Enron Trial: Week in Review
by: Rod Rice, March 27, 2006 5:03:00 am
The uses of a "put option" played a key role in last week's testimony.
"A 'put option' is basically an agreement to sell a block of stock at a given price."
Loren Steffy says that's usually done when you expect a stock's price to decline. For example a stock is priced at 10-dollars, you expect it fall so you use a put-option to shield yourself from losing money on the declining stock price.
"It's very unusual for a company to take a put option on its own stock because that's basically a bet that their stock is going to fall, and most companies would like to believe that their stock is going to rise, and even if they think it's going to fall they don't want to telegraph to the market that they think it's going to fall."
The week's star witness, former Enron Treasurer Ben Glisan, testified there was no business purpose for the put-option except to avoid accounting rules. Steffy says on cross examination Skilling's lawyer Dan Petrocelli tried to make the case it did have a business purpose and that purpose was to funnel profits to LJM, Andy Fastow's investing partnership.
"And I guess that if you're a defense lawyer in this case, what you're trying to do is raise doubts about what the witnesses are saying. It was an interesting argument because that means LJM essentially had no purpose. So, he's trying to argue that within the sort of broader shroud of deceit, this one deal would have worked if you accept the fact that the rest of it was all a sham....which kind of goes counter to the rest of their defense arguments."
Steffy says Glisan was the governments strongest witness, placed near the end of the governments case to bind previous testimony together.
"What Glisan did was say yes, I was in this meeting, I told Lay about these problems, I told Skilling about this. Skilling told me he liked this transaction because it got around accounting rules. Lay told me to find out how much of a loss we could report without it hurting our credit rating, and then that's how we decided what our earnings were for the quarter.' So his testimony was very direct and I think very damaging."
Streffy believes that Petrocelli's cross examination of Glisan was his best of the trial, but that trying to make the case that Glisan's is lying to curry favor with the prosecution is difficult because Glisan is currently serving his prison sentence.
There are only a few government witnesses remaining and Steffy believes they will testify about insider trading charges leveled at Jeff Skilling.
"Part of the indictment deals with the fact that after Skilling left Enron he tried to sell a large block of his stock in early September. That prompted some of the insider trading charges in the indictment and I think we're going to hear some witness that address those issues next week 'cause that really hasn't come up in testimony so far."
That testimony is not expected to take very long and so the prosecution may rest next week and then it looks as if there will be a few days off and the defense will begin its part of the trial a week from today.