Former Enron Corp. Chief Executive Jeffrey Skilling emerged from his much-awaited cross-examination in his criminal fraud and conspiracy trial Wednesday looking tired from three days of grilling from a prosecutor bent on challenging his truthfulness.
He faces more questioning Thursday from his lead lawyer, Daniel Petrocelli, and perhaps a second round of cross-examination from federal prosecutor Sean Berkowitz. Petrocelli downplayed the tension that repeatedly emerged between his client and Berkowitz.
“I think it’s been a very genteel trial. The prosecutor was determined to get ’yes and no’ types of answers and not let Mr. Skilling elaborate, and that’s going to cause lots of interruptions,” Petrocelli said.
Earlier, the ex-CEO bristled when Berkowitz prevented him from giving detailed denials in response to questions about whether he deliberately minimized Enron’s allegedly risky trading practices to investors.
Berkowitz repeatedly cut him off, while the ex-CEO insisted the issues weren’t so simple.
“We’re going to be here all day,” a frustrated Skilling said after Berkowitz refused to let him elaborate on the nature of Enron’s business and how it managed risk. “We’re on fundamentally different planes here.”
Several jurors smiled during the dust-ups, as though amused at the sparring.
Once Skilling’s testimony wraps up, up to 10 witnesses are slated to briefly testify. Then his co-defendant, Enron founder Kenneth Lay, could begin testifying as early as Monday, Lay lawyer George Secrest said.
“He’s waited a long time,” Secrest said.
Lay’s lead lawyer, Michael Ramsey, is recovering from having a stent placed in his carotid artery to open blockage, so Secrest will question Lay.
Secrest said Lay may not be on the witness stand as long as Skilling because he faces fewer counts covering a shorter time span.
Skilling is charged with 28 counts of fraud, conspiracy, insider trading and lying to auditors from 1999 through 2001. Lay faces six counts of fraud and conspiracy that focus on his actions after Skilling abruptly resigned from Enron in mid-August 2001 through the company’s descent into bankruptcy proceedings in December that year.
Skilling’s lead lawyer, Daniel Petrocelli, said most of the defense witnesses slated to testify between Skilling and Lay will be brief. They include Carol Baxter, the widow of former Enron Vice Chairman Cliff Baxter, a close friend of Skilling who committed suicide by shooting himself in his car shortly after Enron collapsed; Sue Lowe, Skilling’s ex-wife; and Robert Herrold, Lay’s son-in-law who manages family finances.
Prosecutors allege Skilling and Lay repeatedly lied to investors and employees about Enron’s health when they knew their optimism hid weak business ventures and accounting tricks obscured debt and inflated profits.
The two defendants say no fraud occurred at Enron, and that bad publicity and lost market confidence sank the company.
The government alleges that Skilling and Lay pointedly characterized Enron as a stable company with predictable growth rather than a trading company vulnerable to market volatility because Wall Street would be more bullish on the former. Skilling grew tense when Berkowitz challenged him Wednesday.
Kenneth Rice, once a top trader and former CEO of Enron’s failed broadband unit, testified in February that Skilling led an effort in early 1999 to define Enron as a company with consistent growth because analysts who influence stock prices supported stability. Rice said Skilling told him Enron’s stock would get “whacked” if the market perceived Enron as a trading company.
Skilling maintained Wednesday his oft-repeated stance that Enron was indifferent to wild swings in commodity prices because it was an intermediary that packaged services for commodity buyers and sellers.
“I didn’t think ’trading company’ reflected, in my view, what Enron was,” Skilling said.
“And you were communicating that to the marketplace, correct?” Berkowitz asked.
“That’s correct,” the ex-CEO replied.
His position appeared to contradict prosecution testimony from Timothy Belden, a former top Enron trader who ran the company’s Western power trading desk.
Belden told jurors Enron was primarily a trader and profited heavily from what he called California’s “dysfunctional” market in the aftermath of electricity deregulation by correctly betting that prices would skyrocket. Belden said Enron pocketed almost $1 billion over nine months in late 2000 and the first half of 2001.
Berkowitz asked if investors were concerned about whether Enron made the bulk of its profits from speculative trading in markets “going crazy” in California. “Yes or no,” the prosecutor demanded.
“Mr. Berkowitz, I think we tried very hard, very hard to communicate specifically the risk positions that were being taken with our business,” Skilling replied.
Skilling also said analysts weren’t concerned about whether Enron’s trading activity was risky because “we had a decade of discussion with investors” and they knew the company had daily trading-loss limits to mitigate risk.
That limit rose to $125 million in early 2001 from $75 million in mid-2000 — during the span when Enron’s trading profit from Western power markets spiked.
However, Berkowitz questioned why Skilling felt the need to tell analysts during a quarterly conference call in January 2001 that “some people have said Enron is a trading business. Let me hit that on the head. We are not a trading business. We are a logistics company.”
With a glare of irritation, Skilling deflected the prosecutor’s insinuation that analysts needed clarification. “The people in this meeting followed Enron for 10 years,” he said.
Skilling also earned a rebuke from U.S. District Judge Sim Lake when he questioned Berkowitz’s motives in discussing a March 2001 Fortune Magazine article that said Enron’s financial reports were so complicated, even sophisticated analysts couldn’t decipher them. The piece quoted a credit-rating agency analyst saying, “If you figure it out, let me know.”
Skilling noted Berkowitz chose “the unfavorable one” from a time when other media outlets wrote glowing articles about Enron. The prosecutor noted Skilling first discussed it during initial questioning from his lead attorney, Daniel Petrocelli, last week.
“Are you entering this as truth or just as what people are saying and what’s been selected by various people?” Skilling asked, referring to the judge’s explanation to jurors last week that some items will be presented not as fact, but to show how the market responded to Enron.
“I did a long, thorough instruction last week. Apparently you didn’t remember it,” Lake said sternly.
The tension dissipated when Petrocelli launched a second round of questioning. The ex-CEO addressed testimony from Tuesday regarding his investment in an ex-girlfriend’s online photo-sharing business. That issue is unrelated to charges against him, but Berkowitz used it to challenge his truthfulness.
Skilling told jurors Tuesday he invested $60,000 in the company and didn’t tell Lay or Enron’s board. He also told the Securities and Exchange Commission several years ago that the photo company had a $3,000 contract with Enron.
Berkowitz on Tuesday displayed checks and a wire transfer that showed Skilling invested $180,000 in the company, and showed it did $450,000 in business with Enron.
On Wednesday, Skilling told jurors and Petrocelli that he had forgotten about it but since remembered that he did tell Lay about it at the time. He also was surprised at the amount of business the company did with Enron.
“I had completely forgotten about it. Clearly I was taken off guard about it,” he said.
“You got the numbers wrong?” Petrocelli asked.
“Yes,” the ex-CEO replied.