Trial, Day 8: Who were the real bad guys?

Ken Lay's lawyer Mike Ramsey spent much of Monday trying to show that Lay wasn't involved in inflated earnings reports apparently designed to hide the fact that Enron was going down in flames. In the beginning of the third week of testimony in Lay and Jeff Skilling's trial, Ramsey questioned ex-Enron head of investor relations Mark Koenig about a series of drafts of Enron's second quarter 2001 earnings report in which the earnings numbers kept changing as Enron was headed for a $1.2 billion equity write-down and $680 million in quarterly losses.

Ramsey used a series of drafts of the second quarter 2001 earnings report to show that numbers changed from draft to draft as many employees honed the report and the message, but his client Lay was not copied on most of these early drafts.

Through questioning Koenig, Ramsey stressed that lawyers and accountants and others all reviewed the drafts, in trying to establish that his client did not misrepresent the losses and equity reduction announced in October 2001.

Koenig said the board, including Lay, knew he thought investors would not believe the losses were non-recurring.

Remember last week, when Skilling's lawyer intimated that altering earnings estimates wasn't wrong? Yeah, we do, too — and if that's true, what does it matter if Lay knew about it or not? Koenig stuck by his accusations against Skilling under redirect Monday, saying Skilling definitely knew earnings reports were being manipulated to maintain the illusion of growth at Enron. "They weren't mistakes. I knew [the reports] were wrong the day I made them," Koenig said.

Some of Monday's testimony dealt with former Enron CFO Andy Fastow and his side businesses LJM and LJM2, which did business with Enron. Those deals drew fire from within the company, Koenig said, as employees complained about Fastow making money from Enron and from his side partnerships.

The second government witness, ex-Enron Broadband Services head Ken Rice, took the stand this morning.