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Motion by Lay, Skilling to Dismiss Charges Denied

A federal judge in Houston last week dismissed a motion by former Enron Corp. founder Kenneth Lay and former CEO Jeffrey Skilling asking that their criminal charges be dismissed. Jury selection in their joint trial is scheduled to begin Jan. 30.

In the ruling issued last Monday denying the motion, U.S. District Judge Sim Lake wrote he was not persuaded by the hearsay-based information in the two men's affidavits, which was put together by defense attorneys in the case. Lay has been charged with seven criminal counts and Skilling faces more than 20 criminal counts in connection with Enron's bankruptcy in late 2001. Lay also faces a second criminal trial involving personal banking fraud charges.

"The court is not persuaded that defendants have shown by a preponderance of the evidence that the government has substantially interfered with the ability of defense counsel to interview potential witnesses, or that the government has engaged in any practice that denies defendants the right to a fair trial," Lake wrote.

Lake signaled Thursday he plans to let the opposing parties put on their respective cases -- without a lot of innuendo and gossip. Lake ruled the case will exclude tapes from ex-Enron traders joking about stealing money from California grandmothers, and it will not include former CFO Andrew Fastow's apparent penchant for viewing pornography on his company computer.

However, Lake agreed to allow ex-Enron trader Timothy Belden and former Enron counsel Richard Sanders to testify for the prosecution about Skilling's alleged involvement in manipulating the California wholesale power market in 2000 and 2001. Belden, who was the former chief of trading for Enron Power Marketing in Portland, OR, pleaded guilty in October 2002 to a charge of conspiracy to commit wire fraud relating to power trading schemes (see NGI, Oct. 21, 2002). Belden has been cooperating with the Enron Task Force and has not been sentenced.

According to a brief by the prosecution, Sanders' testimony is sought because of a meeting he had with Skilling in June 2001, which apparently also related to schemes to manipulate the California energy market. The brief indicated Sanders talked with Skilling on the same day Skilling gave a speech in California "urging that the problems in California were market-driven and a result of poor deregulation."

Lake also ruled on several motions favoring the defense team, which include allowing a group of expert witnesses to help objectively explain to the jury its version of what happened at Enron. The ruling is considered significant because the defense team has argued the jury pool, selected from the Houston area, will be prejudiced against the former Houston-based Enron executives.

Lake cautioned the defense team, however, on attempts to bring in information concerning pornography, which apparently was found on Fastow's office computer. Lake said the material was not relevant to the case, and he said he almost certainly would not allow any testimony concerning soliciting prostitution, extramarital affairs or the use of illegal drugs.

In related news, Mark Koenig, who once headed Enron's investor relations unit, slightly changed his guilty plea. He said a false statement he confessed to making was actually said by Skilling. Koenig is expected to testify in Skilling and Lay's trial. In August 2004, Koenig pleaded guilty to aiding and abetting securities fraud, and he agreed to cooperate with the government.

In his original and in the corrected plea papers, Koenig said he and Skilling repeatedly misrepresented facts about the company's finances to analysts. However, in 2004, Koenig said he specifically lied in a July 12, 2001 analyst conference call by indicating Enron Energy Services was reorganized "to get some more efficiency" instead of admitting it was reorganized to conceal financial losses. In the corrected plea papers, which were accepted by U.S. District Judge Ewing Werlein, Koenig said Skilling actually made the false assertion.

The change apparently was made after Koenig heard a tape of the analyst call. The plea agreement still maintains Koenig made other false statements to analysts in the 2001 calls. Koenig faces up to 10 years in prison and a fine of up to $1 million.

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