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US: Prosecutors Shift Focus on Enron

by Alexei BarrionuevoThe New York Times
January 11th, 2006

Since its collapse in late 2001, the Enron Corporation has baffled investors and the public alike with its byzantine accounting and convoluted transactions, which reaped millions of dollars for executives and ultimately helped bring down the company.

But in recent weeks, government lawyers who will try the case against Enron's former chief executives, Kenneth L. Lay and Jeffrey K. Skilling, have signaled that they intend to spend less time befuddling jurors with talk of Enron's accounting.

Instead, at the trial set to begin Jan. 30 in Houston, prosecutors will focus more on charges that Mr. Lay and Mr. Skilling lied to investors, employees and accountants by painting a positive picture of the company's finances at a time when both men were selling Enron stock.

In its latest witness list, filed on Friday, members of the government's Enron Task Force deleted 17 witnesses who would have offered testimony on accounting matters. The witnesses removed include auditors and accounting managers from Enron and its outside auditor, Arthur Andersen, which also collapsed after being indicted for actions related to its work on Enron.

Still on the government's list are 65 witnesses, including a mix of Enron executives, credit analysts, energy traders, Enron board members and journalists.

The list includes Andrew S. Fastow, the former chief financial officer, who pleaded guilty in exchange for a 10-year sentence, and Ben F. Glisan Jr., Enron's former treasurer, who is now serving a five-year sentence. But it does not include the former chief accounting officer, Richard A. Causey, who is now cooperating with the government. Mr. Causey pleaded guilty last month.

The gradual shift away from technical charges that Enron executives cooked the books and concocted accounting schemes to enrich themselves reflects a government strategy, said lawyers not involved with the case, to focus on what jurors and the public at large can more easily understand: that the men at the top may have lied about Enron's condition and the risks it faced.

"The government is always, in white-collar cases, trying to prove lying, cheating and stealing," said Thomas A. Hagemann, a lawyer with Gardere Wynne Sewell in Houston. "They are going to go to an area where they think they can most easily do that beyond a reasonable doubt."

Richard J. Schaeffer, a defense lawyer involved in one recent Enron trial involving the sale of barges in Nigeria, said that government prosecutors might have learned a lesson last summer when a federal judge declared a mistrial on all but a handful of 164 counts against five former Enron executives who were accused of overstating the strength of the company's broadband services division.

"Very often, trying to explain these types of accounting cases can be very boring, very confusing and very time-consuming to jurors," said Mr. Schaeffer. "Black and white issues like a defendant said something to someone are more easily appreciated and more quickly understood by a jury."

Daniel M. Petrocelli, Mr. Skilling's lead lawyer, said the shift indicated the prosecutors' realization that its case was weak on the accounting charges.

"As the government gets close to the trial they realize they have no accounting fraud case, so they are now moving away from it," Mr. Petrocelli said.

But Michael W. Ramsey, Mr. Lay's lead lawyer, offered a slightly different reason for the paring of the witness list. He said the government was eliminating witnesses who might dispute the testimony of others, thus minimizing juror confusion.

Mr. Ramsey also noted that the government list did not include David Duncan, who had served as the lead partner for Arthur Andersen on the Enron account. He had originally pleaded guilty, but after the Supreme Court overturned Andersen's conviction last May, Mr. Duncan sought last November to change his plea to not guilty. His request is pending with the court.

"If they don't call David Duncan, it will be a thunderous silence," Mr. Ramsey said.

Kathryn H. Ruemmler, the deputy director of the Justice Department's Enron Task Force, declined to comment.

The broadband case was the second Enron case to go to trial. In November 2004, a Houston jury convicted five of six defendants of conspiring to help Enron report bogus profits on the sale of an interest in barges in Nigeria.

The trial of Mr. Lay and Mr. Skilling is expected to last at least three months. Both are charged with conspiracy, fraud and insider trading, among other charges. Both have pleaded not guilty.

To prove its case against Mr. Lay, the government is seeking to dig deep into his tenure at Enron, the company he founded and, with Mr. Skilling's help, transformed from a once-staid pipeline business into a global energy-trading giant. In a court filing on Monday, the task force reiterated its intent to call four witnesses who will explain how Mr. Lay "lied and misled his employees and the larger investor community" in 1987 about oil trading losses attributed to Enron's Valhalla, N.Y., offices. The government called Mr. Lay's actions a "whitewash" that was "simply proof of what was known to Lay and his fraudulent effort to portray himself as duped and unknowing."

Mr. Lay's lawyers have sought to exclude evidence from the 1987 incident.

But as the government moved to limit evidence that could tranquilize jurors, defense lawyers signaled in court papers that they might add some spice to the trial. They will try to discredit government witnesses by inquiring about their mental health and their use of drugs, pornography and prostitutes.

One unnamed witness had "pornography habits, which were so extensive that when his computer files were seized they were submitted to the F.B.I. for criminal investigation," defense lawyers claimed in court filings. An individual involved in the case said the computer in question belonged to Mr. Fastow.

The defense lawyers also filed a motion to try to compel the government to release transcripts of depositions of John Lavorato, a former high-ranking trading executive at Enron, by Securities and Exchange Commission lawyers.

Mr. Lavorato seemed to refute government charges that Mr. Skilling manipulated earnings in late 2000 by using liquidity reserves, according to a summary of Mr. Lavorato's testimony included in the defense filing. The testimony "establishes that each reserve was appropriate and approved by Arthur Andersen," the defense lawyers say in the filing. Mr. Lavorato, who lives in Canada, has told defense lawyers that he will not come to the United States to testify and, if compelled, will invoke his Fifth Amendment rights, the lawyers said.

The Enron Task Force has refused to release the transcripts of dozens of interviews by the S.E.C., arguing successfully that the transcripts are hearsay because Justice Department lawyers were not involved in the depositions.

Members of the Enron Task Force declined to comment on the filings. Prosecutors this week also revived their bid to tie Mr. Skilling and Mr. Lay to energy-trading schemes, nicknamed Deathstar, Fatboy and Ricochet, that helped cause severe blackouts and soaring energy prices in California in 2000 and 2001. The government is seeking to play audiotapes in which traders discuss "stealing" from consumers by overcharging for electricity.

United States District Judge Simeon T. Lake III has yet to rule on the motions.



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