All the reporters who came to town this week to watch Jeff Skilling testify in the Enron trial will have to wait: Skilling's testimony has been pushed back to at least Monday because of longer-than-expected testimony from former Enron General Counsel Jim Derrick. On Thursday, Derrick discussed ex-CEO Skilling and ex-Chairman Ken Lay's role in the company's operations, saying Skilling and Lay signed off on fudged annual and quarterly reports based on lawyers' and accountants' reviews of the documents and that Lay was an "outsider" when it came to Enron's inner workings.
Derrick said the two ex-Enron executives relied on the advice of Enron's lawyers and accountants when they signed off on misleading financial reports. He said he couldn't think of a time when either Lay or Skilling overruled analysts' advice to make the reports misleading — a stab at prosecution witnesses who testified that Skilling and Lay knew some of the financial information was false.
Also on Thursday, Derrick testified more about Enron's hiring its one-time law firm Vinson & Elkins to conduct a cursory investigation of claims made in Sherron Watkins' memo warning Lay about a "wave of accounting scandals" that she worried would bring Enron down. Watkins recommended Lay not hire V&E to investigate because of the company's ties to Enron — the law firm did more than $35 million a year in business with the company.
Derrick said he didn't think he made a bad decision in hiring V&E for the probe, explaining that it was the law firm's responsibility to turn the job down if it thought there would be a conflict. (Given that $35 million, Houstonist has a little trouble imagining that V&E would turn down anything Enron asked it to do.)
The probe, of course, found no substance to Watkins' claims. Hueston listed several things V&E didn't do in its probe, including interviewing Skilling — who had just left Enron when the investigation started — or examining documents related to the Raptors financial vehicles. Derrick said he never urged V&E to do either thing and said it was up to the law firm to decide whether it wanted to. He did admit that people who criticize the probe for not uncovering the problems Watkins pointed out with Andy Fastow's LJM side deals have a valid point.
As for the "outsider" comment in connection with Lay, Derrick explained that, like on a baseball team, "we all can't play shortstop. Somebody has to play first base." He clarified the comment later, saying that Lay "was focused outward" on Enron strategy rather than on daily internal workings.
Derrick's testimony will resume Monday.
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