Enron’s Books Clean, 2 Experts Say

HOUSTON —  Defense lawyers for Kenneth L. Lay and Jeffrey K. Skilling questioned two accounting experts Wednesday in an effort to show that Enron Corp. never falsified its books.

Prosecutors have contended that Enron, under the leadership of company founder Lay and then-Chief Executive Skilling, overvalued its assets and used improper “cookie jar” cash reserves to smooth out earnings.

Walter Rush, who formerly worked for the Securities and Exchange Commission and top accounting firms, testified he believed that the company never improperly set extra cash reserves.

“There are no illegal acts here,” Rush said. “There are no misstatements. The reserves are factually based.”

Prosecutors have contended that Enron hid windfall profit from the 2000-2001 energy crisis in California in a reserve account, which it tapped to meet Wall Street earnings predictions and cover shortfalls in poorly performing businesses.

Enron collapsed into bankruptcy protection in December 2001, at the time the largest U.S. bankruptcy filing.

Lay, 64, and Skilling, 52, are charged with lying to investors to cover up the deteriorating finances of the company they built into the seventh-largest in the U.S.

Another accounting expert, Jerry Arnold, who is also a USC professor, sought to counter government allegations that the company overvalued its assets.

Several former high-ranking Enron executives have testified that Lay misled investors when he said the losses were one-time events.

“I disagree with their interpretation,” said Arnold, who noted his company had been paid $1 million for his work on the Enron defense.

At several points Wednesday, testimony dragged as the witnesses argued details and definitions with prosecutors during cross-examination, prompting U.S. District Judge Sim Lake to intervene.

“We need to move this along. I’m not going to have you sparring over minor uncontroverted issues,” he told Arnold at one point.

The two witnesses came a day after Lay finished six days of testimony in which he portrayed Enron as a healthy company that was brought down by former Chief Financial Officer Andrew S. Fastow, biased media reports and a conspiracy among predatory investors to drive its stock price down.

The defense teams said they expected to wrap up their case early next week, paving the way for closing arguments to begin May 15. Lay is charged with six counts of conspiracy and fraud and Skilling is charged with 28 counts of conspiracy, fraud and insider trading. Both men face decades in prison if convicted.

Lay also faces a second trial on allegations that he illegally used bank loans to buy stock on margin.