Enron Jury Won't Hear Lay, Skilling Tapes

HOUSTON – The upcoming fraud and conspiracy trial of Enron Corp. founder Kenneth Lay and former CEO Jeffrey Skilling won't feature audio tapes of Enron traders discussing how they gamed California's power system for high profits when the state was plagued by rolling blackouts and skyrocketing power prices in 2000 and 2001, a judge ruled Thursday.

U.S. District Judge Sim Lake sided with defense arguments that such inflammatory evidence had no place in the Jan. 30 trial because neither Lay nor Skilling are charged with illegal trading or market manipulation in California. He issued several other rulings on what jurors will see and hear during the case expected to last about four months.

Prosecutors had argued that the two men are charged with conspiring to hide Enron's wobbly financial condition through lies and omissions in public statements and regulatory filings that painted the company as healthy. California market manipulation was part of that puzzle, they said.

"We don't have to go down that rabbit trail," Daniel Petrocelli, Skilling's lead trial lawyer, said after Thursday's hearing.

However, Lake ruled prosecutors can present some California-related evidence.

That includes prosecution testimony from former in-house Enron lawyer Richard Sanders regarding his June 2001 meeting with Skilling during which he informed the CEO about the California gaming strategies. Those strategies included making uncongested transmission lines seem congested with fraudulent schedules for energy so Enron could be paid to solve a problem that didn't exist.

Skilling faces 35 counts of conspiracy, fraud, insider trading and lying to auditors. Lay faces seven counts of fraud and conspiracy. Both have pleaded not guilty.

The judge has yet to rule on last week's defense request to move the trial outside of Houston because of potential jurors' negative comments on questionnaires that are the first step of jury selection.

Also Thursday, Lake ruled that the defense teams can freely question former Enron finance chief Andrew Fastow, a key government witness, regarding partnerships and deals from which he skimmed money from the company in 1996 and 1997 that aren't noted in the indictment against Lay and Skilling.

Prosecutors wanted to limit such questioning, but Petrocelli argued that jurors should hear about deals and kickbacks Fastow hid from Skilling, which the attorney said established a pattern that lasted until Fastow was ousted before Enron's December 2001 bankruptcy.

Fastow pleaded guilty two years ago to two counts of conspiracy for orchestrating later deals that hid Enron debt and inflated profits while skimming millions for himself. He is one of 16 ex-Enron executives who have pleaded guilty to crimes and eight identified as potential government witnesses.