Trader Tapes Excluded From Enron Trial

The upcoming trial of Enron Corp. founder Kenneth L. Lay and former Chief Executive Jeffrey K. Skilling won’t feature audiotapes of Enron traders discussing how they gamed California’s power system for high profit when the state was plagued by rolling blackouts and skyrocketing power prices in 2000 and 2001, a judge ruled Thursday.

U.S. District Judge Sim Lake sided with defense arguments that such inflammatory evidence had no place in the Jan. 30 trial because neither Lay nor Skilling was charged with illegal trading or market manipulation in California.

Skilling and Lay are charged with conspiring to hide Enron’s wobbly financial condition in public statements and regulatory filings that painted the company as healthy. Prosecutors had argued that the manipulation of California’s electricity market was part of that puzzle.

Lake ruled that prosecutors could present some California-related evidence during the trial, which is expected to last four months. That includes prosecution testimony from former in-house Enron lawyer Richard Sanders regarding his June 2001 meeting with Skilling during which he informed the CEO about the California gaming strategies.

Skilling faces 35 counts of conspiracy, fraud, insider trading and lying to auditors. Lay faces seven counts of fraud and conspiracy. Both have pleaded not guilty.

The judge has yet to rule on last week’s defense request to move the trial outside of Houston because of potential jurors’ negative comments on questionnaires that are the first step of jury selection.

Also Thursday, Lake ruled that the defense teams could freely question former Enron finance chief Andrew S. Fastow, a key government witness, regarding partnerships and deals from which he skimmed money from the company.

Prosecutors wanted to limit such questioning, but defense lawyers argued that jurors should hear about deals and kickbacks Fastow hid from Skilling, which they said established a pattern that lasted until Fastow’s ouster before Enron’s December 2001 bankruptcy filing.

Fastow pleaded guilty to two counts of conspiracy for orchestrating deals that hid Enron debt and inflated profit while skimming millions for himself. He is one of 16 former Enron executives who have pleaded guilty to crimes and eight identified as potential government witnesses.

Lake also ruled that defense lawyers would not be allowed to probe the sexual misbehavior and drug use of government witnesses.

Legal experts said testimony about whether witnesses used illegal drugs, solicited prostitutes or had adulterous affairs might damage the credibility of testimony prosecutors need to prove their charges.