The Jeff Skilling segment of the corporate criminal trial of the decade concluded during Week Twelve as the former Enron CEO testified for a bit over three days on cross-examination from Enron Task Force director Sean Berkowitz and on re-direct from Skilling attorney, Daniel Petrocelli.

As has been my custom during the Lay-Skilling trial, I continue to read each day’s transcript of the trial and pop into the courtroom whenever I am in the federal courthouse on other matters and have an hour or two to spare.

This week, I was able to sit it on the final two hours of Berkowitz’s cross-examination of Skilling, and that experience reinforced my overall opinion of the trial to date — the Task Force is presenting a fundamentally flawed and weak case against Skilling and Lay.

Given the societal bias against anything having to do with Enron, it is helpful to review from time to time the case that the Task Force has actually presented in court to date. In short, the Task Force has presented a “pump and dump” case that, to a large extent, relies on a complex jumble of innuendo and opinion.

According to the Task Force, Enron was so successful in making money in its trading operations that it allowed Skilling and Lay to soft-pedal to the markets the losses that Enron was incurring in several of the company’s less successful units.

Mind you, the Task Force is careful not to contend that either Lay or Skilling was involved in fraudulent accounting. Rather, the Task Force asserts that mainly Skilling understated to the market the losses of a couple of poorly-performing Enron business units, including allegedly hiding one unit’s losses underneath the blanket of the trading unit’s high profits.

The Task Force contends that the alleged hiding of these losses — along with alleged over-reserving of excess profits in the trading unit — allowed Skilling and Lay to misrepresent Enron to the investing public as a stable logistics company rather than the more volatile trading company that prosecutors allege that Enron had become.

As noted in this earlier post at the beginning of the trial, the Task Force’s theory of the case relies on its unstated, but nevertheless key, presumption — i.e., that Lay and Skilling are rich and Enron collapsed, so they must be guilty of something as a result of Enron’s failure.

Berkowitz’s entire cross-examination of Skilling played heavily on that presumption. Given that dubious premise, it’s not particularly surprising that Berkowitz’s cross-examination was long on style but noticeably short on substance.

Relying on word games and satirical indignation, Berkowitz often gave Skilling little time to answer questions and frequently cut him off during his answers. Meanwhile, Berkowitz failed to pursue most substantive areas of inquiry related to the 28 charges against Skilling in favor of spending an inordinate amount time on relatively superficial matters that have little to do with the charges.

For example, early in the cross-examination, Berkowitz brought up that Skilling was using a jury consultant to assist him in preparing his defense and even showed the jurors the consultant’s webpage on the courtroom’s exhibit screen.

Given the vacuous nature of the entire line of inquiry, it was a credit to Petrocelli’s trial instincts that he didn’t bother to object. Since when is working with a jury consultant to help establish one’s innocence a sign of guilt?

Similarly, Berkowitz spent a substantial amount of time questioning Skilling about his earlier SEC testimony regarding Skilling’s investment in Photofete, a former girlfriend’s photography business. The investment was clearly small potatoes, but Berkowitz suggested to the jury that Skilling’s mistaken earlier SEC testimony about the size of his investment, possible backdating of an investment check and his failure to disclose to the Enron board that he had invested in a small vendor of Enron was definitive evidence of Skilling’s lack of credibility.

Maybe so, but what about those 28 charges against Skilling? Larry Ribstein summed it up well in this post:

So the biggest fraud of the century is going to come down to Photofete? As I’ve pointed out in the post linked above, this is all part of what I’ve called the “corporate crime lottery,” where guilt depends on such things as what juries will understand rather than on the essential wrongfulness of the misconduct.

Despite widespread speculation that Skilling would come unhinged under the pressure of cross-examination, he did not.

The only time that Skilling flashed anger was during the second day of cross-examination when Berkowitz suggested in a line of questioning that changing the classification of a public company’s preliminary earnings estimates in the company’s later published financial results was conclusive evidence of accounting fraud.

Under Berkowitz’s way of thinking, if a company’s initial estimates later change in the company’s actual published results, it’s prima facie evidence of fraud, which would make virtually every public company in the United States subject to being indicted for fraud.

After Berkowitz persisted in such nonsense during a protracted series of questions, Skilling finally lost his temper for a moment and chastised Berkowitz’s mendacity.

However, from my vantage point, it seemed clear from the exchange that Berkowitz either did not understand what he was talking about or was disingenuously suggesting that a common practice of most large public companies is a crime.

But if the first two days of Berkowitz’s cross-examination were somewhat odd for the failure to address substantive issues related to most of the actual charges against Skilling, the final day of cross-examination was downright bizarre.

During the morning session that I attended on Wednesday, Berkowitz quizzed Skilling over a substantive area — i.e., Enron’s trading business and the company’s disclosures related to it.

Berkowitz continually asked Skilling spurious questions about Enron’s trading business, while Skilling patiently explained to Berkowitz how the questions reflected either his misunderstanding or mischaracterization of the business. As one old local lawyer sitting next to me commented right before the lunch break:

“This is not a fair fight. Skilling is schooling him.”

Then, after the lunch break, Berkowitz changed directions and began to question Skilling regarding the reasons that he decided to resign as Enron’s CEO in mid-August, 2001. After about 45 minutes of meandering and innocuous questioning, the elderly lawyer sitting next to me leaned over and cracked:

“I think Berkowitz really just wants to have a beer with Skilling and talk things over.”

About an hour into his post-lunch break questioning, Berkowitz finally suggested that Skilling had told a former McKinsey & Co. partner shortly after his resignation from Enron that he would consider the CEO job at Lucent. When Skilling denied the allegation, Berkowitz snidely retorted to Skilling “[t]hat’s another person you disagree with?” and abruptly ended the cross-examination.

Thus, rather than ending cross-examination with a bang, Berkowitz ended it with a whimper.

How all of this is playing with the jury is one of the fascinating imponderables of trial law. Certainly, given the government and much of the media’s demonization of both Skilling and Lay, the Task Force may not need anything more than a weak case to obtain convictions.

Peter Lattman of the popular WSJ Law Blog attended Skilling’s direct testimony and the first part of the cross-examination, and he thought that the jurors responded negatively to Skilling in regard to the Photofete testimony.

During my visit at the closing of cross-examination on Wednesday, the jurors appeared bored with Berkowitz’s morning questioning over the trading business and somewhat befuddled by his aimless post-lunch break questioning.

For what it’s worth, the Tradesports contracts predicting a Skilling conviction did not move a lick during the cross-examination, which at least reflects a perception in that market that cross did not go well for the prosecution.

Although I do not have as good a basis for evaluating the jury as those who are in the courtroom on a daily basis, my approach of reading the transcript, writing weekly summaries and occasionally popping into the courtroom does allow me to reflect on the proceedings a bit more than the folks who are under the pressure of reporting on each day’s developments.

In that regard, none of the pervasive media reports on the trial picked up on the fact that Berkowitz failed to address two key allegations in its case during Skilling’s cross-examination — (i) the alleged Global Galactic agreement that former CFO Andy Fastow testified that he entered into with former Enron chief accountant and former Lay-Skilling co-defendant, Richard Causey, and (ii) the alleged huge conspiracy at Enron.

It doesn’t say much about the strength or validity of the Task Force’s case that arguably the key issue in its case-in-chief is not even addressed during cross-examination of the defendant against whom the issue was directed.

Similarly, Berkowitz’s failure to question Skilling about the alleged conspiracy within Enron is equally baffling, but at least consistent with the Task Force’s paltry presentation of evidence related to its conspiracy charges throughout its case-in-chief.

The Task Force’s ducking of the conspiracy issue brings into sharp focus the true reason why the Task Force made the conspiracy allegations against Skilling and Lay in the first place — to make sure that key witnesses with exculpatory testimony for Lay and Skilling do not testify during the trial.

In short, the Task Force is getting away with keeping exculpatory testimony for Lay and Skilling out of this trial by designating key potential witnesses as unindicted participants in a conspiracy that the Task Force has not come close to proving.

Although reasonable people can differ over whether criminalizing corporate agency costs is sound public policy, there is no serious question that the government’s effective preclusion of exculpatory testimony for Lay and Skilling from this trial is a serious violation of the principles of justice and the rule of law upon which our criminal justice system is based.

Berkowitz’s cheap comment made at the end of Skilling’s cross-examination (“That’s another person you disagree with?”) only underscores that this jury should be allowed to hear from the dozens of former Enron executives who agree with Skilling, and not just the relative few who cut plea deals with the Task Force and testified now that they disagree with him.

As discussions of the Lay-Skilling trial reflect on this blog and others, many otherwise thoughtful and intelligent people believe that they understand the Enron morality play so thoroughly that they seemingly lose the capacity for independent thought regarding Enron and reject any notion of ambiguity or fair-minded analysis in ferreting out the truth of what really happened at the company.

However, against that daunting societal bias, Skilling admirably told his side of the Enron story for over 40 hours on the stand and did not back off from attempting to answer any question posed to him.

Regardless of the outcome of this trial, Skilling’s performance was both impressive and a daunting reminder of the increasing hazards involved for businesspersons in taking cutting-edge risks to create jobs and build wealth in the current U.S regulatory environment.

When the trial resumes on Monday, Lay will take the stand and my sense is that his testimony will take the remainder of the week. Lay’s testimony will be even more focused than Skilling’s on the conflicting considerations and pressures that surrounded the process of making tough business judgments for Enron in an unsettled market that was quickly souring on the company.

Thus, stay tuned for yet another highly interesting week of testimony as the corporate criminal trial of the decade heads toward conclusion.