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 Enron addicts are girding to hear more from the company's former chairman Kenneth Lay. Lay had a rocky four days on the witness stand this week and faces the prospect of another day of hostile fire from prosecutors next week. Let's go!

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Flushing, Michigan: Would it be proper for the individual jurors to study about areas of the testimony that they did not feel sufficiently knowledgeable? For example -Could they read about "short selling or hedging" to better understand the testimony or must they maintain the same knowledge which they had when they entered the trial?

Carrie Johnson: Hi Michigan-

Jurors are not allowed to do independent research outside of what they hear in the courtroom, an instruction that U.S. District Judge Sim Lake has given them in the past.

You've put your finger on an important point, though. Many of the concepts in the ongoing Enron trial are complicated ones, from trading strategies and stock sales to accounting practices. Prosecutors have tried to simplify their case as much as possible, explaining business issues in what they hope is a clear way. But particularly when defendant Jeff Skilling was on the stand, discussions of sophisticated measures such as "value at risk" were rife.

It will be very interesting to see how the jury sifts and winnows all of the evidence.

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Fairfield, IA: Have all the fixed assets of Enron been liquidated? What percentage of the book value was received? Were any not saleable -- that is no buyers? This information should clarify whether demise of the company was the result of a "run of the bank" or just an overvaluation of assets. If the assets had a concrete value then the company should have been able to withstand the massive share sell-off.

Carrie Johnson: Good question, Iowa. I wrote a story that ran last winter on what remains of Enron. The current board members are in the process of liquidating the company. The pipelines, once derided as stodgy by Enron's managers, fetched billions. The trading operations went fast, but were later sold again amid questions about how many buyers and sellers were in the market for them. The underperforming international assets (about which we've heard so much in the trial) have been packaged together but no sale has yet been finalized.

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Warren, NJ: Is there any group out there that you know of that is publishing the transcripts? I am sure that the dailies are being purchased by both sides and, as public record, are available somehow...

Carrie Johnson: Good morning New Jersey.

I don't believe a complete package of the transcripts are available for free from any single source. However, defendant Ken Lay has been posting some selected testimony at his web site, www.kenlayinfo.com. If you have access to a Bloomberg terminal, transcripts are available there as well.

(The court reporters generally limit how transcripts can be used because it cuts into their livelihood. It's in their interest to have limited public access because they earn a living off the fees.)

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Baltimore, MD: I'm really enjoying reading your coverage of the trial. The most complete I've found on the net. A simple question. These guys are multi-millionaires with multimillionaire lawyers, even if they are found guilty here, how many years before either one of these gentlemen would ever see the inside of a jail cell?

Carrie Johnson: Thanks, Baltimore.

That's a difficult question. If either Skilling or Lay, or both, are convicted, both men are certain to mount an expensive, time consuming appeal. That process could take more than 18 months, during which time many people convicted of white collar type offenses can remain free on bond, based on the judge's discretion. The judge in this case, Sim Lake, is known in Texas as a tough sentencer.

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Dana Point, CA: I wonder why Lay has not done better on the stand?

Carrie Johnson: That is a mystery to everyone who has watched this week.

Some folks speculate the absence of his lead lawyer, Mike Ramsey, who is out recuperating from a heart procedure, is playing a role. Others think that Lay has fumed for the last four-and-a-half years about what he views as government character assassination and that he is showing that side of himself on the witness stand.

It will be fascinating to see whether a few days of rest (court is not in session today and resumes Monday morning) will alter Lay's demeanor in any way.

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Pittsburgh, PA: Earlier reports (from the Washington Post and elsewhere) had stated that if convicted Lay and/or Skilling could face 'the rest of their lives' in prison, but lately talk of any potential sentence has been specific in mentioning "10 years." Is this merely a more careful application of language by reporters?

Carrie Johnson: You caught me!

Here's the situation. Every criminal offense has a "maximum statutory penalty" in the law. But judges weigh a multitude of factors, including what are known as the federal sentencing guidelines, in determining a person's sentence.

So, although on the books it looks as if Lay or Skilling could face scores of years in prison if they are convicted, the reality is that a judge will consider such issues their criminal history (or lack thereof) and the number of investors who were hurt and the amount of the monetary loss before handing down a sentence.

Among the toughest of the sentences in this wave of scandal went to WorldCom's Bernie Ebbers (25 years). He is appealing.

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Raleigh, NC: How big is it that Lay's son was shorting the company in 2001 and that Lay was buying and selling, rather than just buying as he has seemingly always maintained?

Carrie Johnson: The defense would probably argue (as it did outside court earlier this week) that the prosecution is focusing on sideline issues rather than the six specific criminal charges against Lay.

But prosecutors contend that the defendants' credibility is fair game. And since the leading defense theory of the case is that Enron was the victim of short sellers, news reports, and employees on the grift, whether or not Lay's son bet Enron's stock price would fall in 2001 strikes at the heart of whether jurors should believe the reasons Lay and Skilling said Enron collapsed.

Lay's stock sales back to the company do not form the basis of a criminal charge against him. But prosecutor John Hueston told jurors this week that it is another sign that Lay argued one thing to the outside world, then went ahead and did another in secret.

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Houston: Should Lay be convicted, could he use as an accuse on appeal the fact that his lead attorney is out sick during the crucial moment for him in the trail?

Carrie Johnson: This is a hot issue.

Defense lawyers say they have not sought a delay in the trial and won't do so in the future as a result of Mike Ramsey's illness. My understanding is that the defense needs to affirmatively act in some way (such as a delay request) in order to preserve the issue on appeal.

Worth noting that Chip Lewis, another lawyer for Lay, told the judge a couple weeks ago in open court that "we're good as we're going," in response to the judge's question about Ramsey's absence. Lay has a team of defense lawyers helping him.

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washingtonpost.com: Cleaning Up After the Fall (December 27, 2005)

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Kingwood, Texas: Carrie:

Can you get a read on the jury's reaction to Lay's sharpness? It seems at odds with the image he's been projecting previously as a detached grampa - much more dynamic and hands on.

Also, can you clarify his present net worth? Is he really broke, is it accounting tricks to say he's broke, and how has that been communicated to the jury?

Carrie Johnson: It's always hard to say what a jury is doing or thinking based on occasional glimpses of their facial expressions. Sometimes, particularly in the afternoons, they have seemed a bit bored. They don't laugh much at the jokes Lay is making, perhaps another sign of how they are responding to him.

Lay told the jury this week under questioning from his lawyer that he is $250,000 in the whole, although he continues to own a $4 million penthouse apartment, two Mercedes, and a Jeep Cherokee at their Colorado rental property. I don't have access to his financial statements so that's all I know for now, though it's possible prosecutors will revisit the issue with Lay next week.

Lay said in essence that he was crippled by debt in 2001, amassing a debt load of $100 million that banks called in after the value of his investments plunged. He sold $77.5 million back to Enron to cover that debt, telling jurors that they were "forced sales."

One of the government witnesses threw that back at him earlier in the trial, though. Former Enron executive Sherron Watkins suggested Lay could have sold some of his Aspen property rather than Enron stock.

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Arlington, Va.: Paralleling many politicians who blame the media, I found it really funny when Lay blamed the media (specifically the Wall Street Journal) for Enron's problem. I can see how it can work for politicians, but did he seriously expect people to buy that as an excuse as to what happened at Enron. Is it just me?

Carrie Johnson: Hard to say how people *not* in the news biz view this issue. The last poll I read suggested that reporters were very low on the public's list of trusted professionals (sadly).

At the same time, it has been quite a trip to watch reactions of reporters watching the trial, particularly those from the Wall Street Journal and Fortune magazine, who are directly in the defense's cross hairs, as this argument has been advancede. Fair to say that there is some chuckling.

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Lucedale, MS: What difference will it make regardless of the outcome, being executives have done this for years anyway and only seem to get cleverer in covering it up?

Daniel

Carrie Johnson: Over the years, prosecutors have argued that white collar criminals are most subject to the "deterrent effect." That's to say, that the sight of a Bernie Ebbers or a John Rigas or even a Martha Stewart in handcuffs might make another businessman stop short before signing off on a sham deal or embezzling money or making an insider trade.

And, as has been reflected in previous chats, some people who lost money and jobs with Enron's collapse are still looking to this trial for some closure (and perhaps no small measure of vengeance).

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Sedona, Arizona: As a native Californian I couldn't help but be alert to Enron's complicity in the Wests energy manipulation, with its ebbs and flows precisely timed to overlap within Bush's 2000 Presidential campaign. Given that Enron was heavily involved with Bush both pre and post election, and given the fact that Enron in approx Feb of 2000 was leading the development of the Bush/Cheney Energy Policy, then add the sudden Jeffers party switch resulting in Bush loosing Majority control of the Senate and its agenda, with the subsequent and strange suicide of one of Enron's Execs., topped by Skilling, in one of his last Senate hearings, who said something to the effect of "Senators, you only know a third of what was going on",(!?) my questions are along the lines of will the Prosecutors, if they're above board, bring into the trial the possibility of Enron's definitive downfall being partly due to the set-up of that energy manipulation scheme and over extending their resources by putting so much in the Bush basket with the hopes of recouping all their losses via George W. and Cheney contracts?

And will the Prosecutors ask Skilling to explain the missing two-thirds of his Enron story?

That man didn't kill himself, at that moment in time, over shaky books.

Carrie Johnson: Before the trial began, defense lawyers filed a successful motion to keep most evidence about the West Coast power crisis in 2000-2001 from the jury's ears. As a result, testimony about Enron's role in the price manipulations (to which three traders have pleaded guilty in federal court) has been limited.

Political connections, too, have been underplayed by both the defense and the government, though Lay's lawyer showed the jury pictures of Lay with a coterie of government leaders in his opening statement.

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Fairfax, VA: As I read your terrific reports, it sounds as if Lay is attempting/succeeding in presenting himself as "Dean Emeritus" with all the gravitas of a respected senior leader and none of the responsibilities. Does it seem that this argument is being bought and has the prosecution asked him how he justifies receiving "Chairman money" when seeing himself only as a "respected" advisor?

Carrie Johnson: Thanks. Prosecutor John Hueston in fact has had a running line of questions for Lay this week about his role as Enron's chief. The prosecutor noted that Lay earned $220 million from Enron between 1999 and 2001 and went through a number of the responsibilities Lay took on in exchange for that hefty compensation package. Hueston is likely to continue this line of assault next week, even as Lay argues that he relied on many of Enron's 30,000 employees, as well as outside accounting and law firms, to help make decisions.

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Butte, Mont.: Just a thank you. You've done a nice job of getting us inside the courtroom and making complex information manageable.

Carrie Johnson: Thanks for reading!

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Mt. Lebanon PA: Do I have this right?

In the course of cross-examination, Skilling and Lay both acted and behaved like their own opposites. Skilling became Mr. Charm and Lay became Lord Vader.

Is that right?

At any time during cross, did Skilling start to unravel when enduring himself without his characteristic prickishness? If not, is an Oscar in his future?

And Lay. Wasn't he supposed to come across as Uncle Fester - someone sweet, simple, and not all there as far as ENRON's daily savaging of itself and it's shareholders was concerned? Is there a rubber room awaiting this guy someplace?

So much for CEOs as Olympic Supermen.

Thanks much. HLB

Carrie Johnson: There is something of an expectations issue going on here.

Skilling, who was known for his volatile temper, never blew up in a major way on the witness stand. He went from emotion to emotion sometimes within a matter of a single day, but never lost complete control. From that perspective, his lawyers did a good job of reining him in.

Lay, on the other hand, is widely known as a genial diplomat. Even though prior testimony in the case depicted his sometimes sharp edges, jurors had not seen them. Until this week, when he pointed his finger and raised his voice at the prosecutor, dismissed him repeatedly, and criticized him for wasting the jury's time. It was a surprise to see Lay in this way since expectations for his performance had been quite high before the trial began.

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Houston, Texas: Will any former Enron employees stand the stand? By employees, I mean people who were advised to put there money into Enron stock and lost all their money, can't retire now.. you know the stories we heard right after the collapse.

Carrie Johnson: We have seen a few of them-Johnnie Nelson, a pipeline worker, the most memorable. Nelson lost his retirement savings upon Enron's collapse and he had harsh and emotional words for Ken Lay. Prosecutors also called Joanne Cortez, a soft spoken former Enron employee who had concerns about how Lay was using his Enron-sponsored credit line. Cortez said that even though she saw Lay selling stock, she didn't do it herself because she thought it might be wrong.

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Cabin John: On the deterrent effect: In my personal experience, the fact that 14 KPMG tax partners are facing jail time has had A LOT of deterrent effect on accountants and lawyers giving aggressive tax-shelter advice. So I agree, it works. Of course, if Lay and Skilling get off, like Scrushy did, it could have the opposite effect, couldn't it?

Carrie Johnson: Thanks for your good thought on the KPMG case. And yes, I believe that an acquittal could send a strong message in the other direction.

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Winthrop, MA: How did they decide to charge the defendants with so few counts? From what I have read, many of these criminal acts were repeatedly many times, and often independently. Shouldn't at least the independent acts all result in counts, and shouldn't the total be dozens or hundreds of counts. I would think each man would be facing hundreds of years in theory each. Hopefully, they will all spend multiple decades in jail, since they have done far more harm than any Gang Banger, or even any serial killer.

Carrie Johnson: Lay faces six counts, Skilling 28.

The goal of prosecutors in this case has always been to simplify it, so as not to test the endurance of the jury. As it is, jurors appeared a bit restless this week, the 13th of the trial. And they have about two more weeks of testimony to go.

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Fairfield, IA: If only one is convicted, it would seem rather illogical as the time period is virtually the same -- the last six months before bankruptcy. And both have the same defense. You convict one for conspiracy then the other would follow -- right?

Carrie Johnson: Lawyers for Skilling and Lay have worked together in an effor to present a joint defense. Because Lay was less involved in day to day operations, Skilling faces many more criminal charges. Both men testified they worked as a team at Enron and they are (mostly) fighting as a team now.

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Ann Arbor, Michigan: Hi Carrie -

Thanks for the exceptional reporting on the case. Curious if you think that Heuston should have done the cross examination on Skilling based on his success on breaking the grandfatherly image of Lay.

Thanks,

Carrie Johnson: Thanks!

By many accounts, the dynamic between John Hueston and Ken Lay is complex. Lay has been angry with the prosecutor for years, as he viewed the lawyer as being brought in to file charges against him whatever the cost. As such, Lay may have been emotionally primed to react when Hueston began his questions.

Chicago prosecutor and task force director Sean Berkowitz, who is an easygoing, Harvard educated lawyer, did not set off defendant Jeff Skilling in the same way. Even so, Berkowitz goaded Skilling a few times into showing an abrasive "you just don't get it" edge for which Skilling had been known in his Enron years. Berkowitz tried to exploit that in his own favor for the jury, which presumably is composed of 12 citizens who don't normally toss around trading concepts over lunch and who thus might not "get it" either.

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Camden, New York: In your opinion, has it been wise for Ken Lay and Jeffrey Skilling to take the stand in their defense?

Carrie Johnson: Sorry to be coy, but ask me that question again next week when Lay is off the stand. (:

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Carrie Johnson: Thanks very much for all the good and lively questions. Hope to see you next week!

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