Long trials tend to settle into a rhythm, and the criminal trial against former key Enron executives Ken Lay and Jeff Skilling is no exception.

After four weeks of trial, the prosecution has put on three substantive witnesses. Each one has gone through a heavily-scripted direct examination in which they confidently accuse Lay and Skilling of making various misleading statements to the investing public and employees.

Then, defense attorneys on cross-examination chip away at the prosecution witnesses’ testimony on direct, and the witnesses gradually become far less decisive in their accusations than they were during their testimony on direct examination. Much of the testimony is quite boring, but — as with a baseball game — short bursts of really interesting activity breaks up the tedium. And U.S. District Judge Sim Lake provides a steady hand and a dry wit to the proceedings.

The testimony this week of former Enron investor relations executive Paula Rieker was a case in point.

The prosecution rolled through direct examination of the business-like Ms. Rieker in a little less than a day, and the prosecution appeared to score some jury points when she testified on Tuesday afternoon that an Enron director characterized (how was this not excluded as inadmissible hearsay?) Lay’s use of the line of credit component of his compensation package “as an ATM machine.”

Then, Bruce Collins, the member of the Lay defense team who handled cross-examination of Ms. Rieker, opened his cross-examination on a questionable note, suggesting in a question to Rieker that Lay’s draw of about a million dollars on his company line of credit days before the company filed its chapter 11 case was just “a drop in the bucket” given the magnitude of the company’s other matured liabilities at the time.

Inasmuch as Rieker’s “no, sir” response to that question was probably the same as every juror would have answered if asked the same question, Tuesday concluded as a good day for the prosecution, particularly in its case against Lay, who had barely been mentioned by the first two witnesses, Mark Koenig and Ken Rice.

Collins steadied himself over the next day and a half of cross-examination and methodically took Rieker through each one of her accusations against Lay, and she conceded that Lay had never asked her to make any misleading statements or to do anything wrong, for that matter.

However, Rieker was composed responding to questions from Collins and she often extrapolated on her answers despite Collins’ attempts to cut off her off. Thus, a day and a half of initial cross-examination was rather dull in comparison to the relative excitement of Rieker’s Tuesday afternoon testimony.

But that all changed quickly when Skilling lawyer Daniel Petrocelli began his cross-examination late yesterday morning.

In as effective cross-examination of a difficult prosecution witness that I have seen in awhile, Petrocelli immediately disassembled Rieker, catching her right off the bat in a lie about her duties at Enron (“I overstretched,” conceded Rieker).

He then took her through the extraordinary compensation that she had earned ($5 million combined in 2000 and 2001 alone) and the confidential $300,000 bonus that she had accepted from the company just three days before Enron declared bankruptcy (how on earth did the prosecution not attempt to diffuse that fact by bringing it out on direct?).

You were being paid all this money and you never told Skilling or Lay that they were making misleading statements?, Petrocelli effectively asked Rieker repeatedly.

Almost instantaneously, the previously poised Rieker became tense and agitated, and her answers to Petrocelli’s questions increasingly were evasive and often simply non-responsive.

The prosecution’s frequent objections (most of which were overruled) to Petrocelli’s questioning only underscored how effective Petrocelli’s cross-examination was in bringing the best prosecution witness in the trial to date back down to earth.

By the time Petrocelli had Rieker admitting that neither Skilling nor Lay had ever asked her to do anything wrong and that she had not been involved in any criminal activity in her position at Enron other than the insider trade on which her plea deal is based, the Enron Task Force lawyers had to be asking themselves “what happened to that advantage we had after Tuesday?”

Consequently, despite the enormous public relations advantage that the Enron Task Force enjoys in this case, my sense is that the Task Force continues to have big problems in making its case in court.

Almost a month into the trial, each of the Task Force’s substantive witnesses have initially lied to investigators for years until copping a plea in which they bargained for a reduced prison term and a substantial net worth in return for testifying against Lay and Skilling.

Virtually none of the testimony has supported a key element of the prosecution’s case — the alleged huge conspiracy within Enron to cover up the wrongdoing at the company — and Rieker admitted under questioning from Petrocelli that she had engaged in nothing of the sort while at Enron.

Despite alleging now that Lay and Skilling were involved in lying about Enron to the investment community years ago, none of the witnesses have produced any corroborating documentary evidence that they had any reservations at the time about the statements that Lay and Skilling were making. Similarly, none of the witnesses have testified that Lay or Skilling at the time ever admitted that they thought they were making misleading statements.

Doesn’t sound like much of a conspiracy, does it?

Meanwhile, a couple of behind-the-scenes developments also reflect disarray in the Task Force camp. Mirroring Rice’s infamous false testimony in the Enron Broadband Trial and the Task Force’s abysmal handling of that false testimony, it now appears that the prosecution had Rice testify, during the late stages of his testimony last week, regarding a dubious presentation document that the prosecution had failed to produce to the defense.

That prosecution oversight prompted the Lay-Skilling defense to consider bringing Rice back to testify regarding that suspicious document during the defense’s case-in-chief.

It’s usually not a good sign for the prosecution when a key prosecution witness performs so badly that the defense wants to use the witness in the defense’s case-in-chief.

But even more telling of the problems in the prosecution’s case is how little it has to do with the indictment against Lay and Skilling.

The prosecution does not want the jury to see the indictment and does not even want the Lay-Skilling defense team to be able to question witnesses about it.

Based on the prosecution’s presentation of its case to date, it’s easy to see why — a substantial amount of the testimony that the prosecution has elicited from its witnesses is simply not in either the indictment or the statements in compliance against Lay and Skilling.

While reading the transcripts from the trial, I keep a copy of the indictment and the statements in compliance handy so that I can refer to them when I read about something in the transcripts that I had not previously read about in those documents.

I have counted at least three substantive areas that the prosecution has raised extensively during direct examination of its witnesses that are not in either the indictment or the statements in compliance — disclosure issues relating to sales of the “Peaker plants” in 2001, the alleged “newfound” penny of earnings in the fourth quarter of 1999, and issues relating to warrants and monetizations on something called ResCo.

Apart from the Constitutional issue that defendants must be given fair notice of what the government intends to prove at trial — particularly in regard to an indictment that paints as broad a brush as this one does — the raising of new issues during trial is yet another indication that the Task Force is not confident in its case and is willing to take substantial trial risks in an attempt to make a case against Lay and Skilling.

Such tactics are at least consistent with the Task Force’s fingering of dozens of unindicted co-conspirators under its increasingly hollow conspiracy theory, which is a transparent tactic to induce former Enron executives who have exculpatory testimony for Lay and Skilling to assert their Fifth Amendment privilege and not testify out of fear of being indicted themselves.

After the typical three day weekend break, the trial cranks back up Monday as the prosecution calls former Enron trading unit accountant Wes Colwell, who cut a deal with SEC and who apparently has been cooperating with the Task Force under some sort of non-prosecution agreement. After Colwell, the order of witnesses is currently expected to be accountant Wanda Curry, former trader Timothy Belden and former trading executive David Delainey.

U.S. District Judge Sim Lake is widely-considered to be one of the best jurists in Houston, and his no-nonsense handling so far of the criminal trial of former Enron executives Ken Lay and Jeff Skilling reflects why he is so well-thought of in local bar circles.
Time limitations have prevented me from sitting in on the Lay-Skilling trial as much as I would have liked to date, but I have access to the transcripts from the trial, so I’m able to keep up with what goes on in court each day. From reading the transcripts, I have found that Judge Lake’s most interesting and witty observations often occur before and after the jury is in the courtroom, such as the following exchange that occurred yesterday afternoon after testimony had concluded for the day and the jurors had been excused:

COURT: Be seated, please. (To Bruce Collins, one of Lay’s attorneys) How much more do you have left in your cross-examination?
MR. COLLINS: It’s hard to estimate. I think I’ll be done by lunch tomorrow.
THE COURT (to Skilling lawyer, Daniel Petrocelli): How much do you have, Mr. Petrocelli?
MR. PETROCELLI: I have less than a day.
THE COURT: So it’s doubtful that we will finish (on Thursday)?
MR. PETROCELLI: I don’t think so.
THE COURT: Okay. Is there anything else we need to go into this afternoon?
MR. (Prosecutor John) HUESTON: Your Honor, I’d like to suggest something, and just maybe hear that. I worked hard to keep my direct to less than a day. And I’d like to introduce the thought of some rule of reasonableness when we work to get directs confined and moving quickly, and cross just goes on for days. I think two times the amount, over two times the amount of the direct time for cross, should have been more than sufficient, and I was hoping we would be done with all of this by tomorrow.
THE COURT: Well, probably you’re not the only one who hoped that, but the government covered a lot of discrete information in a very general way that opens the — creates the need by defendants to explore in greater detail. And if you think cross-examination is beyond the scope or it’s not relevant, you can make an objection and I’ll sustain it. But it’s not appropriate, I don’t believe, to impose a timing order in a criminal case where there are liberty issues at stake and there’s a Sixth Amendment right. I will say, in response to a lot of your objections today that I overruled, that cross-examination entitles the questioner to some leeway and to ask leading questions. So fewer objections by you might move things along a little bit.
MR. HUESTON: Yes, sir.
THE COURT: Do you need to respond?
MR. PETROCELLI and MR. COLLINS: No, sir.
THE COURT: Anything else we need to take up?
MR. PETROCELLI: No, Your Honor.
THE COURT (to Mr. Hueston): And I’m perfectly willing to cut off unreasonable and irrelevant questioning, but there hasn’t been much today.
MR. PETROCELLI: Thank you, Judge.
THE COURT (to Mr. Petrocelli, I’m sure with a wry grin): But don’t take that as an encouragement. We’ll see you-all tomorrow morning.

The glacial pace of the criminal trial of former key Enron executives Ken Lay and Jeff Skilling quickened this week, as former Enron Broadband CEO Ken Rice finished his testimony after not quite three days on the stand.

Although the mainstream media accounts of the trial continue to be generally favorable for the prosecution and, as such, the trial remains an extremely difficult one for the defense, my sense is that the biggest news after three weeks is that this trial is settling in to being a very difficult one for the prosecution.

The holes in the prosecution’s case are apparent after just two witnesses. The Task Force inexplicably spent almost three times longer with its first witness — Mark Koenig — than it did with Rice, which put the trial on its initial glacial pace.

Then, in an apparent reaction to that miscue, the prosecution seemingly hurried through Rice’s testimony, who is arguably the more important witness of the first two.

Moreover, much of the substance of the testimony of both witnesses was rather odd. Koenig claimed that he believed that Skilling and Lay misled the investment community in various ways, but he didn’t know the mechanics of how that was supposedly accomplished.

On the other hand, Rice asserted that Skilling misled the investment community on the prospects of Enron’s broadband unit, but he didn’t implicate Lay in any alleged wrongdoing at all.

Then, on cross-examination, Rice conceded that he believed Enron Broadband had great long-term potential, but that Skilling and he were involved in improperly hiding some of the unit’s short-term problems.

To make matters worse for the Task Force, the testimony of both men barely touched on a key element of the prosecution’s case — the alleged huge conspiracy within Enron to cover up the wrongdoing at the company.

Indeed, when the prosecution asked Rice on re-direct about whether he was involved in such a conspiracy, Rice replied unenthusiastically that “Mr. Skilling and I had misled investors on a number of occasions about the prospects of our business” at the broadband unit.

So much for the biggest conspiracy of all time.

But perhaps most importantly, both Koenig and Rice admitted during cross-examination that, despite testifying now that they were involved in lying about Enron to the investment community years ago, neither of them made any statement to Skilling, Lay or anyone else at the time of the supposed lies about the wrongdoing.

Similarly, neither of these key prosecution witnesses testified that either defendant ever once acknowledged telling a lie. That lack of evidence of fraudulent intent dovetails with the defense’s theory that Koenig and Rice are only now claiming that they were involved in wrongdoing to hedge their risk of long prison sentences under their plea deals with the prosecution.

That the prosecution had Rice dead to rights on illegal insider trading charges at the time he cut his plea deal also didn’t help his credibility, either.

So, after filing and publicizing a lengthy indictment against Lay and Skilling that asserts a wide array of alleged corporate crimes, the Task Force doesn’t want the jury to see that indictment (although the Lay-Skilling team does) and the Task Force’s case appears to have come down to a plain “pump and dump” case — Skilling and, to a lesser extent, Lay touted the failing company’s shares while selling their own (that Lay’s sales were forced under margin calls is a knawing problem with that theory that the Task Force has not even addressed, yet).

That theory of the case plays on “the presumption” in such cases — i.e., that Lay and Skilling are rich and Enron collapsed, so they must be guilty of something for failing to announce to the investing public that Enron was really just a highly-volatile trading company rather than the more stable logistics company that they contended Enron had become.

After three weeks of trial, it would not be surprising if some of the jurors are saying to themselves about that theory: “Is that all you’ve got?”

Finally, sometimes small things in big trials are the best indicators of problems.

Throughout the trial, Judge Lake has ordered the prosecution to advise the defense of its next five witnesses.

As late as yesterday evening, the prosecution still hadn’t even decided on its next five witnesses, and at least one of those witnesses — Koenig’s former aide, Paula Rieker — will likely be largely duplicative of Koenig’s earlier testimony.

That the prosecution is fumbling over the order of its witnesses at this early stage of the trial is a pretty darn good indication that this is not a prosecution team that is confident in its case.

The Chronicle’s Mary Flood reports that, upon completion of Mark Koenig‘s testimony earlier today in the Lay-Skilling trial, Koenig’s lawyer released the following statement:

“Mark Koenig has completed his testimony, and he will have nothing more to say until this case is concluded. However, I would like to offer an observation.”
“When a person makes wrongful choices and violates the law, that person confronts another choice. Mark Koenig chose to confront and admit his wrongdoing, and to undertake the most meaningful effort available to him to begin making up for his offense. Over the past year and a half, and especially over the past two weeks, that’s exactly what he has done. He embraced responsibility for what he knew to be wrong, and spoke truth about what happened. And in doing that, he displayed a great deal of courage and strength of character.”

H’mm, “displayed a great deal of courage and strength of character?”
While working for Enron, Koenig was operating under one of two circumstances. Either he was lying to the investment community about Enron or he did not intend to mislead anyone and was simply doing the best he could in the financial storm that ultimately cratered the company.
If it was the former, then Koenig continued to lie to investigators for years until he copped a plea in 2004 in which he bargained for a reduced prison term and a substantial net worth in return for testifying against Lay and Skilling. Moreover, Koenig didn’t even cut that deal with prosecutors until after his assistant — former Enron managing director of investor relations Paula Rieker — had cut her plea deal with prosecutors and agreed to testify against Koenig, among others.
On the other hand, if it was the latter, then Koenig has sold his soul to prosecutors and lied on the witness stand in return for a lighter prison sentence and retention of a substantial net worth.
In short, Koenig is either a liar or a perjurer who cut a deal to hedge his risk of a long jail term and to save some money. Either way, Koenig is not trustworthy and certainly did not display “a great deal of courage and strength of character.”

Even though most of the action is in the courtroom during the ongoing trial of former key Enron executives Ken Lay and Jeff Skilling, a few interesting tidbits still arise from time to time on the docket of the case.
You may recall this post from awhile back that focused on this rather odd Enron Task Force motion requesting that U.S. District Judge Sim Lake not allow the Lay-Skilling defense to use the Task Force’s own indictment during cross-examination of the Task Force’s witnesses in the trial because, among other things, to do so would risk “unfair prejudice, confusion of the issues [and] misleading the jury. . . ”
Well, as you might expect, the Lay-Skilling is having a little fun with the Task Force’s unusual request. In this opposition, the Lay-Skilling team notes that the Task Force’s motion stands due process of law on its head:

Due process considerations may keep the indictment from going to the jury where publishing it would cause defendant prejudice. . . . Invoking defendants‘ right to keep the indictment from the jury where it contains “inflammatory or pejorative language,” . . . and arguing that asking questions about the indictment may cause prejudice and confusion, the Task Force seeks to prevent defendants from showing the indictment to witnesses and questioning them about its allegations. . . The most efficient and effective means of cross-examining witnesses on certain topics includes asking them if specified allegations in the indictment are, in fact, true. To impose a blanket prohibition on such questions would interfere with defendants’ constitutional rights to present a defense and fully and effectively cross-examine their accusers.

Then, for good measure, the Lay-Skilling team tweaks the Task Force about its sudden change of opinion regarding the quality of the prose in the indictment:

The Task Force argues defendants might cross-examine witnesses about portions of the indictment that are surplusage, thereby confusing the jury. . . [However, the Task Force] previously, and successfully, argued exactly the opposite — that the indictment contained no surplusage — in opposing defendants’ motion to strike [portions of the indictment].

Meanwhile, down the hall from the relative levity of such motion sparring, the defense finished cross-examination of Mark Koenig (who may have unwittingly helped the defense) and the prosecution finished its re-direct on Monday afternoon. Judge Lake is going to allow a limited amount of re-cross of Koenig on Tuesday morning, then it’s time for the next prosecution witness — former Enron Broadband co-CEO, Ken Rice. Direct examination of Rice is expected to last at least the remainder of Tuesday, which means that cross-examination will likely take up the remainder of the week.

As second week of the criminal trial of former key Enron executives Ken Lay and Jeff Skilling comes to a lumbering close, the beginning of the third week will bring a new witness and renewed interest in the trial.
My sense is that the remainder of cross and redirect examination of the prosecution’s first witness — former Enron investor relations chief, Mark Koenig — will take the remainder of today and probably a part of Tuesday. Then, former Enron Broadband CEO Ken Rice will take the stand, and expect direct examination of Rice to take at least a day. Inasmuch as cross-examination of Rice will likely take longer than direct examination, expect Rice to remain on the stand for the remainder of this week.

At the outset of the criminal trial of former key Enron executives Ken Lay and Jeff Skilling, the Enron Task Force prosecutors estimated that it would take nine weeks to put on its case-in-chief against the defendants.

Inasmuch as that prediction assumed four days of trial time each week and that the defense would use the same amount of time on cross-examination of each witness as the prosecution used on direct, the prosecution’s prediction effectively meant that the Task Force believed that it could put on its entire case against Lay and Skilling in eighteen days of testimony.

Well, the Task Force’s prediction has pretty well gone by the wayside with its first witness, former Enron investor relations chief, Mark Koenig.

After the Task Force took two-and-a-half days on Koenig’s direct examination, the defense has used the past three-and-a-half days for cross-examination, and it now looks as if Koenig’s testimony will continue for at least another day-and-a-half, which means that the prosecution will not be in a position to present its second witness — former Enron Broadband co-CEO Ken Rice — until next Tuesday afternoon at the earliest.

Next Tuesday marks the beginning of the third week of the trial.

Moreover, when Koenig is finally through testifying, the prosecution will have used over three days of its original 36-day prediction (over 16% of its case-in-chief) on examination of Koenig.

There is no way that the testimony of Koenig — who is primarily a background witness who was not involved in the mechanics of how Enron’s earnings and finances were evaluated — represents over 16% of the prosecution’s case-in-chief.

This is shaping up to be one very long slog.

The NY Times Alexei Barrionuevo, who is writing some of the best background pieces in connection with the criminal trial of former key Enron executives Ken Lay and Jeff Skilling, profiles former Enron Broadband CEO Ken Rice today, who is expected to be the prosecution’s second witness in the trial if the parties ever get done with the first witness, former Enron investor relations chief, Mark Koenig.
In addition to noting Rice’s disastrous testimony in the Enron Broadband trial last year, Barrionuevo’s piece points out the little-reported fact (mentioned earlier here) that Rice copped his plea deal after prosecutors discovered circumstantial evidence that strongly indicated that Rice engaged in insider trading shortly before Skilling’s resignation in August, 2001:

More than $9 million of [Rice’s $40.3 million in profits from Enron stock trades] came from three trades on July 13, 2001, about a month before Mr. Skilling officially resigned from Enron, according to records from the Securities and Exchange Commission, and around the same time that Mr. Skilling privately told Mr. Lay of his intention to resign, according to earlier testimony by Mark E. Koenig, Enron’s former investor relations chief.

Meanwhile, the prosecution’s decision to spend an inordinate amount of time on direct examination with Koenig appears to be backfiring. The prosecution spent almost two and a half days on direct examination of Koenig, who has now admitted on cross-examination that he really does not have much knowledge of the underlying evaluation process upon which Lay and Skilling based their public statements regarding Enron’s finances. Thus, Koenig is a quintessential witness whose knowledge is a mile wide and an inch deep, and the defense is now hammering his basis for asserting on direct that Lay and Skilling intentionally misled investors. To make matters worse for the Enron Task Force, the prosecution took so much time with Koenig on direct that it is really not in a position to object to the length of time that the defense is spending with Koenig on cross-examination.
Moreover, my old friend, Joel Androphy, blogging the Lay-Skilling trial over at KTRK-TV, observes the following about another prosecution mistake in dealing with Koenig:

The government allowed Koenig to keep $5 million to fight the civil cases and provide for his family, not the families of the victims. The plea bargain could have required Koenig to pay the maximum fine, and full restitution to the victims even if he provided influential testimony. That would have supported his credibility. Although the judge has the final say on restitution and fines, the government could have required mandatory surrender of funds. Now it looks like he could get reduced jail time and a large pension unlike most former employees. Koenig’s attorney did a commendable job.

It now appears that Rice’s testimony will not begin until Thursday of this week at the earliest, and may not even begin this week at all. Therefore, unless the prosecution pares down its case-in-chief dramatically on the fly, the prosecution’s pre-trial prediction of completing its case-in-chief in nine weeks is looking more and more like a pipe dream.

During opening arguments last week in the criminal trial of former key Enron executives Ken Lay and Jeff Skilling, Lay defense attorney Mike Ramsey made the following observation to the jury about the Enron Task Force’s indictment against the two men:

“This is the indictment . . .[It] is 66 pages long. Someday you may be called upon — God save you — to have to read it. If you do, you’ll find it is enormously complex. I don’t blame the [prosecutors] at the table here; I think their predecessors wrote it. But with all the power and precision of the English language, it is a babbling kind of indictment [that makes it] very hard to pin down, very hard to determine what you are actually charged with. . .”

Well, it turns out that that the Task Force pretty much agrees with Ramsey’s characterization of the indictment. In this motion that showed up on the docket of the case yesterday, the Task Force requests that U.S. District Judge Sim Lake not allow the Lay-Skilling defense to use the Task Force’s indictment during cross-examination of the Task Force’s witnesses in the trial because, among other things, to do so would risk “unfair prejudice, confusion of the issues [and] misleading the jury. . . ”
Not exactly a sterling self-endorsement of the Task Force’s writing skills, would you say? ;^)
Meanwhile, after the Task Force took almost all of Monday morning to complete direct examination of its first (and relatively minor) witness, Mark Koenig, cross-examination of Koenig continues today (Chronicle/Flood – Fowler; NY Times/Barrionuevo – Evans; WaPo/Carrie Johnson).

After a slumbering close to Week One of the criminal trial of former key Enron executives Ken Lay and Jeff Skilling, the prosecution will almost certainly attempt to pick up the pace of the trial this week.
The prosecution will probably complete direct examination this morning of its first witness, former Enron investor relations chief Mark Koenig. Inasmuch as cross-examination of Koenig will likely take at least as long as direct (over two days), the prosecution’s second witness — former Enron Broadband co-CEO Ken Rice — will probably not take the stand until Wednesday afternoon, at the earliest.
If you have been following the Enron cases, then you will remember Rice. He was on the witness stand when the prosecution’s case began unraveling in the Enron Broadband trial last year. As noted at the time here, Rice testified falsely on direct examination during the Broadband trial about what he had seen at an analyst conference. After the Broadband defense team impeached Rice with his false testimony, the prosecution attempted to rehabilitate Rice’s false testimony by putting former Enron video consultant Beth Stier on the stand, a move that backfired when Stier testified to the prosecution’s intimidation tactics. Thus, in a case that looked like a layup for the prosecution at the outset, Rice and Stier’s testimony began a downward spiral in the prosecution’s case that ultimately resulted in a disastrous mix of acquittals and no verdicts on the charges in the Broadband case.
By the way, a little reported fact about Rice is that he entered into his plea deal with the Enron Task Force after the Task Force had discovered that he sold a substantial amount of Enron stock under rather suspicious circumstances. Shortly before Skilling announced his resignation as Enron CEO in August, 2001, Rice met with Skilling. After that meeting and before Skilling’s resignation announcement, Rice unloaded a boatload of his Enron stock. Thus, regardless of what other crimes that Rice contends on the stand that he and others committed at Enron, it’s pretty clear that he was guilty of illegal insider trading.