Former Enron Corp. CEO Jeffrey Skilling said Wednesday that he and company founder Kenneth Lay were a “good team” that never knowingly broke the law. On a day in which he defended himself against 28 fraud and conspiracy charges, Skilling claimed he “was aware of no illegal activity occurring at Enron” while he served as the company’s COO, president and CEO.

Lay is being tried with Skilling on six fraud and conspiracy charges and is expected to testify later this month. The crimes Lay and Skilling are charged with allegedly occurred at different times between 1999 and 2001, but the government contends that the two men also oversaw a wide-ranging scheme to deceive the public about Enron’s true performance.

Skilling took on the testimony of many of the government’s witnesses — mostly his former subordinates — who had testified about his intimate involvement in many of the allegedly illegal activities that occurred on his watch. Defense attorney Daniel Petrocelli continued to lead Skilling through the lengthy indictment, asking him questions that at times only required one-word answers.

“Did you and Ken Lay ever discuss doing something you knew to be forbidden by law?” Petrocelli asked.

“No,” Skilling answered.

“Is it completely untrue that you were involved in any conspiracy?”

“That is completely untrue.”

Skilling said he often talked with investors and credit rating agencies, but his true strength was overseeing Enron’s policy, strategy and budgets. Lay “tried very hard to keep up to speed on what was happening.” He kept up with international business ventures and met with government officials, while Skilling spent most of his time on Enron’s domestic businesses, particularly the company’s massive energy trading operations.

“Because I’d built that company [Enron North America], I was much more familiar with it than Ken was,” Skilling testified.

“I think most people would agree, I was not particularly good at dealing with government officials, so I think it was a particularly good team,” Skilling said. He added that he and his boss tried to meet every week, but they rarely socialized. “I’m just not a real kind of social person. I don’t socialize a lot.”

As he had Tuesday, Skilling downplayed his involvement in the LJM special purpose entities (SPE) directly run by then-CFO Andrew Fastow. Although SPEs are legally set up by many businesses to hedge losses, they are supposed to be independently operated. Skilling said because the SPEs had been vetted and approved by Enron’s board and its auditors and lawyers, he spent “maybe two hours” on the original LJM SPE and another two hours on LJM2.

Last month, Fastow testified that Skilling not only knew about all of the other SPEs Fastow was running but said Skilling had guaranteed him he would not lose money on his investments. Skilling, he said, used verbal “bear hugs” to approve some of the allegedly illegal deals.

However, Skilling vehemently denied knowing about some of the SPEs that Fastow oversaw. Skilling said he never gave Fastow verbal assurances about any illegal deals, and in fact, didn’t even know what a “bear hug” was.

When the original LJM partnership was set up, even though Fastow was running it, Skilling testified that he thought it was a “good idea.” The “benefits outweighed the risks” of it being run internally, he said. His opinion has since changed.

“It was a horrible idea,” Skilling said of the LJM SPEs. “Based on what we know now, no, it was not a good idea.”

Asked by Petrocelli what he would have done if he’d known Fastow was breaking the law, Skilling said, “I would have called the FBI.” Then he added sarcastically, “I might have a little hesitation now doing that, but at the time I would have called the FBI.”

“You’re a little angry at the government, aren’t you?”

“Yes.”

“You think you’ve been falsely accused?”

“Yes. I think that.”

Skilling also claimed that he did not mislead investors about Enron’s true financial condition. Getting out of the witness chair, Skilling led the jury members through an explanation of how Enron functioned, using a large sketch pad to explain how the company’s performance could not be accurately measured by “sales or earnings.”

Only two numbers accurately measured Enron’s worth, Skilling said: “volume and head count.” Enron’s many business transactions were complex, Skilling said, and it used hedging to control volatile natural gas prices.

Former Enron executive David Delainey, who had once run Enron North America, had testified that in 2000, the wholesale trading unit’s huge reserves of cash were used like a “cookie jar.” He said Skilling approved of a reserves transfer to Enron Broadband Services to help the unit meet quarterly financial goals.

But Skilling said Delainey was wrong. “There were no cookie jar reserves at Enron Corp.,” Skilling told jurors.

Delainey had also testified that when he first told Skilling about the huge amount of cash reserves within Enron North America, Skilling was so happy he kissed him.

“Did you hug or kiss Mr. Delainey?” Petrocelli asked.

“I certainly hugged him…I may have kissed him,” Skilling said, then qualified his statement as the courtroom laughed. “Not a kiss-kiss, but I was happy.” He was “very relieved” to learn Enron North America’s trading numbers were so strong. “That was very comforting to me.”

“You kissed Mr. Delainey because you thought he did something good, not because he did something illegal?”

“Yes,” Skilling answered.

Petrocelli and Skilling then picked apart another charge in the indictment, which indicates that Skilling misled investors during a Jan. 22, 2001 conference call (see Daily GPI, Jan. 23, 2001). Specifically, the charge relates to the California energy crisis in the winter of 2000-2001 and how Skilling described its effects on Enron’s 4Q2000 earnings.

“Did you say that California business was ‘small’ for Enron?” Petrocelli asked.

“When I first saw that [in the indictment], I was surprised. I never said that,” Skilling answered.

Petrocelli went through a transcript of the call to show jurors that Skilling was actually answering a question from a financial analyst about the effects of the energy crisis on Enron, not Enron’s business size in California.

“I thought I was replying to how big our exposure in California was,” Skilling sad. He explained that Enron’s exposure in the state was limited because the company had no power generators, and it had adequate cash reserves to handle the volatile prices during that period. According to the transcript of the call, Skilling said, “Now for Enron, the situation in California had little impact on fourth quarter results. Let me repeat that. For Enron, the, situation in California had little impact on fourth quarter results.”

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