Defense Chips Away at Accusations in Enron Trial

HOUSTON – With former Enron Corp. CEO Jeffrey Skilling poised to take the witness stand in his own defense, jurors at the fraud and conspiracy trial of Skilling and Enron founder Kenneth Lay were told of the company's prolonged but unsuccessful efforts to unload troubled assets.

Prosecutors have said that Skilling gave the go-ahead for partnerships run by former Enron Chief Financial Officer Andrew Fastow to buy poorly performing assets and investments to warehouse them and help Enron boost earnings.

But Mark Metts, a former top mergers and acquisitions executive at Enron who was involved in negotiations that hoped to sell billions of dollars in assets, testified Tuesday that when he suggested Fastow was getting preferential treatment in a deal to buy a wind power project, Skilling responded he wanted Fastow to "play by the same rules" when bidding against potential buyers.

Lead Skilling lawyer Daniel Petrocelli said Tuesday he will call two witnesses Wednesday, and if they remain on the stand all day as expected, Skilling will begin to testify Thursday. Lay intends to testify as well, and may do so right after Skilling.

Metts said his suggestion involving the "Project Wind" deal earned him a tongue-lashing from Fastow in a 10-minute phone call where Fastow did most of the talking, screaming at him that "I was out of my mind that he was being treated special."

"He was very hostile in a very `You're in trouble' sort of tone," Metts said.

Fastow also sent an e-mail to Skilling, questioning in April 2001 whether his LJM partnership was being put at a disadvantage at the expense of what was best for Enron, according to evidence.

Within weeks, Metts was demoted and put under the supervision of Fastow, who testified last month that the second of his partnerships, LJM2, was created to deposit poor Enron assets and investments so Enron could hide debt.

"I wasn't there for long anyway, so it didn't matter," said Metts, now a partner at a Houston law firm and specializing in mergers and acquisitions.

"Project Wind" ultimately was sold, but not until after Enron in December 2001 had filed for bankruptcy protection. By then, Skilling had resigned and Fastow had been fired.

Former Enron general counsel James Derrick and Max Hendrick III, a partner at Vinson & Elkins, Enron's former outside law firm, were to testify Wednesday. Both were expected to address an internal investigation into prescient concerns raised to Lay by former Enron executive Sherron Watkins in August 2001 that accounting tricks could undercut the company.

Skilling will follow Hendrick and Derrick, and will be on the stand "a number of days," Petrocelli said.

Skilling faces 28 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces six counts of fraud and conspiracy.

In other testimony Tuesday, lawyers picked away at parts of the government's allegations, disputing earlier testimony that layoffs were disguised as reassigned jobs. Other testimony focused on a troubled power project in India where Enron spent more than $1 billion and eventually settled for $20 million.

The testimony took place without the presence of Lay's lead lawyer, Michael Ramsey, who is undergoing additional tests after a stent inserted in his heart last month failed to solve health problems. Ramsey has been absent all week.

Lay said he and the rest of his legal team would carry on without seeking a trial interruption.

Marla Barnard, a former human resources supervisor for Enron's struggling broadband division, testified Tuesday that people who moved from the flailing venture in March 2001 were given opportunities to shift assignments, dubbed "redeployment," disputing earlier testimony that most were laid off or targeted for layoff.

In February Kenneth Rice, the division's former chief executive officer, testified for the prosecution that Skilling told him to characterize layoffs at the unit as redeployment so some 250 employees would believe they would keep their jobs and analysts who influenced the company's stock would remain bullish on the weakening venture.

Also Tuesday, Wade Cline, Enron's current general counsel, told jurors about his efforts to help the company recoup its $1.2 billion investment in a 2,184-megawatt Dabhol power project in Western India in 2001. His testimony was intended to counter Fastow and former Treasurer Ben Glisan Jr., who both said they warned Lay in August and October 2001 that the Dabhol project was overvalued and could contribute to massive write-offs.