Special report: Enron on trial Full coverage
Enron testimony: Details, details!
Testimony from V&E lawyers and Enron former general counsel drags on as the minutiae of in-house investigation is revealed.
By Bethany McLean, FORTUNE editor-at-large

NEW YORK (FORTUNE) - Even if you're an Enron junkie -- meaning that while most in the courtroom are groaning about endless accounting detail, you're sitting on the edge of your wooden bench, rapt -- you would have found Wednesday's testimony trying.

The defense wants to get Skilling on the stand today, but ideally, they'd like to have him deliver some dramatic personal testimony -- testimony that lingers in the jury's mind for the weekend -- right before court adjourns for the week.

Former Enron CEO Jeffrey Skilling arriving at the courthouse in Houston Thursday.
Former Enron CEO Jeffrey Skilling arriving at the courthouse in Houston Thursday.
Find out who you might have seen at the Enron trial, how they got involved, and what they're doing now.
Launch gallery

And so, maybe in an effort to get the timing right, defense attorney Mark Holscher dragged out witness Jim Derrick's testimony to the point of serious stultification. There was a collective sigh of relief when Judge Sim Lake ended the day at around 4:30 p.m.

Most of the morning was spent not with Derrick, Enron's former general counsel, but with Vinson & Elkins attorney Max Hendrick III. In effect, Hendrick testified that the investigation his firm performed in the fall of 2001 into Sherron Watkins's allegations -- which many would later call a whitewash -- was indeed a serious investigation.

(The write-up Hendrick prepared for his presentation to Ken Lay and Jim Derrick notes that there was to be "no second guessing of accounting treatment by Arthur Andersen" and "no discovery-style investigation.")

Hendrick, a professorial-looking type with thinning grey hair and glasses, never cracked a smile. In fact, he looked utterly miserable sitting on the witness stand -- the wrong end of questions for any lawyer -- especially when prosecutor John Hueston asked him about the degree of his independence from Enron.

Hendrick acknowledged that V&E worked on some of the very same issues it was now being asked to look into, and earned between $35 million and $40 million a year in fees from Enron -- and that Hendrick and Derrick are so close that today, they're considering starting a firm together. Even Ken Lay made a face when that fact came out.

"Take a good hard objective look," Watkins had urged in her now-famous memo to Lay. Perhaps not surprisingly, V&E concluded, after its review, that no further investigation of Watkins's claims was necessary.

Blow-by-blow from the "independent" in-house investigators

On direct examination, Hendrick offered a blow-by-blow (by blow) of the questions that he and V&E partner Joe Dilg asked.

Here's a stunner: Dilg and Hendrick asked both Andy Fastow and Rick Causey if they had any kind of secret side deal in which Enron guaranteed LJM a profit, and Fastow and Causey said no! Imagine that!

And so, Hendrick's notes conclude that there was "no agreement between Enron and LJM that LJM would not lose money on transactions." Later, Hueston asked Hendrick if he was surprised that someone engaged in a fraud would deny it.

Hendrick conceded that no, that wasn't uncommon. At least two of the more expressive members of the jury smirked at each other on hearing this exchange.

Despite the constraints on V&E's "investigation," Hendrick's notes also reflect several interesting findings that he and Dilg made. One was that Enron's accounting was "aggressive." Another was that Enron's deals had "bad cosmetics," meaning that they "would not look good if subjected to Wall Street Journal expose or class action lawsuit."

"What we were trying to convey and did convey is that these could pose a significant risk of adverse publicity and litigation," Hendrick testified.

But if, as the defense has said, everyone already knew all about Enron's deals and "loved" them, why was an expose problematic? Hmmmm.

Lawyer sets the stage for Skilling and Lay

Then came Derrick himself, a short, compact man with a head of dense salty grey hair and an oddly chipper manner. "Good afternoon," he said with a big smile as he took the stand.

If Derrick, who by Enron's end headed a small law firm of 250 in-house lawyers, said anything of critical importance during his afternoon of testimony, most of us in the courtroom missed it amid a slew of exchanges like the following: "Did Andy Fastow disclose that he and others were siphoning off money?" from Enron, asked defense attorney Mark Holscher.

"He did not," responded Derrick.

In fairness, Derrick also testified about all the legal procedures in place at Enron, and while that wasn't exactly scintillating, it helps lay a foundation for the appearance of Skilling and Lay, who will likely testify to the armies of accountants and lawyers at Enron who signed off on everything.

If you glanced over at Judge Lake, you might have seen his eyebrows, which often seem to be the most expressive part of his face, moving up and down at an alarming pace. Was he engrossed in the testimony or wondering where Holscher was headed?

And if you looked at Jeff Skilling, you'd likely have seen him engaged in intense conversation with his lawyer, Daniel Petrocelli.

Will they both be ready for today and the week ahead?

__________________

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Most stock quote data provided by BATS. Market indices 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.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.