HOUSTON (FORTUNE) - Listening to defendant Jeff Skilling Wednesday in Houston, as he headed into the home stretch of his stint on the witness stand, it was scary to think about how the world of business might operate under the approach he is defending in court.

By Skilling's rules, it would be perfectly fine to tell investors and analysts things that weren't true if the truth could perhaps be discerned from the fine print in your annual report. That was the message from a particularly stunning stretch of his cross-examination, on the hotly contested subject of whether Enron was - or wasn't - a trading company.

Former Enron CEO Jeffrey Skilling heads to the federal courthouse in Houston.

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For those of you arriving to the scene late, this issue was critically important to analysts and investors, because Wall Street is wary of the volatile profits produced from risky speculative trading, and gives trading companies (such as Goldman Sachs (Research)) a considerably lower stock multiple than companies with more predictable earnings.

For years, Skilling - eager to maintain a premium multiple - had vehemently denied that Enron was an energy-trading shop, insisting that it was instead a "logistics company," with steadily growing, "sustainable" earnings. The government is alleging these assertions were a cornerstone of the Enron fraud, deceiving investors about the risky nature of the company's business.

After strong testimony from government witnesses - including the head of the West Coast trading desk and the former CEO of the entire wholesale division (which generated more than 85 percent of Enron's profits by 2001) - Skilling had edged away from that position during his direct testimony. He testified that what he really was telling Wall Street was that Enron was "more than a trading company."

On Wednesday, prosecutor Sean Berkowitz took dead aim at that claim, suggesting that Skilling had for years lied to analysts and investors.

"You're certainly aware that the market was concerned that a portion, a large portion of these earnings were coming from trading activity - and by trading activity, I mean speculative trading activity?" he began.

"Yes," replied Skilling.

Hadn't he told the market that Enron had no such exposure? Berkowitz asked. Hadn't he told Wall Street that Enron's profits weren't affected by gyrating energy prices?

Nonsense, Skilling replied. Enron had engaged in "a much more complex discussion" on the topic.

And what did he mean by this?

The marketplace, Skilling testified, always knew what trading risks Enron was taking on because the company published a passage on its Value at Risk - which purports to be a measure of how much money a trading company could lose on its positions - in its annual report.

"We communicated to the market our net VAR position, which was a very well-known factor for determining what our exposure was to commodity prices," Skilling explained.

Berkowitz tried again. "Were you communicating to the marketplace that Enron had virtually no exposure to commodity price risks?"

"No," Skilling responded. "We published VAR."

To Berkowitz's suggestion that average investors might not understand precisely what the incredibly complex VAR calculation implied about the riskiness of Enron's business, the former CEO replied, "We had a decade of discussion with our investors, we talked about leaning into the wind, we talked about position-taking within our VAR limits. They knew exactly what our position was."

Suggesting that even sophisticated investors didn't, Berkowitz then read passages from a March 2001 FORTUNE article quoting market analysts complaining that Enron provided far too little information for them to understand how the company made its money.

He followed this by introducing a series of broad assurances Skilling had given investors, such as this one at a January 25, 2001, analysts conference: "You know, some people have said Enron is a trading business. Let me hit that one head on. We are not a trading business. We are a logistics company....That is a sustainable franchise that will generate high income for our shareholders into the future..."

Berkowitz then asked Skilling about a conference call he'd held in August 2001 with managers at Alliance Capital, the giant asset-management firm, which Berkowitz said was then one of Enron's largest shareholders. Skilling began to squabble about whether Alliance, which owned millions of shares, was really a large investor.

"...They were holding those shares on behalf of people, correct?"

"Yes, that is exactly right, Mr. Berkowitz."

"And those people mattered, and they deserved the truth, didn't they, Mr. Skilling?"

"If we can't deal with VAR limit," Skilling sputtered - "...they had exactly the information they needed to know the risks that we were taking in the wholesale business."

"Would you agree with me, on August 3rd...it mattered what you told them....They deserved the truth, didn't they, Mr. Skilling?"

"Yes, they did."

Skilling remembered the call - and he could see what was coming. He insisted that Alliance "had a number of people who were new to the Enron account, to the telephone call," who "did not understand VAR" - even though he had discussed it on the call. Which, of course, raises doubt about VAR's ability to spell out Enron's appetite for trading risk.

"Confusing stuff, isn't it, Mr. Skilling?" jabbed Berkowitz. And with that, he went to the audiotape.

There, Skilling was asked if a collapse in energy prices would affect the company's profits. "It isn't the case," he replied. "We don't have a commodity exposure. I don't care if prices go up or down...The price is $60, you know, I'm kind of in the same position as when the price is $5. It doesn't really matter very much."

He later added: "I'm balancing my position. The positions are balanced....it's probably the most important point I hope you take away from this. We have a unique strategy relative to any other merchants...in every single case, they have a significant commodity price exposure in their portfolio."

In response to another question, he insisted that the company - which made a fortune on speculative trading from skyrocketing prices in California - hadn't really made any "incremental profits" there from volatility. "We made money in California by delivering more volumes," he said.

By Skilling's argument, it was OK for him to say things that weren't true, because everyone - everyone! - knew about Enron's VAR information and what that meant.

(Alliance kept buying Enron stock after its call with Skilling. By the end of September, it was Enron's single largest shareholder, with 43 million shares - and took a huge loss as the company fell into bankruptcy, selling millions of shares for less than a dollar.)

Altogether, it was another contentious day, with Skilling battling Berkowitz over every question, large and small.

Asked at one point if he had received a memo from a company deputy, Skilling replied: "I don't think it was a memo; I think it was a sheet of paper."

For complete coverage of the Enron trial, click here.