HOUSTON (CNNMoney.com) - Enron's former chief executive Jeffrey Skilling conceded that in hindsight the company's off-balance sheet partnerships were a "horrible" idea but said those transactions had been blessed by trusted accountants and lawyers.

In his third day on the stand, Skilling testified that, based on the information he had in 1999 and 2000, he believed that the LJM partnerships - special-purpose entities the government contends were used to transfer millions of dollars in losses off Enron's books - were a good idea, adding that he "believed the benefits outweighed the risks."

Special Reportfull coverage Skilling gets 24 years Lessons from Enron: Just say 'sorry' Skilling's possible new home Skilling sentence likely to be a long one Meet the players Find out who you might have seen at the Enron trial, how they got involved, and what they're doing now. Launch gallery

But he said his opinion has since changed.

"It was a horrible idea. Based on what we know now, no, it was not a good idea," he said.

Still, Skilling said he relied on the expertise of both Arthur Andersen and internal accountants and lawyers who signed off on LJM and the Raptors hedging instruments, which were later approved by the board.

"Was there any doubt in your mind that you were being given improper advice?" asked Skilling's lead attorney Daniel Petrocelli. "No," he replied in a matter-of-fact tone.

At the heart of the defense is the notion that the financial transactions at Enron were so complex that both Skilling and his co-defendant, Enron founder Ken Lay, had to rely on accountants and top legal minds at firms such as Vinson & Elkins, considered the premier law firm representing the power industry.

Skilling's side argues that the special-purpose entities were not created to hide losses but rather to protect gains for Enron.

Skilling also denied prior testimony from former executive David Delainey that he was ecstatic when Delainey told him that he had set up an $800 million reserve account that could be used to bolster Enron's earnings or hide losses.

Skilling said the reserve account only held $363 million, not the $800 million Delainey stated. He admitted that he was relieved when Delainey, the former head of Enron's wholesale energy business, told him that the company had created a prudent reserve to deal with volatility in the energy market place.

"I may have kissed him; I certainly hugged him, but I may have kissed him," Skilling said. "You know... not like kissed, kissed" he added, as laughter filled the courtroom.

"You kissed Mr. Delainey because you thought he did something good, not something illegal?" Petrocelli asked. "That's right," Skilling responded.

Skilling said all of Enron's reserves were proper and put into place for a specific purpose and that the accountants knew that he wouldn't "appreciate" any "cookie jar reserves" – a term used to describe a reserve set up without a specific purpose that allows a company to dip into it to bolster its balance sheet.

"There were no cookie jar reserves at Enron," he said. "All of the reserves were properly established and being properly reserved or released."

He also denied that the company moved losses from its retail business into the wholesale energy business in order to hide those losses from Wall Street. Skilling said it was a business decision and there were no significant losses in retail at the time.

The defense, led by Skilling's attorney Daniel Petrocelli, has opted for a straightforward line of questioning as Petrocelli reads the list of charges from the government's indictment one by one. After each charge, Petrocelli asked his client in staccato fashion whether he had ever committed a crime or directed anyone else in the company to commit fraud in order to meet earnings numbers, eliciting a matter-of-fact "no" response from Skilling.

Skilling disputed a charge in the indictment that said he misled analysts on a February 2000 conference call by saying that Enron's "California business was small for Enron."

"I was surprised to see that," he said. "I never said that."

Petrocelli displayed a transcript from the call in which Skilling said Enron's exposure to California and its volatile energy market was small, not the business itself.

"You can have a gigantic business in California but if you have reserved adequately, exposure can be little," Skilling said, implying that the government took his statement out of context.

And when it came to the troubled broadband unit, Skilling looked exasperated as Petrocelli asked him if he started the business in order to artificially inflate Enron's stock price as the government contends.

"No, of course not," he replied irritably. "We thought it could be as big as the natural gas business."

Earlier in the day, Skilling vehemently denied that he and Ken Lay engaged in any criminal conspiracy to mislead the public about Enron's financial health.

He said he was not aware of any illegal activities at Enron, and was angry at the government for accusing him and co-defendant Lay of masterminding criminal conduct at the company. Skilling testified that the corporation had strong internal controls, and if he had learned about former financial chief Andrew Fastow's dealings, he would have informed the FBI then.

"I may have some hesitation about doing that now," he added sarcastically.

Defense attorneys representing Skilling and Lay have maintained that not only are the defendants innocent, but that there were no crimes committed at Enron, aside from the actions of Fastow and a handful of cohorts.

Tuesday, Skilling said former Enron executives were lying when they testified that he encouraged them to manipulate earnings in order to meet Wall Street targets. He said Enron's earnings estimates were a moving target that often changed up until the last minute. Further, Skilling said, as the company received an "unprecedented" benefit from the volatility in the California energy market, Enron often found itself with stronger-than-expected earnings in 2000.

While Skilling has been careful to appear calm and congenial - a far cry from the image presented by the prosecution of an arrogant, authoritarian who forced subordinates to fudge Enron's financial data - there were moments of indignation on the stand as he emphatically denied he had secret deals with former financial chief Andrew Fastow.

Those deals, which Fastow called "bear hugs," were purported to be guarantees that Fastow and his LJM partnerships wouldn't lose money by taking on risky Enron assets, and would actually earn a premium on their investment.

"Mr. Petrocelli, I don't even know what a bear hug is," Skilling said in an exasperated voice. "I had no agreement with Andy Fastow that would guarantee him a rate of return on a project. Period. Full stop."

Skilling's voice climbed as he declared "It's absolutely inconceivable that I would do such a thing."

It was one of the few displays of emotion in an otherwise controlled testimony.

While Skilling may be putting his best face forward by addressing the jury directly, remaining humble and explaining complex financial transactions in a helpful, almost professorial manner with no hint of condescension, the real test of control will come when the prosecution begins cross-examination.

Skilling, who has thus far relied mostly on either denying allegations raised by previous witnesses or simply saying he couldn't recall certain actions or comments that witnesses cited in their testimony, will have to offer explanations when prosecutors begin their cross-examination.

In a "he said, she said" case such as Enron, where there is no solid paper trail of malfeasance, it comes down to whom the jury believes. For Skilling, that means keeping the likeable persona up while also providing reasonable explanations for some of Enron's more questionable activities.

Lay and Skilling, who together face nearly three dozen fraud and conspiracy charges, are accused of lying to investors about the company's financial state while they enriched themselves by selling millions of dollars in stock.

Legal experts say the defendants could face 20 to 30 years behind bars if convicted of the charges. Lay will also face an additional trial for fraud once the current trial in Houston is over.

Enron was once the seventh-largest corporation in the U.S. It declared bankruptcy in December 2001, costing 4,000 employees their jobs and resulting in billions in losses for investors.

----------------------

For complete coverage of the Enron trial, click here.