In his first day of cross-examination while on the stand for his defense, it didn’t take long for former Enron Corp. Chief Executive Jeffrey Skilling to get defensive.
“You think that was funny?” prosecutor Sean Berkowitz growled Monday as Skilling, with a smile, compared utility regulation in California to the regulatory situation in South America, where Enron Corp. had a troubled power plant.
“I think the regulatory environment in California is very similar to the regulatory environment in Brazil,” Skilling replied.
Berkowitz fired back that Skilling had made fun, even made jokes about the power crisis in California beginning in 2000. Skilling stammered when the prosecutor asked him to confirm with a yes or no response that he’d made jokes.
“One,” he said quietly.
“You regret making that joke?” Berkowitz asked.
“Yes, now,” Skilling responded.
The contents of Skilling’s joke never were told to jurors who will be asked to decide 28 criminal counts against him and six others against Enron founder Kenneth Lay at their federal fraud and conspiracy trial.
It was disclosed at his congressional testimony, however, where Skilling was said to have compared California to the doomed ship, Titanic. The only difference, according to Skilling, was the lights were on when the Titanic sank.
The exchange set the tone for the day as the 12th week of the trial began.
Berkowitz kept the ex-CEO on target with questions far tougher than those put to him all of last week, when he was quizzed for four days by his lead attorney, Daniel Petrocelli.
When Skilling at one point tried to answer a question with a reference to a conversation with his brother, the prosecutor shot back: “Your brother’s not on trial.”
And when Skilling tried at times to embellish his answers to questions, Berkowitz reminded him Petrocelli could question him again once his cross-examination was complete.
“Let me ask the questions,” the prosecutor told him.
Berkowitz focused on a number of areas in questioning that could last all week, including Skilling’s stock sales, which are an element of the indictment against him, the international sales of Enron assets that never took place during his tenure at the former energy trading giant, and alleged conflicts of interest.
In a line of questioning that had jurors riveted, Berkowitz focused on an investment Skilling made in a startup company called Photofete, a photo-sharing service organized by a woman Skilling knew as a photographer at Enron.
His investment, he testified, was small, about $60,000. The company’s contract with Enron also was small, maybe $3,000, he told the Securities and Exchange Commission.
But canceled checks, plus a copy of a wire transfer order Berkowitz entered into evidence, showed Skilling invested $180,000 over about a yearlong period beginning in April 2000. And records also showed the company, which jurors learned was headed by a woman Skilling acknowledged dating, had some $450,000 in business, more than half of it with Enron. The company by far was its largest customer.
Berkowitz said the investment was a violation of Enron’s code of ethics, which required him to disclose such investments with an Enron customer.
“At the time of my investment, it may not have had a contract with Enron,” he said he believed.
When pressed by Berkowitz, Skilling said he “may have mentioned it” to Lay.
“This was really a small investment,” he said, before the evidence was presented showing his investment worth $180,000.
Asked whether he agreed it was a conflict of interest according to the company’s ethics code, Skilling said, “Maybe.”
And asked again if he had reported it, “It didn’t occur to me,” Skilling responded.
The photo-sharing company, he acknowledged, ultimately failed.
Berkowitz challenged several statements Skilling made last week under questioning from Petrocelli. Among them was Skilling’s insistence that his Enron stock sales that grossed $63 million in 2000 and 2001 were proper. Another questioned his assessment of the worth of Enron’s hodgepodge of international assets when Skilling abruptly resigned from the company in mid-August 2001, four months before it filed for bankruptcy protection.
On the stock sales, Skilling testified last week he didn’t remember telling his broker to sell 200,000 of his Enron shares less than a month after he resigned. That sale was held up, and Skilling ended by selling 500,000 Enron shares on Sept. 17, 2001, the first day the markets opened after the terrorist attacks.
Prosecutors contend he ordered the Sept. 17 sale because he knew Enron was in financial trouble, not because of markets disturbed by the attacks.
Skilling said he’d forgotten about trying to order the sale of 200,000 shares on Sept. 6 that year until he heard his voice on a tape recording played for jurors of a call to his broker.
“You forgot that original order?” Berkowitz asked.
“That’s correct, yes,” Skilling replied.
Other insider-trading counts against him allege he knew turmoil loomed when he sold tens of millions of dollars in stock through most of 2000 even as the share price rose. Skilling said those sales were preprogrammed to diversify his holdings.
He denied Monday he advised his ex-wife, Susan Skilling — “the mother of your children,” Berkowitz described her, and his then-girlfriend, Rebecca Carter — now his wife, to sell Enron shares in October and November 2000. He said he didn’t know his ex-wife exercised Enron options in October that year for $14 million, and wasn’t aware Carter sold $1.6 million in shares the next month.
Asked if the sales were just a coincidence, he said they were.
On international assets, prosecutors have repeatedly displayed a document that shows Skilling considered them overvalued on Enron’s books by almost $5 billion before he resigned. He had pushed to sell those assets because they brought in paltry returns, but last week he testified that when he resigned, he advised Lay and other directors to keep them rather than sell at fire-sale prices.
Berkowitz suggested Skilling had the benefit of seeing the 22 prosecution witnesses and could tailor his testimony to counter theirs.
“I have nothing to hide, Mr. Berkowitz,” Skilling said. “I don’t think it’s a question of tailoring my testimony. I will respond to your questions to the best of my ability.”
Berkowitz also said there were few, if any, notes Skilling made of meetings to dispute the recollections of other witnesses, and few e-mails he sent.
Skilling said at the time he was not computer literate and did not send e-mails.
“At the end of the day, is it a fair statement that what the jury has to rely on is your word?” the prosecutor said.
“I hope the jury looks at and decides what makes sense,” Skilling said.