HOUSTON — Brick by brick, prosecutors over nine weeks built their fraud and conspiracy case against former Enron Chief Executive Jeffrey Skilling. With Skilling now on the stand, his legal team is trying to dismantle that effort in the same methodical fashion.
Using the 28-count indictment against his client as a guide, Skilling lead attorney Daniel Petrocelli on Tuesday began focusing on allegations that Skilling manipulated earnings at the former energy trading giant, misled investors with false statements and deliberately approved financial reports he knew were wrong.
In each instance, Skilling denied the charges, or said he had no recollection of statements or situations attributed to him by prosecution witnesses since the federal trial began almost three months ago.
"At a time when the government says you started this criminal conspiracy, is there any reason the company needed to start breaking the law to continue its stock growth?" Petrocelli asked as Skilling's second day of testimony got under way.
"No," Skilling replied.
In his testimony to jurors, Skilling described a financially strong Enron in mid-1999, when the government alleges the conspiracy began, with earnings up 29 percent for the second quarter that year.
"That's a very, very significant growth," he said.
The daylong testimony Tuesday lacked the emotion of the previous day. Skilling alternated between a professorial and executive mode in his comments from the witness stand, occasionally directly addressing prosecution objections to questions put to him before his own lawyer responded.
But there was no repeat of tears wiped away by relatives Monday as Skilling described personal struggles of balancing his family and professional life when he decided to leave the company in mid-2001 and how it then imploded late that year.
Instead, Tuesday was filled with details and denials.
He denied cheating, lying or engaging in misleading transactions.
In response to a series of rapid-fire questions, he also denied sending e-mails to anyone asking them to lie or cheat, denied talking to small groups to encourage cheating or lying, or of huddling in "a basement, a garage," in Petrocelli's words, where he could talk covertly with others about lying and cheating.
"I am absolutely positive," Skilling said.
Skilling's testimony is among the most highly anticipated in the federal criminal trial — equal only to that of his co-defendant, Enron founder Kenneth Lay, who is to testify later in the case. Petrocelli said he was likely to finish questioning Skilling Thursday. Lay's lawyers said they were uncertain if they were going to question Skilling, who also is yet to face cross-examination.
Lay and Skilling are accused of repeatedly lying to investors and employees about Enron's financial health when they allegedly knew fraudulent accounting created a facade of success.
The two men say there was no fraud at Enron other than that committed by former Chief Financial Officer Andrew Fastow and a few others who skimmed millions from secret side deals, and that bad publicity as well as lost market confidence drove the company to seek bankruptcy protection in December 2001.
For most of Tuesday afternoon, including a period where Skilling drew a chart for jurors, he addressed one of the most notorious elements of the Enron scandal — partnerships created and run by Fastow to conduct deals with the energy company.
Fastow testified last month that Skilling told him, "Get me as much of that juice as you can," regarding the personally lucrative partnerships the ex-CFO used to manipulate Enron's finances.
Skilling said he didn't recall making that statement.
"I don't use the word 'juice' in that context," he said.
Fastow testified earlier in the trial that Enron turned to the partnerships to buy its own poor assets and investments so the energy company could hide debt and boost earnings. But Skilling said Fastow pitched the partnerships as a quick buyer for Enron assets, which the ex-CEO thought would serve as a quasi-insurance for the company.
"I was very interested in hedges," Skilling said. "We needed to protect our shareholders."
Addressing other items in the indictment, which stated he and Lay turned to illegal activity to enhance their professional prestige, Petrocelli placed in evidence published articles that lauded Skilling and Enron, including one story that ranked Skilling as one of the 100 most influential figures in the petroleum industry.
"I was perfectly happy with the way things were," he said, chuckling as he noted he was one of the few living persons on the published list that included the likes of John D. Rockefeller.
He said quarterly earnings results, which witnesses have said were manipulated to meet Skilling demands, changed at the last minute because of the fluid nature of the energy business, taxes, costs and record keeping.
"We did not have artificial mandates for growth," Skilling said.
Asked specifically if he ordered a change in the fourth-quarter earnings of 1999 to meet analyst expectations, "I absolutely have no recollection of that at all," he said.
Skilling briefly flashed his admitted penchant for a sharp tongue, firing back from a question related to allegations he ordered padding of second-quarter 2000 earnings by 2 cents a share through use of reserves or employing financial "levers" as stated in the indictment to beat Wall Street expectations.
"That is absurd," he barked, then recovered quickly.
"I'm sorry," he added. "That is not true."
Regarding false statements to analysts on conference calls, another element of the indictment, he said he never told anyone to change a prepared script to lie or mislead. A string of prosecution witnesses — including Fastow and seven other ex-executives who pleaded guilty to crimes — said they and Skilling lied to investors or hid bad news.
"Ever make mistakes?" Petrocelli asked.
"Yes," Skilling replied. "Sometimes I might stumble, leave a word out." He added that fellow Enron executives with him on the call typically would correct him if he misspoke.
"Ever tell analysts what knowingly was false?" his lawyer asked.
"No," Skilling said, noting that prosecution witnesses lied to jurors when they said he participated in such schemes.
While Skilling is charged with 28 counts of fraud, conspiracy, insider trading and lying to auditors, Lay faces six counts of fraud and conspiracy.
If convicted of all counts, Skilling faces a maximum of 275 years in prison and tens of millions of dollars in fines. An actual prison sentence would likely be only 20 years or more. Lay faces a maximum of 45 years in prison if convicted of the six counts against him.
Contributing: Kristen Hays