Enron Witnesses Counter Prosecution Case

Defense witnesses in the fraud and conspiracy trial of former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling picked away at parts of the government's allegations Tuesday, disputing earlier testimony that layoffs were disguised as reassigned jobs and that a troubled power project in India helped spell financial disaster.

While none of the witnesses so far have launched an encompassing attack on the government's case, they were intended to counter portions of prosecution testimony as a lead-up to the main event — testimony from the defendants.

Lead Skilling lawyer Daniel Petrocelli said Tuesday his client may begin testifying Thursday — a day later than he originally expected — depending on how long other defense witnesses take.

Testimony continued without Lay's lead lawyer, Michael Ramsey, who Lay said would undergo surgery Wednesday at a Houston hospital to open his carotid artery because a stent placed in his heart last month hasn't solved his health problems.

Lay said he and the rest of his legal team would carry on without seeking to interrupt or postpone the trial, and they were confident Ramsey would return to court before the case ends. Lay declined to elaborate on how extensive the surgery would be.

"Certainly he will be out of pocket for a few days," Lay said, noting that Ramsey was communicating regularly with the team. "I fully expect him to be back before the trial is over. We're going to proceed ahead."

In court, a former Enron human resources supervisor testified Tuesday that people who moved from its struggling broadband venture in March 2001 were given opportunities to shift assignments, disputing earlier testimony that most were laid off or targeted to be laid off.

Sarah Davis, testifying for a second day, said cuts at Enron Broadband Services were "redeployments" and not layoffs. Marla Barnard, the human resources supervisor for the broadband division, told jurors the same thing.

In February Kenneth Rice, the division's former chief executive officer, testified for the prosecution that Skilling told him to characterize layoffs at the unit as redeployment so some 250 employees would believe they would keep their jobs and analysts who influenced the company's stock would remain bullish on the weakening venture.

Asked by Skilling lawyer Mark Holscher if Rice or anyone else at Enron told her the cutbacks were "a ruse to lay people off," Davis replied: "No. It was redeployment."

At the time of the broadband cuts, Skilling told analysts the unit had "strong growth," and workers were being redeployed because the telecom industry was in a meltdown, but Enron intended to ride out the industry's problems and forge ahead with its broadband ventures.

Rice testified that in addition to the layoffs, the unit burned through $100 million per quarter and efforts to stream video content on a fledgling network or trade Internet bandwidth were faltering.

Also Tuesday, Wade Cline, Enron's current general counsel, told jurors about his efforts to help the company recoup its $1.2 billion investment in a 2,184-megawatt Dabhol power project in Western India in 2001. His testimony was intended to counter that of former Chief Financial Officer Andrew Fastow and former Treasurer Ben Glisan Jr., who both said they warned Lay in August and October 2001 that the Dabhol project was overvalued and could contribute to multibillion-dollar write-offs.

The Dabhol project was shut down in June 2001 after a dispute over electricity tariffs between Enron and its only customer, the Maharashtra State Electricity Board. The dispute also halted construction of a second plant at the site.

Cline said Enron negotiated to recoup at least its investment in the project and expected to prevail. But the dispute remained mired in arbitration until June last year — long after Enron sought bankruptcy protection in December 2001 and had transferred its interest to former minority partners.

He also acknowledged on cross-examination that Enron — after bankruptcy — recouped only $20 million.

Skilling faces 28 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces six counts of fraud and conspiracy. Last week, Lake approved prosecutors' request to drop three counts against Skilling and one count against Lay to streamline their case.