The grilling of ex-Enron CEO Jeff Skilling is over. Next up is what prosecutors hope will be the filleting of company founder Ken Lay, who will take the witness stand Monday in the ongoing fraud and conspiracy trial.
The prosecution's attempt to chip away at the credibility of the two men worked fairly well during Skilling's four-day cross-examination. Skilling was at times testy and had difficulty giving straight answers to questions as simple as his responsibility to shareholders. While he had the jury chuckling along with him at times this week, his haughty lectures on VARs and CDRs (Google them) might not have gone over so well. Lay, a preacher's son from Missouri who went from economics professor to pipeline wizard and mega-millionaire, may be a tougher target. Rotating calmly in his swivel chair at the defense table during Skilling's testimony, he has seemed blithely unconcerned about most of the prosecution's jabs against his co-defendant — or at the absence of his lead attorney, Michael Ramsey, who has been out for heart-related surgery.
One thing is for sure: For the business trial of the century, the Enron trial thus far has been something of a letdown — especially its peek into the Enron executive suite. Lay and Skilling may have transformed a stodgy natural-gas carrier into a global trader in everything from energy to weather futures and broadband, but the two men remained surprisingly old-school when it came to technology. Take Skilling, a Harvard School of Business grad and master of this brave new digital world. When the Federal Energy Regulatory Commission went after Enron for the California energy crisis, it built a case using in-house e-mails that nailed Enron's youthful dealmakers for manipulating the market. Yet no incriminating e-mails from Skilling have been found. In fact, there are no e-mails from him at all. Skilling, 52, told the jury he didn't even learn to navigate a computer until after he was indicted, and was so retro that he wrote lists of things to do on graph paper, scratching off his tasks as he walked the floors of Enron every day. (None of those scraps of paper has turned up either. "I didn't destroy them," Skilling protested. "I threw them away.)
Did Skilling's testimony fly with the jury? The man famous for cussing out an analyst in a phone call had a sad, demure face as he took the witness stand two weeks ago for some gentle questioning by his attorney, Daniel Petrocelli. But Skilling's attitude toward prosecutor Sean Berkowitz — another Harvard man himself — was often dismissive; he all but said the government's guy was not smart enough to understand the company's financial charts. Later, perhaps fearing he was coming across as pompous, he stumbled over the phrase "net worth." "Is it net wealth?" he asked.
When he and Berkowitz argued about the actual vs. the book value of Enron's international assets — assets that were dragging down Enron's finances —Skilling responded, with brutal honesty, that businesses don't tell all. But he hemmed and hawed for 10 minutes over a simple prosecution question about his responsibility to shareholders — refusing to admit he had done anything wrong. "We see the real Skilling here," said Michael Wynne, a former federal prosecutor who is attending the trial to prepare for case against banks that raised funds for Enron.
The prosecution's task with Skilling — and next week with Lay — is to cast doubt on their contention that they were unaware of the financial shenanigans of ex-CFO Andrew Fastow and his financial Team. How could Skilling, the man who testified he "bled Enron blue" and was involved in all major strategic decisions, not know that his lieutenants were manufacturing the numbers? In court he claimed he didn't know he had a responsibility to oversee Fastow's questionable transactions. Yet prosecutors pointed out at least one of the transactions was discussed at a board of directors' finance meeting in 2000. Skilling, unwilling to give an inch, even tried to deny he was present at such meetings — even when he was listed in the minutes as being there. "Skilling prided himself on being a control freak. Now he's essentially arguing there was a complete breakdown of control," says Wynne. "He can't have it both ways."
Other experts point out that Skilling's credibility has already been damaged over charges of insider trading. He and his ex-wife Susan and soon-to-be-wife Rebecca all unloaded millions of dollars' worth of stock when Enron's fortunes started to plummet. When the prosecution pressed him about the coincidence, Skilling denied talking to them about the company's fortunes, testimony that his ex-wife confirmed, somewhat unconvincingly, in court. (The jury tittered when she said she "didn't pay much attention" to her ex.) "They directly impeached him on insider trading. His story's just not credible," says Houston attorney David Berg, author of The Trial Lawyer: What It Takes to Win. "The fact that he's been impeached on something so essential to the case tells the jury that he's not to be trusted on other testimony."
As brutal as Skilling's questioning got at times, Lay could be in for a harder time on the stand. Whistleblower Sherron Watkins has testified that Lay continued to tout the company to investors and employees even after she gave him dire warnings about the Enron's finances. Skilling met with Lay the same day as Watkins, but he swears the two never discussed her allegations. If Lay doesn't contradict his co-defendant, it raises the question of why he didn't bring up the issue himself with Skilling. Did he not believe Watkins? Or not trust Skilling? In the days after he saw her, Lay checked into the legal consequences of firing her — and he also sold Enron stock. Says attorney Berg: "I don't understand this Peter Pan defense. I just don't think it's going to sell in light of the impressive empirical data that Enron no longer exists."