Risk & Compliance

Skilling Defense Picks Away at Charges

Former Enron chief approved the transfer of $200 million in losses from the company's struggling retail unit to its wholesale division, but says th...
Stephen TaubApril 12, 2006

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Daniel Petrocelli, the lead defense attorney for Jeffrey Skilling, stepped his client point by point through a number of the prosecution’s 28 charges during Wednesday afternoon testimony.

The former Enron chief executive officer took issue with the testimony of David Delainey, once the head of retail unit Enron Energy Services, who earlier told jurors that his division hid $200 million in losses by transferring them to the company’s profitable wholesale unit, Enron North America. Skilling insisted that the transfer (in fact, a transfer of the retail unit itself) was made for the sake of efficiencies and to take advantage of the wholesale group’s risk-management expertise, not to hide losses, reported the Houston Chronicle.

According to the newspaper, Skilling acknowledged that he had approved the transfer but that he left the final decision to Delainey. “He’s the guy that has to live with it…he had to make the call,” said Skilling said. Enron Energy Services was “going to show losses anyway for the quarter,” which the transfer would not hide, he reportedly added.

For the first quarter of 2001, Enron reported that the retail division earned $40 million, reported the Chronicle, which added that according to the indictment, losses were nearly $1 billion; on Wednesday, Skilling repeated the assertion that the division was doing fine at the time.

According to the newspaper, Skilling also testified that during a 2001 analyst call to discuss Enron’s first-quarter results, his mention of “big, big numbers” was a reference to growth in square footage, not in dollars.

The defense picked away even at the particulars of the wording in the indictment, reported the Chronicle.

The newspaper noted that Skilling is charged with misleading investors in a January 22, 2001, conference call stemming from the California energy crisis. Petrocelli reportedly pounced on the word “small,” which prosecutors had used to describe Skilling’s characterization of Enron’s California activities.

“Did you say that California business was small for Enron?” asked Petrocelli, according to the newspaper.

“When I first saw that, I was surprised,” Skilling reportedly replied. “I never said that.”

Petrocelli then pulled out a transcript of the conference call to show that Skilling was actually answering a question about the effect of the energy crisis on Enron, not about the size of the company’s business in the state. Skilling explained to jurors that Enron’s exposure to California was limited because it had ample cash reserves to handle the fluctuating prices, the Chronicle noted.