An accounting professor who has been paid more than $1 million by the defense team of Enron founder Kenneth Lay testified Wednesday that Lay didn’t mislead financial analysts about Enron in the weeks before it declared bankruptcy.

Jerry Arnold, who has testified as an expert accounting witness for 25 years, teaches at the University of Southern California. Enron’s 3Q2001 statements, discussed by Lay during a conference call in October 2001, complied with federal rules, Arnold told jurors.

“That is my view,” Arnold testified. Enron reported $638 million in losses for the quarter, and announced a $1.2 billion reduction in shareholder equity. Lay is on trial for six wire and securities fraud counts, including his statements about the 3Q2001 earnings.

U.S. accounting rules, Arnold said, are “very technical.” He said he disagreed with some of the former Enron executives who previously testified against Lay and former Enron CEO Jeffrey Skilling, who has been charged with 28 counts of fraud and insider trading.

Under cross-examination, Arnold admitted he had never talked with former Enron employees, and he never talked with Enron’s outside auditors at Arthur Andersen LLP. Arnold said he met with Lay for less than a day in 2005, and he did not take notes of their conversation. But the witness took issue with suggestions that his testimony was favorable to Lay because of the fees he and his company have earned.

The questions about fees, said Arnold, are “in a sense, insulting…I’m here to provide my facts and expertise… I’m not here to be a hired gun… I don’t get paid to be a puppet. I get paid to use my expertise to form opinions and judgments.” Arnold said he had not been paid in the past six months because he “believes” in Lay’s defense.

Another expert accounting witness, Walter Rush, said Wednesday that the decision to move Enron Energy Services (EES) into its profitable trading arm Enron North America in early 2001 was not illegal. The prosecution alleges Skilling directed the move to mask huge losses within EES.

“That’s kind of like, say, having $2 in my right pocket and $2 in my left pocket,” Rush told jurors. “If I take out $1 from one pocket and put it in the other, I’ve still got $4.”

Rush also discounted a prosecution allegation that Enron used its cash reserves like a “cookie jar” to prop up poor earnings in EES and Enron Broadband Services. He said Enron’s accounting for reserves was directly proportionate to its energy trading volatility. As the volatility declined, Enron’s reserves against natural gas and power trading risk declined.

After Lay completed his testimony on Tuesday, several prominent Houstonians served as character witnesses. Lay had been a frequent donor to several projects in the city, including the building of the Houston Astros’ Minute Maid Field (formerly named Enron Field). The character witnesses included former Mayor Bob Lanier and Astros owner Drayton McLane. Under cross-examination, they said they did not know about Lay’s business activities at Enron.

Lay’s lead lawyer Mike Ramsey, who has been recovering from carotid artery surgery since early April, was readmitted to a Houston hospital on Tuesday. Lay’s spokeswoman Kelly Kimberly said Ramsey had not been feeling well, and his doctor wanted to run some additional diagnostic tests.

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