HOUSTON (FORTUNE Magazine) - It's the fifth week of the Enron trial, and life inside the Houston courtroom has taken on a familiar rhythm. The lunch break begins at 11:45. The same lawyers and journalists fill most of the seats every day. And a buzz has been building around the witness whose testimony everyone -- but everyone -- is dying to hear: Andy Fastow, Enron's former CFO.

Fastow has long been perceived as the cornerstone of the government's case. But one of the surprising things about this trial is that it's not shaping up that way at all. Because he admits to having stolen millions, among other crimes, Fastow is the prosecution's most vilified, easily discredited witness. And the defense, which has cast him as the only source of evil at Enron, has made it clear it intends to go after him between the eyes with a sledgehammer.

Former Enron CFO Andrew Fastow will testify against his former bosses Ken Lay and Jeff Skilling.

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So rather than stake everything on Fastow, prosecutors have cut back his role in their case. What's striking is how much damaging evidence the government has already presented about lies, deception, and mounting problems at Enron -- even before swearing in Andy Fastow.

From the opening statements the defense has claimed that Enron was a great company, a "shining star," as Jeff Skilling's lawyer, Daniel M. Petrocelli, put it. Thus, the argument goes, it's absurd to suggest that Skilling and Ken Lay were hiding something because there was simply nothing to hide.

That position looks less plausible day by day. Earlier in the trial, former Enron Broadband Services chief Ken Rice detailed the desperate reality of his much-hyped technology business. Now the company's highly touted retail energy arm, Enron Energy Services, has been spectacularly filleted by its own former CEO, David Delainey. "It was a basket case," he told the jury.

Indeed, Delainey, whom Skilling had viewed as a future Enron CEO -- at times Skilling almost seemed to smile as Delainey jousted with the defense lawyers -- may prove a more valuable government witness than Fastow. Delainey described the retail division he took over in early 2001 as secretly drowning in "screwed up" contracts, hundreds of millions in uncollectible debts, speculative trading losses, and inadequate systems.

Delainey's testimony was devastating enough to merit a scathing assault on his credibility by Petrocelli. "As I understand your story," Petrocelli began his cross-examination, "you're now saying that you lied repeatedly when you were working at Enron. Is that right?" (As Petrocelli came at him, Delainey, a droll Canadian with a trader's moxie, responded with a grin. "You think it's funny?" demanded Petrocelli.)

Yes, Delainey readily acknowledged, he did lie -- to investors, employees, and, for months, to government investigators. But now he was telling the truth, he said, after pleading guilty to insider trading and signing a cooperation agreement with the government in late 2003.

Delainey detailed more than $1 billion in undisclosed losses at EES, much of which was then hidden in the company's highly profitable trading business under what he called a "cover story" of organizational efficiencies.

Delainey fingered both Lay and Skilling -- who repeatedly told investors that EES was profitable and growing rapidly -- as participants in the deceit. Delainey testified, for example, that Lay, in a January 2001 meeting, had offered his bland endorsement to Delainey's suggestion that a mushrooming $500 million bad debt be moved from "the little bucket" (EES) to "the big bucket" (Enron Wholesale), with the comment: "Dave, that sounds like a good idea."

Then he described a March 29, 2001, meeting in Skilling's office--two days before the end of the quarter--at which Skilling approved an emergency plan to avoid reporting a $225 million loss resulting from a just-imposed surcharge by California regulators. Instead, Delainey testified, the losses would be transferred to wholesale, under the pretext of a "resegmentation."

Delainey testified that he'd gotten "cold feet" about the scheme and objected to it at the meeting, saying the move "lacked integrity." According to Delainey, Skilling responded, "What do you want to do?"--a message he took to mean "Get in line."

Grilled about this interpretation, Delainey called the loss transfer "the worst conduct I have ever been part of," adding, "Everyone in that room knew exactly what was going on." The move's "only business purpose was to hide those losses." He later added: "I wish on my kids' lives I could have got up and stepped away from that table that day."

Three weeks later Enron reported EES made a $40 million first-quarter profit.

In fact, despite all the talk about shining stars, Lay's and Skilling's lawyers are increasingly taking refuge in the notion that, okay, maybe Enron did play close to the edge -- but the accountants and lawyers signed off on it all. Thus far, the defense lawyers have attacked witnesses for lacking knowledge of financial arcana. That's led to some courtroom hilarity, such as when Lay lawyer Bruce Collins asked former investor relations deputy Paula Rieker, in a condescending tone, what she knew of accounting. Rieker calmly replied that it was her minor in college and that she obtained her CPA license while working at Enron. Petrocelli landed himself in the same spot by sarcastically asking Delainey, "Are you an accountant?" Delainey replied: "I am, actually." Fast on his feet, Petrocelli fired a volley of questions about Delainey's accounting knowledge.

Prosecutors have also taken aim at what they privately call the "big lies" -- such as the defense's assertion that Enron was really an investor-friendly "logistics company," generating the safe, predictable earnings growth Wall Street loves.

Again, the government had a powerful witness: Tim Belden, who ran Enron's West Coast power trading shop, which raked in hundreds of millions during 2000 and 2001. Belden, a thin, poker-faced man who once worked as a researcher at the Lawrence Berkeley National Laboratory, masterminded Enron's successful (and partly illegal) efforts to cash in on deregulation of California's electricity markets. (He has pleaded guilty to conspiracy to commit wire fraud.)

Belden was perfectly positioned to describe how heavily the company's profits depended on risky trading and price volatility--a reality Skilling and Lay had repeatedly denied to assure investors that Enron's stock deserved a premium multiple. Shown one such comment in 2001 by Lay ("We're not a trading company. We are a logistics and service company"), Belden responded, "The statement is false."

"We were traders," Belden insisted. "The money we made was completely dependent on whether the price [of energy] went up or went down." This was especially true in California, Belden testified, where regulatory "chaos drove the high prices, and high prices drove our profits."

Belden, who has a bit of the manner of a mad scientist, presented a difficult target for cross-examination. He responded to challenges from the defense with a blank, blinking stare. Randy Oppenheimer, another Skilling lawyer, labored to get Belden to acknowledge that he didn't have a full view of Enron's operations, but didn't get far.

"I didn't hear a question," Belden said, after an extended windup. Asked to consider a different way to calculate Enron's profits, Belden looked at the defense lawyer like he was a crazy man, then responded, "That is algebra, and you could do it, yes."

Another light moment came as Lay defense attorney Mike Ramsey suggested Belden agreed to cooperate with the government following a "risk analysis" of his personal legal situation. "Lawyers are expensive, aren't they?" Ramsey asked. "I've learned that, yes," said Belden. And for the first time, he cracked a faint smile.

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