Special report: Enron on trial Full coverage
At Enron trial, defense can't rest
Lawyers for Ken Lay and Jeff Skilling have to take hard swings at government witnesses.
By Peter Elkind, FORTUNE senior writer

HOUSTON (FORTUNE) - Dan Petrocelli, Jeff Skilling's lead attorney, ended his questioning of the government's last big witness (former Enron treasurer Ben Glisan) the same way he did with his questioning of its first (former investor relations chief Mark Koenig) -- on an oddly sympathetic (and disingenuous-sounding) note.

After battering Koenig for days in early February, accusing him of lying to implicate his client, Petrocelli had sent him from the witness stand with the words: "I just want to say, on behalf of Jeff Skilling, we wish you all the best."

The happy days may seem distant to former Enron bosses Ken Lay (left) and Jeff Skilling (right), now on trial in Houston.
The happy days may seem distant to former Enron bosses Ken Lay (left) and Jeff Skilling (right), now on trial in Houston.
Find out who you might have seen at the Enron trial, how they got involved, and what they're doing now.
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On Monday, the defense lawyer ended his questioning -- after previously accusing Glisan of having "lied all day" during his government testimony -- by returning to his theme that Glisan was motivated by his desperation to convince the government to shave his prison term. In fact, prosecutors have already refused to back a sentence reduction, and he is scheduled for release this fall.

"I hope you do get cut loose, immediately after you walk off the witness stand," Petrocelli told Glisan.

In fact, Glisan's prosecution testimony had been even more damning to Ken Lay, who had made a point of denouncing Glisan's "lies" to reporters. But after court adjourned on Monday, Mike Ramsey, Lay's lead defense attorney, pronounced the damage all un-done. "I think this witness has been neutered," he said outside the courtroom.

It seemed strange that this particular neutering effort had been conducted not by Ramsey, a legendary Houston criminal lawyer, but by Dallas litigator Bruce Collins. As Collins methodically grilled Glisan, Ramsey sat impassive in a back seat at the defense table, having yielded his chair next to Lay.

He looked tired and seemed to be struggling to remain alert, much like the jury, as the dry questioning dragged on throughout the morning. Indeed, Ramsey -- who three years ago remarkably won the freedom of a man who admitted to dismembering his neighbor -- has underwhelmed so far in this trial.

'If they have to bring me in on a gurney...'

That peculiarity was explained at the end of the day, when Ramsey revealed to a group of reporters that he had suffered several "coronary events" during the trial, and after medical testing that revealed a major blockage in his arteries, had a stent placed in his heart on Friday during a brief hospitalization.

Remarkably, the 65-year-old Ramsey insisted his condition "will not interfere with the trial" because "there are plenty of backup people here." Ramsey swore that he wouldn't miss a minute of the trial. "If they have to bring me in on a gurney, I'm going to do it," he declared. He said he is now feeling "a helluva lot better."

As Collins labored to poke holes in Glisan's testimony that he had advised Lay the company was in dire straits, and to challenge Gilsan's pronouncements that Enron's accounting had been fraudulent, the jury's attention seemed to flag.

What might be termed the "Head-Down Factor" -- the number of jurors directing their attention downward, rather than at the witness or his interrogator -- at times exceeded 50 percent. And no wonder. Collins, among other subjects, had led Glisan through a review of an accounting rule known as FAS 121. "There's a lot of complexity there, is there not?" he asked.

"Yes, there is," Glisan acknowledged.

The defense is arguing that Enron was brought down by a combination of an "attack" by short-sellers and negative media stories, triggering a "run on the bank" that drained the company's liquidity. Glisan had testified that the company's troubles resulted from serious, hidden problems in its business, of which investors were belatedly becoming aware.

On re-direct, prosecutor Kathy Ruemmler introduced an October 22, 2001 memo circulated at high levels in Citigroup's (Research) investment banking division reporting concerns from bankers digging deeply into Enron's books, after the company requested a big loan.

By then, Glisan testified, the company was facing big liquidity problems, and Wall Street was deeply troubled by Enron's penchant for oh-so-clever structured-finance deals that hid debt and "manufactured" earnings and cash flow.

Glisan, the memo noted, "knows it's game over if they lose their [credit] ratings..." In the memo, the banker reported advising Glisan on the need for better controls, a "cash snapshot," and the best focus for a planned conference call with Wall Street: "I repeated our mantra: real cash, real asset values, real liabilities."

The memo also noted that the market was looking for CFO Andy Fastow "to move," adding: "The architect of the strategy is not the guy to unwind it."

Fastow was fired two days later.

Skilling's stock sale

The next witness was Skilling's stock broker at Charles Schwab (Research), who set the stage for the government's charge that Skilling had unloaded a big block of his Enron shares based on insider information -- and later lied about it in sworn testimony to the SEC.

Glenn Ray, a high-net-worth broker based in Colorado, reported that Skilling had first placed an order to sell 200,000 shares on September 6, less than a month after he abruptly resigned as CEO.

That order hadn't gone through because Schwab wanted paperwork from Enron declaring that Skilling's stock sales were no longer restricted under SEC rules. The paperwork would be sent, dated September 10.

On September 17 -- the first day of market trading after the attacks on the World Trade Center -- Skilling called again, this time placing an order to unload 500,000 shares (out of more than 900,000 he owned outright).

A taped phone call played for the jury captured Skilling telling the broker "I would prefer they [Enron] not know I'm considering selling" (Ray later noted that most of his clients prefer to keep their sales quiet), and worrying that further delays in the free-falling market would be expensive.

"If this is a cover your ass and it costs me a lot of money, I am not gonna be happy," Skilling told him. "I'm worried. You know that the market is dropping now."

After a brief holdup, the $15.59-million sale went through that day.

With the broker's testimony over, prosecutors read Skilling's December 6, 2001 testimony to the SEC, where he swore that the terrorist attack was what triggered his stock sale -- notwithstanding his taped attempt (which government investigators discovered later) to sell 200,000 shares five days before September 11.

Indeed, Skilling went on at length to the SEC about how much he believed in the company and hated to part with his Enron shares. "And then September 11 happened. And then I got scared," he testified. Skilling had told the SEC that he was worried a stock-market meltdown would drag down Enron shares.

"I like my Enron stock, but I was scared after September 11th."

Suspicious that Skilling had engaged in illegal insider trading, SEC attorneys pressed him: "Is there any other reason other than September 11?"

"There was no other reason other than September 11th that I sold the stock," Skilling replied. "...Oh, I agonized over it -- absolutely agonized over it!"

This is clearly a subject Skilling will be asked about when he takes the stand in his own defense, as he (and Lay) have promised to do. With the prosecution expected to rest today, Skilling's turn could arrive in just two more weeks. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.