Image: Ken Skilling and attorney
Richard Carson  /  Reuters
Former Enron CEO Jeff Skilling, left, watches as his attorney Daniel Petrocelli addresses the media outside the courthouse Monday.
updated 3/6/2006 7:37:26 PM ET 2006-03-07T00:37:26

With a pivotal government witness waiting in the wings, a defense lawyer in the Enron fraud trial sought Monday to cast doubt on a former executive’s dramatic claim that CEO Jeffrey Skilling fretted in 2001 that “they’re on to us.”

Kevin Hannon, a former Enron Corp. broadband unit executive, testified last week that Skilling made the remark when analysts criticized sales Enron made to partnerships run by its own chief financial officer, Andrew Fastow.

But under cross-examination Monday by Skilling lawyer Mark Holscher, Hannon conceded it was possible Skilling was just being sarcastic because he was miffed that the boutique firm catered to short-sellers — people betting that Enron stock would fall.

Holscher asked Hannon whether it was possible Skilling was “dripping with sarcasm” when he made the statement in a May 21, 2001, meeting with other top Enron executives. “Anything’s possible,” Hannon replied.

Using a marker and a large sketch pad, Holscher listed other executives — as many as 17 — who might have been at the meeting. He asked Hannon whether anyone followed up on Skilling’s dramatic statement.

“Not that I’m aware of, no,” the witness answered.

The cross-examination took place as prosecutors prepared to call Fastow to the stand, perhaps as early as Tuesday. Fastow was seen walking into the Houston federal courthouse at midmorning, accompanied by his lawyer.

The testimony of Fastow, who pleaded guilty in 2004 to two counts of conspiracy and has agreed to serve up to 10 years in prison for his crimes, is among the most highly anticipated of the Enron trial.

Skilling and former CEO Kenneth Lay are charged with fraud and conspiracy, among other crimes, in the spectacular collapse of Enron in 2001. The defense claims there was no massive fraud at the energy-trading giant.

As the trial opened its sixth week, Hannon appeared uncomfortable at times on the witness stand — fidgeting in his chair, bumping into his microphone, pursing his lips and folding his arms across his chest.

Last week, Hannon told jurors Skilling misled Wall Street analysts about the future of the failing broadband unit during a March 2001 conference call.

Skilling told analysts then that bandwidth trading had enjoyed a “great quarter,” while Hannon told the jury the division was bleeding cash and facing layoffs without gaining any substantial revenue from bandwidth and on-demand video ventures.

Holscher, the defense lawyer, reminded Hannon of extensive testimony he gave to the Securities and Exchange Commission in 2002 that depicted a far rosier picture of the broadband unit’s performance.

On the witness stand Monday, Hannon admitted he had lied to the SEC.

“You lied under oath?” Lay lawyer Bruce Collins said.

“Yes,” Hannon answered.

“That’s perfect,” Collins said.

Hannon, 45, is among 16 ex-Enron executives who have pleaded guilty to crimes. The defense has aggressively challenged prosecution cooperators so far in the trial, suggesting the government goaded them into admitting crimes they never committed.

Holscher pursued a similar tack on Monday, asking Hannon about the years in prison he could face if the government is not satisfied with his testimony against Lay and Skilling.

Hannon insisted: “My obligation is to tell the truth, to respond to questions as accurately as I can, as responsibly as I can. ... I am telling the truth as well as I can state it.”

Fastow’s cross-examination should be sharply different: The defense suggested in opening statements they would go after Fastow as a shady executive who stole money from corporate coffers and kept his bosses in the dark.

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