the jury as well.

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Pittsburgh, Pa: Hello and thank you for your reporting. The NPR reporter covering the trial made a point of singling out an exchange in which Mr. Skilling said something about consulting with his lawyers during a break. The prosecutor used that as an opportunity to bring up on a video monitor the jury specialist's website. It sounded as though the prosecutor was showing in graphic detail how the defense attorneys use experts to manipulate jurors. Was this a moment that stood out for you?

Carrie Johnson: Yes, this was a powerful moment. Jurors looked at the Skilling jury consultant, Reiko Hasiuke, with surprise. Several members of the panel then looked at each other and made faces. Later that afternoon I saw them continuing to glance at Hasiuke, who has sat in the front row of the trial on and off since it began Jan. 30.

Prosecutor Sean Berkowitz insinuated that Skilling was using a Princeton educated psychologist to shape juror perceptions. Skilling said in his own defense that he often waxed on too long about technical details and that Hasiuke helped him simplify his explanations--no more than that.

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Austin, Texas: I've become an Enron trial addict, thanks to the terrific updates posted several times a day on both the Washington Post's trial blog as well as the Houston Chronicle blog.

My question is this. Apparently, Skilling made no huge blunders on the stand. But how likely is his testimony to be believed? Based on the blogs as well as the news reports I've read, Skilling sounds like he's living in the land of Oz - that Enron was a well-oiled, profitable machine but failed due to market panic, short sellers, and bad press.

Did he testify because the defense felt like it had few options. No good choices in terms of other credible defense witnesses. A millionaire developer? An ex fire chief? Come on!

Carrie Johnson: It's more difficult to convict someone you know as a thinking, breathing, emoting person--and Skilling did show a more vulnerable side on the witness stand, especially as he spoke of his descent into depression and overuse of alcohol as Enron collapsed. I don't think I've ever seen another white collar defendant tell jurors that he got a psychiatrist--and then a lawyer--as Skilling did last week.

Skilling also showed the jury his sharper edges, which were not as flattering.

The developer did not have a bunch to say, but the jury seemed to like Robert Clayton, the former Houston fire chief, who enthusiastically vouched for Skilling's bluntness and integrity.

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Charleston, SC: Has any mention been made by the prosecution of the nefarious actions taken by Enron employees regarding the bilking of California by Enron?

Carrie Johnson: Many of the issues related to the West Coast power crisis in 2000-2001 are not in the case, because of successful defense motions before the trial even began.

Skilling this week opened the door ever so slightly when he took a potshot at California while being asked about Enron's underperforming international operations. Prosecutors hit him hard, asking if he thought California's problems were "funny." After some hemming and hawing, Skilling said he regretted making a joke about the issue.

Mostly, though, witnesses including trader Tim Belden have spoken elliptically about the West Coast issues, pointing out that in their view Enron was raking in billions by taking speculative trading bets. Skilling says the company was not inherently risky.

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Sacramento, CA: Berkowitz's cross was pretty mystifying. Made a couple of great points, like the 200K stock sale on Sept 6, and the demonstrably false "I was only responsible for signing off on LJM3, which never happened." But why didn't he let Skilling hang himself some more by letting him ramble? Why not make him answer for why he always SOLD Enron stock (and the sales appeared to be escalating after he left). There was so much more to attack him with, I don't quite understand Berkowitz's line of reasoning. Unless you think he's got some killer rebuttal witnesses in store . . . Thoughts?

Carrie Johnson: I don't know what the government has in store on rebuttal, though I wish I did.

Skilling had his say during eight days on the witness stand. But I think by the end jurors, and certainly the time-sensitive Judge Simeon T. Lake III, were ready to move on. Prosecutors may have been nodding to incipient jury fatigue, and to Skilling's fundamental disagreement with them on nearly every point, by limiting their cross examination to three days.

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Arlington, VA: Frankly, I'm surprised that anyone could be defending these men in any way (I speak of people like Herndon or Fairfax). I only hope they get what they deserve, though history has shown us that the rich and powerful usually get away with it (on appeal).

Carrie Johnson: In response...

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Houston, TX: First, let me say I got a big kick out of all the east coast reporters whining about the hot weather in Houston over Easter. As a transplanted Washingtonian, I know that 90 on Easter is a delight, the BBQs are firing and we're basking by our backyard pools. On the other hand, when it's still 90 on October 25th, we're pretty much sick of the heat.

My comment is about VAR. This is simply a metric that encompasses the risk of all the trading positions the company has. Typically, it's in the billions. To an outside investor, it's not very useful. You don't see published numbers of VAR in the WSJ every day. The interesting thing about Enron's trading is that it was so successful, largely due to the California price blowout. Power trading out west made a bundle while all the other endeavors, e.g., international assets, broadband, weather hedges, etc. were miserable failures that had to be hidden from investors. It's not clear from the reporting what transpired in court during the VAR discussions, but this point didn't really seem to come through.

washingtonpost.com: In the Pipeline: Sun Day in Houston

Carrie Johnson: Thanks Houston! In support for my colleague and blogger Frank Ahrens, I am the first to admit I am a major whiner when it comes to the heat. I'm sorry--but, in return, this native Chicagoan promises to listen to you if you want to kvetch about snow and ice any time.

I think the government, if it is wise, will try to make exactly the point you did about VAR in its summation. One of the charges in the indictment alleges that Enron officials combined two business units so that profits from California/West Coast trading could mask losses in the retail division. There has been quite a bit of testimony on that issue over the past 12 weeks.

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Carrie Johnson: Sorry I didn't get to all the questions today, but I hope you'll come back next week, when we'll have four days of Ken Lay testimony to dissect. Have a good weekend!

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