Lawyers for former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling launched their case Monday with the two men’s former assistant, who said she believed a key prosecution witness lied about his involvement in company-related crimes.
As they did during the first 2 1/2 months of the fraud and conspiracy trial of the two former chief executives, defense lawyers sought to erode prosecution testimony with their first witnesses.
Joannie Williamson served as an assistant at various times to Skilling, Lay and former investor relations chief Mark Koenig, a key prosecution witness.
Koenig pleaded guilty in August 2004 to aiding and abetting securities fraud and testified for the prosecution that he lied to investors about Enron’s finances. During more than seven days in the witness chair in February, he denied claims that he had told Williamson he pleaded guilty to a crime he didn’t commit.
The defense teams maintain that most ex-Enron executives who admitted to crimes did so out of fear of prosecution and in hopes of receiving lenient punishments rather than because they broke the law.
Williamson said Koenig, whom she described as a close family friend as well as a former boss, called her the day he pleaded guilty.
“I said, ’You’re not guilty,’ and he said, ’I know that, but in order for this to work, everyone needs to believe that I am.”’
She added she did not believe he was guilty, even though Koenig told jurors in February, “I pled guilty because I am guilty.”
Williamson said yes when prosecutor Kathryn Ruemmler asked if she thought Koenig lied during his testimony, which implicated Lay and Skilling in a string of falsehoods.
“Did he tell you he was pressured?” Ruemmler asked.
“No, he did not,” Williamson replied.
Rogers Herndon, a former top risk analyst in Enron’s trading unit, Enron North America, at first began to contradict prosecution testimony about why Enron folded the risk and trading portion of its retail energy division, Enron Energy Services, into his larger, profitable unit. But under government questioning, he also revealed chaos in the retail unit.
David Delainey, former CEO of the retail unit, had testified for the prosecution that in March 2001 he reluctantly agreed to a Skilling-approved plan to move part of Enron Energy Services into the wholesale division that housed Enron North America to hide $200 million in losses. Delainey pleaded guilty to insider trading in October 2003.
That move came after Wanda Curry, the former chief accounting officer for Enron North America, found wildly overvalued contracts and uncashed checks from customers in Enron Energy Services, she testified for the prosecution.
But Lay and Skilling told investors the move was designed to increase efficiency and combine like trading functions drove the move — not to hide losses in a profitable division.
Herndon testified similarly Monday — that the move combined like functions and could allow the retail unit’s sales and dealmaking side to grow — and he explained the move to employees as such.
But on cross-examination Herndon acknowledged he didn’t know about Curry’s analysis when he began to re-evaluate retail contracts and also found overvalued contracts.
“Is it fair to say that EES’s risk management functions were a mess?” prosecutor Sean Berkowitz asked.
“They were inadequate,” Herndon replied.
Skilling lawyer Daniel Petrocelli said Monday that Skilling could testify as early as Wednesday afternoon, depending on how long other witnesses take on the stand. Lay’s testimony will come later.
Petrocelli told U.S. District Judge Sim Lake after the trial recessed Monday that pre-Skilling witnesses this week will include Max Hendrick III, a partner at Enron’s former outside law firm, Vinson & Elkins. Hendrick oversaw an internal investigation into accounting concerns raised by former Enron executive Sherron Watkins, whom Congress dubbed a heroine for her attempt to warn Lay of impending financial doom.
Lay’s lead lawyer, Michael Ramsey, was absent from the trial Monday, undergoing outpatient tests on a stent he had inserted in his chest on March 24. Lay spokeswoman Kelly Kimberly said the attorney will have “an invasive procedure” Tuesday during which doctors can evaluate the stent.
“I think he’ll be fine,” Lay said outside the courthouse, noting that he and his other lawyers will await results of Ramsey’s tests on Tuesday.
The trial will carry on without Ramsey, Lay said.
“We’ve got a good, strong legal team.”
Other defense witnesses who testified Monday include:
- Scott Stoness, a former analyst for EES. Stoness said Enron didn’t know until May whether EES would have high losses, which appeared to undercut Delainey’s assertion the trading function was moved into the larger division two months earlier to hide losses.
- Diann Huddleson, another former EES analyst. Skilling’s legal team called her to show that EES wasn’t in disarray as Delainey and other government witnesses have said. She said she persistently chased California utilities to pay Enron for energy deliveries during that state’s power crisis of 2000-2001 despite testimony from a former in-house accountant about a drawerful of uncashed checks for amounts that Enron’s books claimed had been collected. The defense also sought to counter prosecution testimony that Enron wrongly raided reserves to pad earnings by showing through Huddleson that the company had another purpose for those funds. Huddleson noted Enron had reserves of up to $400 million to cover any losses from California utilities that failed to pay their bills.
The government contends that Skilling and Lay repeatedly lied to investors and employees about Enron’s strength when they knew the energy trading company was struggling with weak ventures and massive losses.
The defendants say no fraud occurred at Enron other than that committed by a few executives who skimmed millions from secret side deals. They say bad publicity and lost market confidence drove what was once the country’s seventh-largest company into bankruptcy proceedings in December 2001.
Prosecutors rested their case last week.
Skilling faces 28 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces six counts of fraud and conspiracy. Last week, U.S. District Judge Sim Lake approved prosecutors’ request to drop three counts against Skilling and one count against Lay to streamline their case.