HOUSTON – Enron founder Kenneth Lay did not mislead investors about the company's financial health in the weeks before it plunged into bankruptcy, an accounting professor hired by Lay testified on Wednesday.
Jerry Arnold, who teaches at the University of Southern California, said third quarter 2001 financial statements cited by Lay in discussions with investors complied with Securities and Exchange Commission rules.
"That is my view," he said, answering repeated questions in his second day on the stand about the quarter when Enron reported $638 million in losses and a $1.2 billion reduction in shareholder equity.
The government contends Lay knew many Enron assets were overvalued, that losses were coming and misrepresented this to the public.
Several former high-ranking Enron executives have testified Lay misled investors when he said the losses were one-time events.
"I disagree with their interpretation," Arnold said.
Only 10 minutes into his testimony Wednesday, U.S. District Judge Sim Lake grew impatient when Arnold and prosecutor Andrew Stolter repeatedly went round and round on the same question.
"I'm not going to have sparring over minor, uncontroverted issues," a clearly irritated Lake barked.
Lawyers for Lay and co-defendant Jeffrey Skilling, the former Enron chief executive also charged with insider trading, said they were likely to wind up their case early next week, the 15th week of the trial.
"I'm fighting for my life," Lay said outside the federal courthouse after court ended for the day Tuesday and after he wrapped up six days of often cantankerous testimony, particularly on cross-examination. "We are anxious to get this wrapped up, get it in the hands of the jury and let them acquit us and vindicate us so we can get on with our lives."
On Tuesday, Arnold acknowledged accounting rules were "very, very technical" regarding asset valuation and disputed the government's contention Lay knew the company balance sheet, according to the criminal indictment against him, included embedded losses, a term he said he's never seen in 40 years of study.
Arnold said he never talked to former Enron employees, never talked to Enron's outside auditors at Arthur Andersen and met for less than a day with Lay last year. He said he took no notes of their conversation.
Arnold also acknowledged he'd been paid more than $1 million for his work on the Lay defense team, which he said included reviewing more than a million pages of documents. He said, however, he'd been working for free for the past six months.
On Wednesday, he said his company had been paid the $1 million, of which he'd been paid "a little more than $600,000."
The day before, Arnold bristled at prosecutor Stolter's suggestion that he wouldn't have been paid that much "if you have opinions not favorable to Mr. Lay and his lawyers."
Arnold said he found the question "in a sense insulting. I don't get paid to be a puppet. I get paid to use my expertise to form opinions and judgments."
Several prominent Houston residents were among character witnesses Tuesday for Lay, who was a frequent participant in charitable and civic projects in Houston. They included former Mayor Bob Lanier and Houston Astros owner Drayton McLane.
The witnesses, however, said while Lay was honest and honorable in his dealings with them, they were not knowledgeable about Lay's inner workings at Enron.
Skilling, who testified earlier, and Lay are accused of repeatedly lying to investors and employees about Enron when prosecutors say they knew the company's success stemmed from accounting tricks.
The two men counter no fraud occurred at Enron other than that committed by a few executives, like Fastow, who stole money through secret side deals. They attribute Enron's descent into bankruptcy proceedings to a combination of bad publicity and lost market confidence.