U.S. District Judge Sim Lake, in a 26-page opinion, denied Skilling's request to dismiss 10 counts of insider trading.
Skilling faces 35 counts of fraud, conspiracy, insider trading and lying to auditors for allegedly knowing about or participating in schemes to manipulate Enron's finances so investors would believe a wobbly company was healthy. Lay faces seven counts of conspiracy and fraud for allegedly perpetuating the ruse after Skilling abruptly resigned in August 2001, less than three months before Enron went bankrupt in December that year.
Both have pleaded not guilty, and are slated to go to trial Jan. 30.
Causey, their former co-defendant who also faced more than 30 criminal charges, pleaded guilty to a single count of securities fraud and agreed to help prosecutors in exchange for a seven-year prison term. The government could ask Lake to shave the term to five years if prosecutors are pleased with Causey's cooperation.
Lake told Skilling's lawyers at a hearing right after Causey entered his plea that he would rule soon on Skilling's 6-month-old request to dismiss the insider trading counts.
The indictment alleges Skilling sold $62.6 million in stock when he had information about Enron's finances that was unknown to investors. One of the counts pertains to a stock trade he made after he had resigned from the company.
The indictment alleges further that Skilling caused Enron to enter a series of deals and transactions with off-the-books entities that allowed the company to manipulate financial results by omitting money-losing assets from the company's balance sheet, manufacturing earnings and backdating documents to inflate investment values.
Skilling argued that the indictment failed to identify what insider information he had when he made the targeted stock trades. Lake countered that the allegations were sufficient.
The judge also denied Skilling's request that a paragraph pertaining to a securities fraud count be stricken from the indictment.
That paragraph alleges that during a conference call with analysts about fourth-quarter 2000 earnings, Skilling directed a "conspirator" to answer a question about the source of revenue reported for Enron's broadband unit. The conspirator, former Enron investor relations head Mark Koenig, told analysts a "small amount" of the unit's $63 million in revenues came from a video-on-demand venture and asset sales.
The government says Skilling knew the unit booked $53 million of its revenues from the video-on-demand venture, however. Koenig pleaded guilty to securities fraud in August 2004, admitting he helped mislead analysts about broadband unit profits, and is expected to testify in next month's trial.
Skilling argued he was wrongly alleged to be liable because of his silence, while prosecutors countered he had a duty to correct a misrepresentation.