In Enron Trial, a Calculated Risk

HOUSTON, TEXAS - Two of the country's best corporate salesmen are about to make the most important pitches of their lives.

After 32 days of testimony from 22 witnesses, prosecutors rested their case last week in the criminal trial of Enron's former chief executives, setting the stage for the defense to take over.

Now the trial has moved to what may be the make-or-break moment for both sides: the testimony of Jeffrey K. Skilling and Kenneth L. Lay. Mr. Skilling.

If history is any guide, the words and even the attitudes of the two polished corporate chieftains, both of whom built their careers on persuasively marketing their business and themselves, could determine whether they leave the courtroom as free men or spend time in prison.

The testimony is fraught with peril. Often in white-collar cases, former corporate executives have taken the stand hoping to explain away the government case, only to demonstrate an arrogance and evasiveness that allowed the jurors to think that the defendants were knowing participants in crimes.

"History is filled with defendants who had their testimony blow up in their face," said Stephen Meagher, a former federal prosecutor who now runs his own law firm in San Francisco. "It is a little like pulling the pin on a hand grenade and hoping that you get it to the other side before it blows up."

Experts say that a jury is willing to lay aside all of the previous evidence and make its judgment based on whether it finds the defendant believable.

"The defendants put the whole case on the line when they testify," said Mark Zauderer, a partner at the law firm of Flemming Zulack Williamson Zauderer, and a specialist on juries. "Once they take the stand, the whole focus changes from the government evidence to whether the jurors can buy the credibility of the defendants."

But that, of course, cuts two ways, experts said. Not only will the jurors put the government's evidence to the test based on the defendant's testimony, but they will do the same with any points that the defense lawyers have scored in the cross-examination of prosecution witnesses.

"Skilling or Lay could undo in a stroke whatever progress the defense has done against the government's witnesses if the jury doesn't believe they are being forthcoming," Mr. Meagher said.

Mr. Lay and Mr. Skilling face complex balancing acts in their testimony. For example, Mr. Skilling prides himself on his intelligence and he has made no secret of his desire to get on the stand and explain the workings of Enron in detail. But, lawyers said, going too far with that approach could backfire on him.

"It would be a mistake for Skilling to come across as a very shrewd, very knowing guy because it could lead the jury to conclude that he should have known of these irregularities," said John J. Fahy, a former federal prosecutor who is now a partner at Fahy Choi in Rutherford, N.J. Such a conclusion could lead a jury to decide that Mr. Skilling acted with willful blindness when he failed to see wrongdoing around him, a deduction that could be used to support a conviction.

Moreover, the jurors will not be the only people listening to their testimony. If Mr. Skilling or Mr. Lay presents a defense that strikes Judge Simeon T. Lake III, who is hearing the case in Federal District Court, as simply not credible, their decision to testify could result in longer sentences for committing perjury if they are ultimately convicted.

The testimony of the defendants underscores their ignominious fall after Enron's collapse. Once they were celebrated as Houston's greatest corporate citizens. They had the ear of many a power broker, from City Hall to Wall Street and even the White House. Those days are gone. Now, they can only hope to persuade the 12 people on the Houston jury that they are not liars and crooks.

In the courtroom, the defendants are a study in contrasts. Mr. Skilling usually sits up straight and stares at the witness with wide eyes. His expression has been pained at times, as when his protégé, Andrew S. Fastow, the former chief financial officer, testified against him.

Mr. Lay often slouches in his chair, looking with an impassive poker face at the witness, frequently scanning the jurors' faces. During some tough moments, as when Ben F. Glisan Jr., the former treasurer, was testifying, Mr. Lay turned his chair and put his back to the witness stand.

While their legal teams plan a combined defense, Mr. Skilling and Mr. Lay face different challenges in responding to the government's case. Mr. Skilling, 52, is charged with 28 counts of conspiracy, fraud and insider trading for time he spent as both chief executive and as the company's president and chief operating officer. Mr. Lay, 63, is charged with six counts of fraud and conspiracy, mostly related to the four months he spent as chief executive after reassuming the post when Mr. Skilling suddenly resigned in mid-August 2001.

In contrast to their situation with Mr. Lay, who kept a low profile and gave no sworn testimony before the trial, prosecutors will have about 2,000 pages of Mr. Skilling's previous testimony with which to challenge him. After Enron's bankruptcy filing in December 2001, Mr. Skilling gave sworn testimony to Congress and the Securities and Exchange Commission and did television interviews proclaiming his innocence. On the stand, Mr. Lay will describe his life like a Horatio Alger story, of growing up poor in rural Missouri, then rising to create what became the seventh-largest corporation in the world. Mr. Skilling will tell jurors about how a fast-rising management consultant joined the fledgling Enron and transformed the natural gas industry.

Both will buttress their cases with character witnesses. For Mr. Lay, these will include some of Houston's leading lights, like Philip J. Carroll Jr., the former Shell Oil Company chief executive; Robert Lanier, a popular former mayor; and Drayton McLane Jr., the owner of the Houston Astros. They are expected to highlight Mr. Lay's philanthropy and other civic acts.

In Mr. Skilling's case, his character witnesses will focus on why he claims he abruptly resigned as chief executive — because of physical and mental exhaustion and out of concerns for his family — after only six months in the job.

Both men have spent an extraordinary amount of time plotting strategy with their lawyers. Mr. Skilling has practically become a lawyer himself. He set up the Houston offices for Daniel Petrocelli, his lead lawyer, across the street from the courthouse. He secured office space there for himself, his wife and his younger brother, Mark, a lawyer who moved back to Houston from Istanbul to help Mr. Skilling with his defense.

Mr. Skilling has forged a close bond with Mr. Petrocelli, who is only three months older than him and exhibits the same brash confidence.

Every morning, Mr. Skilling picks up Mr. Petrocelli at his hotel at 7 a.m. in his Mercedes and they stop at a Chevron station to get coffee before heading to the courthouse. In the months leading up to the trial, Mr. Skilling burned the midnight oil at the offices of O'Melveny & Myers seven days a week. Now Mr. Petrocelli says he makes him go home about 8 p.m. after he dines with the lawyers, so that he can appear rested during the trial.

Both Mr. Petrocelli and Michael W. Ramsey, Mr. Lay's lead lawyer, say that neither defendant has received any coaching or done any mock trials in preparation for testifying. "Nada," said Mr. Petrocelli, who said he was not worried that the emotional Mr. Skilling could lose his temper or otherwise blow up on the stand. "I am sure he will have his moments," Mr. Petrocelli said, "but I have a high degree of confidence that he will be fine."

Both men have fought to contain their feelings in court and generally emerge from the courthouse smiling at day's end. But there have been flashes of raw emotion. Mr. Skilling seemed especially pained as he watched Mr. Fastow and David W. Delainey, who headed the wholesale division and later the retail energy division, testify that Mr. Skilling took part in broad deceptions.

And after Mr. Glisan outlined what he said were public fabrications by Mr. Lay and Mr. Skilling about the health of the company, Mr. Lay, uncharacteristically, erupted outside the courthouse. "I've never heard so many lies in one day in my whole life," Mr. Lay told reporters, according to several accounts. Mr. Lay's wife, Linda, nodded her head and added, "Unbelievable."

Recent white-collar criminal trials have demonstrated high stakes when a chief executive takes the stand. For example, Bernard J. Ebbers, the former chief executive of WorldCom, tried to portray himself as unknowledgeable about many aspects of his own business to explain how he could have been unaware of the company's multibillion-dollar accounting fraud. Mr. Ebbers was convicted, with many legal analysts portraying his testimony as simply unbelievable.

Another chief executive, L. Dennis Kozlowski from Tyco, testified at his criminal trial that he accidentally failed to report $25 million in special bonuses on his taxes and also accidentally overlooked disclosing those payments in the company's public filings. The jury rejected his arguments and convicted him on charges of looting the company.

Other former chief executives have seen their sentences grow as a result of their testimony at trial. For example, Paul A. Bilzerian, the former chairman of the Singer Corporation, received a four-year prison sentence, one of the longest handed down during the Wall Street scandals of the 1980's, as a direct result of his testimony. During that testimony, Mr. Bilzerian made statements that the judge found unbelievable, like claiming to have no knowledge that he was legally required to file a tax return.

"If Mr. Bilzerian had not testified at all at the trial, his sentence would not be what it was," Judge Robert Ward, who presided over the Bilzerian case in federal court, said at the time of sentencing.

Indeed, many chief executives who have testified at their own criminal trials have found that the aggressive, cocksure attitude that helped them climb the corporate ladder can undermine their jury appeal.

"The skills that made them a charismatic leader of a company don't always translate into making them a good witness for the defense," said Robert Mintz, a former prosecutor who is a partner at McCarter & English. "Historically the odds are stacked against a C.E.O. taking the stand."