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Prosecutors come out slugging at Enron trial

By Dan Whitcomb

HOUSTON (Reuters) - Prosecutors inflicted considerable damage against ex-Enron chiefs Ken Lay and Jeffrey Skilling with their first witness, legal experts say, but the defense was certain to be gunning for him when the trial resumes on Monday.

Former Enron investor relations chief Mark Koenig, who testified on Wednesday and Thursday, recounted what he called lies and manipulated earnings reports, and being in the room when Skilling -- on a tape recording played for the jury -- cursed an investor for asking too many pesky questions.

But lawyers watching the case say with four months of the fraud and conspiracy trial ahead, the testimony fell short of being decisive for prosecutors.

"Koenig hit the ball hard, but he didn't hit it out of the park," Chris Bebel, a former federal prosecutor and U.S. Securities and Exchange Commission attorney, said. "And one reason he's not capable of hitting the ball out of the park is because he carries extra baggage in the credibility area."

Koenig, who has pleaded guilty and is testifying under a cooperation agreement with prosecutors, told jurors that Enron juiced up earnings reports and that Skilling and Lay lied about the energy giant's financial condition.

During his testimony jurors also heard an infamous tape in which Skilling, confronted by a hedge-fund investor over Enron's murky financial statements, calls the man an "a**hole" -- in what prosecutors will likely describe as a moment in which the high-flying CEO began to crack under the pressure of maintaining an illusion of the company's financial health.

But defense attorneys, who were expected to begin cross-examining Koenig on Monday, have plenty of ammunition to use against Koenig, both with the plea agreement and with his admission that he previously lied to the SEC and grand jury.

"You don't hit a home run with a witness who has admittedly lied for years but all of a sudden, because he has a get-out-of jail-free card, has changed his mind," said Joel Androphy, a Houston-based defense attorney who has written a book on white-collar crime. "If the prosecution thinks it hit a home run they're not going to last the full nine innings."

SIX FEET UNDER

Skilling and Lay have pleaded innocent to the multiple fraud and conspiracy charges, and blame Enron's failure largely on former chief financial officer Andrew Fastow, who siphoned off millions of dollars in profits from off-the-books deals.

Fastow and 15 other former Enron executives who have pleaded guilty to Enron-related crimes are expected to testify against Skilling and Lay in the coming weeks.

That lengthy parade of witnesses presents a challenge for both prosecutors and defense attorneys, said Alan Bromberg, law professor at Southern Methodist University in Dallas.

Prosecutors must worry that jurors will wonder why so many government witnesses have something to gain for their testimony, he said, while defense lawyers must convince the jury that all 16 are lying -- and that only Skilling and Lay, who face decades behind bars if they are convicted -- are telling the truth.

Skilling and Lay have both vowed to take the witness stand in their own defense, a move that experts say carries heavy risks, especially for two men who walked away from Enron's collapse rich men, testifying in downtown Houston just blocks from the former Enron towers.

Bitterness and anger over the company's demise linger in the Texas city, where thousands lost their jobs and saw their retirement accounts vanish with the company's bankruptcy.

"If Skilling maintains an attitude of 'I didn't know, I didn't know, I didn't know,' the jury is not going to believe him," Androphy said. "And if they don't believe every word out of his mouth he's convicted.

"And Lay had better not think he has it any easier," Androphy said. "At the end of the day you go into a case like this as a defendant six feet under, and you have to continually claw your way out of that hole."

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