Transcript

Enron Trial Update

Carrie Johnson
Washington Post Staff Writer
Friday, May 12, 2006; 11:00 AM

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 both sides in the Enron trial are ignoring the glorious weather and instead furiously preparing their final arguments to be delivered to the jury early next week. It's almost showtime, folks. Let's go!

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Kingwood, Texas: Carrie: Your coverage has been great

It's hard to believe Lay had 4 years to prepare a defense when you see his performance.

- Did the defense think the prosecutors were preparing an "accounting" case instead of the "personal responsibility" one? Both Lay & Skilling seemed unprepared to answer many questions about personal stock sales, side businesses, etc.

- There is a difference between "having debt" and being "in debt". Do you think the jury was made aware of the difference with Lay? Are there any bankers, CPAs or finance types on the jury that would know the difference?

Carrie Johnson: Thanks, Kingwood. I'm enjoying your fair state.

Lay's performance was surprising, to be sure.

And defense lawyers for both Lay and Skilling openly expressed their own shock in the course of the trial at how prosecutors had drawn the boundaries of their case. In his opening statement for the government, Assistant U.S. Attorney John Hueston told jurors that it would be a case about lies, not accounting. The prosecution mostly bore that out with high-level testimony from insiders, rather than details of business practices and bookkeeping.

Skilling and Lay sometimes faltered when their stock transactions and personal investments came under scrutiny on cross examination. Skilling didn't have an explanation for a Sept. 6, 2001, attempt to sell Enron shares. Lay said he sold Enron stock back to the company only when "forced," but prosecutors tried mightily to show Lay had other investments and other choices.

Neither Lay nor Skilling was comfortable talking about their personal stake in an online photography startup run by Skilling's ex-girlfriend, a startup that did business with Enron.

Given the amount of money the defendants spent on their defense, and the talented lawyers they employ, that too was a bit surprising.

In response to your second question, Lay told the jury he had debts of some $100 million going into 2001. While he said he had lived the American dream, and spent accordingly, we never got a full picture of how that came to be.

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Atlanta, GA: Ms. Johnson -

Did the defense ever cite any inaccuracies in the reporting of the Wall Street Journal? How can Skilling blame the WSJ if the WSJ simply disclosed the facts about Fastow and off-the-books SPE's?

Carrie Johnson: This is a good question.

The defense says Enron collapsed because of market panic, spurred by collusive investors known as short sellers who bet the stock price would fall; by skeptical reports in the Wall Street Journal and other papers; and by disclosures about ethical improprieties by then chief financial officer Andy Fastow.

But, as experts testified for the defense last week, Judge Sim Lake interjected with his own remarks. He said, in essence, that one could conclude that the Wall Street Journal reported accurately and importantly on issues to which the defendants perhaps should have paid more attention earlier in the game. Judge Lake said that is an important issue for the jury to decide, not for experts to opine on.

I do not believe that the defense has cited specific and material inaccuracies in the WSJ's articles in the course of this trial.

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washingtonpost.com: Today's Article: 16 Weeks Come Down to 6 Hours

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St. Johns, Mich.: WHY WOULD IT BE LEGAL OR ILLEGAL FOR KEN LAYS SON TO SHORT ENRON STOCK. is it absolutely true that ken was saying enron was in good shape financially and unloading his stock. any light on how ken could be 100 mil. in debt if thats the number while working for enron

Carrie Johnson: Hi Michigan-

You raise an issue that came up in cross examination of Ken Lay. As I mentioned earlier, Lay has blamed an organized campaign by short sellers (investors who bet a company's stock price will fall and profit accordingly) as one of the factors contributing to Enron's demise.

On cross examination, prosecutors suggested that Lay's son, Mark, sold Enron stock short in March 2001.

It is in no way illegal to sell stock short. The government instead used this idea to poke hole's in Lay's explanation for Enron's collapse.

It is worth noting that Lay's lawyers later told the jury the short sale by Mark Lay was not really a short sale at all--just a misunderstanding with his stock broker about the timing of a sale.

Lay told Enron employees in September 2001 that the stock was an "incredible bargain" but during the company's final months he sold $77.5 million worth of Enron stock back to the company. Prosecutors never charged him with a crime for the stock sales but they used them as ammunition to cast doubt on Lay's publicly expressed optimism.

We don't know exactly how Ken Lay amassed $100 million in debt, but here are some general outlines: homes in Galveston, Houston, Aspen; investments in technology companies that started to falter after the burst of the high tech bubble; and a lifestyle that included costly vacations, good food, fine wine, and trips aboard Enron's jet for members of his extended family.

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washingtonpost.com: Complete coverage of the Enron trial is online here .

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Houston, Texas: Why did the prosecution not call Richard Causey?

Carrie Johnson: Richard Causey was the company's chief accounting officer during the period that government lawyers claim fraud flourished at Enron.

He was scheduled to go to trial alongside Skilling and Lay but at the last minute, in December 2005, he pleaded guilty to a disclosure violation in exchange for a five to seven year prison term.

Prosecutors have not said publicly why they decided not to call Causey as a witness, but here is some informed speculation.

Causey steadfastly maintained his innocence--and the propriety of Enron's accounting decisions--for more than four years before his guilty plea. A friend of Causey's I interviewed in late December said Causey stuck to that account even days before his plea, and it's hard to imagine that he would have testified much differently in the trial.

That means he would have been dangerous to the government, in some ways, because he might have expressed support for some of the central accounting decisions at Enron and bolstered the defense theory that there was no widespread fraud at the company.

Defense lawyers also had the option of calling Causey, but they declined to do so. They, too, have not given reasons for their decision, but it's possible that the benefits of his testimony could have been outweighed by the damaging account he would give on the more narrow actions related to his guilty plea--hurting the defendants as well.

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Crystal Lake, Il: Carrie,

Great job of reporting over the length of a very difficult and complex trial.

I have two questions regarding judge Lake's jury instructions specifically about "knowledge and deliberate indifference".

What latitude does a judge have in issuing such an instruction?

Why would he issue such an instruction knowing that it might jeopardize the original jurors efforts should a conviction be obtained and then appealed by the defense?

Thanks for your answer.

Carrie Johnson: Thanks for the kind words!

You refer to a decision by Judge Lake earlier this week to give jurors a technical instruction pointing out they could find Skilling and Lay guilty if they determine the defendants turned a blind eye to fraud within Enron's ranks.

This jury instruction is one basis of an appeal by WorldCom chief executive Bernard Ebbers, who was convicted and sentenced to 25 years in prison.

Defense lawyers for Skilling and Lay say the instruction is dangerous because it lowers the government's high burden of proof. It is likely to be one prong of a defense appeal if either man is convicted.

The U.S. Court of Appeals for the Fifth Circuit, which has jurisdiction over this court, allows for such instructions to be given but says they should be used "sparingly."

Judge Lake did not offer reasons for his decision, but in order to issue such an instruction, prosecutors must have offered sufficient evidence that defendants ignored red flags. There appears to be more evidence on this issue regarding Lay than Skilling.

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Houston: Carrie: Was there a single Enron employee, former or present out of the 15,000 who once worked there, who testified on behalf of Lay or Skilling?

Carrie Johnson: Thanks Houston.

Skilling and Lay did call former Enron employees, but not as many as they say they would have liked.

Among the folks who testified for the defense were: former general counsel James Derrick; former lawyer/dealmaker J. Mark Metts; human resources executives Cindy Olson, Marla Barnard, and Sarah Davis; administrative assistant Joannie Williamson; and Ken Lay's longtime assistant Rosie Fleming.

I may have missed a few names there, but as you can tell, none were the sort of top-level insiders that defense lawyers say they wanted to call, but couldn't, because the witnesses invoked their Fifth Amendment rights against self-incrimination. That too is likely to form the basis of an appeal if either Lay or Skilling is convicted.

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Arlington, Va.: Ok, closing arguments next week. When do you think we'll see a verdict?

Carrie Johnson: I wish I knew!

Here's the schedule. Jury instructions and the start of the government closing argument, led by DC-based prosecutor Kathryn Ruemmler, will take place Monday. Both defense teams get a total of six hours to argue Tuesday. Then, on Wednesday, prosecutor and task force director Sean Berkowitz will have a parting shot. That means the jury will get the case sometime Wednesday afternoon.

After that, it's all up to the eight women and four men who have never missed a day of jury service to set their own schedule and pace.

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Bethesda, Mc.: This is nothing but an entertaining show. Ken Lay knew exactly what he was doing. He does not care because he knows he is going to be free in 2 years if convicted. Don't people get it?

Carrie Johnson: I think you are referring to the prospect that Ken Lay, if convicted, might get a presidential pardon before President Bush leaves office. I do not cover the White House, and thus do not know whether the president or his press secretary has responded recently to this question, but it is one worth asking.

It's also important to note that as Enron hit the skids in late 2001, Lay called on several friends in the administration, none of whom helped him.

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Mt. Lebanon PA: And the final summaries will take.. how many months?

And the instructions to the jury will take.. how many months?

And the jury delibarations will take.. how many months?

And the appeals will take.. how many months?

I'm 54 now. Will I be dead and buried when this whole ENRON affair is dead and buried?

Justice swift and sure. You betcha!

BTW: I'm in excellent health.

Thanks much. HLB

Carrie Johnson: Hello Mt. Lebanon,

No one ever said white collar cases were swift. That said, four months of trial in a case as complex as Enron is a near lightning-fast pace. We should all give thanks to Judge Lake, to prosecutors on the Enron Task Force who determined less was more, and to the defense teams for Skilling and Lay, who valued efficiency and acted accordingly.

Glad to hear you are in excellent health.

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Athens, GA: OK Carrie, I must know your opinion. Given the lack of a paper trail, were not Skilling and Lay crazy to testify is this case ? How on earth can someone make the case that they helped themselves, especially Lay ?

Carrie Johnson: Deciding whether or not to testify is often the most controversial and vexing judgment of a trial. Testifying sometimes pays off (look at former Tyco lawyer Mark Belden) and sometimes doesn't (look at WorldCom founder Bernard Ebbers).

You could make the assertion that Skilling had to testify, given the number of government witnesses who claimed he made statements regarding Enron's health, and the number of insiders who say they told him things were falling apart.

Lay's decision to testify was less clear. At one point, there were rumors that he would forgo a turn on the witness stand. But his lawyers denied the buzz and insisted that Lay, who occupied a prominent place in Houston society, would defend himself and his reputation.

Lay did so for six sometimes rocky days and now it is up to the jury to tell us whether or not he was persuasive. He has received mixed to negative press reviews on his performance, but the jury verdict is the only judgment that really matters.

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Forney, Tx.: What do you believe the outcome will be? Gulity or Not or Hung?

Carrie Johnson: I really don't know enough about the background of the jurors to make an educated guess. And the resounding acquittal of HealthSouth founder Richard Scrushy on 36 fraud charges last year, despite audiotapes and a parade of insiders who testified against him, threw conventional wisdom to the wind.

That said, lawyers who have watched the trial suggest that a complete acquittal would be far less likely than a hung jury or a conviction on some counts. I think next week's closing arguments will be pretty darn important.

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Columbia, MD: So Carrie, what your best guess as to the final outcome, were the jurors swayed by any of the defense?

Carrie Johnson: Seems to me the most powerful defense arguments were as follows:

1) No explicit documents or email messages directly linking Lay and Skilling to fraud.

2) The bulk of the government case is built on the backs of insiders who pleaded guilty and testified in exchange for reduced prison sentences.

3) Many of Enron's transactions were blessed by employees, auditors, and lawyers.

Whether the jurors bite on those is anyone's guess. Should be noted that prosecutors presented numerous witnesses to testify and produce documents suggesting that several of Enron's key business units were far from healthy at a time when both Skilling and Lay touted the stock. They also argued that auditors and lawyers often were kept in the dark about key aspects of deals, particularly those involving finance chief Andy Fastow.

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Carrie Johnson: Thanks very much for all the good questions. I'll look forward to next week, when we can talk about the high and low points of the final arguments!

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