Ex-Skilling Ally Testifies in Enron Trial

Ex-Skilling Ally Testifies in Enron Trial

Published: 2/15/06, 2:46 AM EDT
HOUSTON (AP) - They were friends as well as a boss and a top lieutenant during Enron Corp.'s transformation from staid pipeline company to trading pioneer.

But now Kenneth Rice, once a top trader who ran Enron's money-losing broadband venture, is testifying against former CEO Jeffrey Skilling in Skilling's fraud and conspiracy trial alongside company founder Kenneth Lay.

Rice, 47, is among 16 ex-Enron executives who pleaded guilty to crimes and agreed to help prosecutors in hopes of securing a lenient punishment. He appeared comfortable Tuesday, though he focused on jurors and prosecutor Sean Berkowitz as Skilling watched him intently.

Rice described Skilling as a hands-on leader tuned in to keeping Wall Street happy so analysts would promote Enron stock. He said Skilling set earnings targets and then expected division heads to meet them. And Skilling told analysts the unit could survive when it was flailing, he said.

Skilling also led an effort in early 1999 to define Enron as a company with consistent growth rather than a trading company with less predictable growth because analysts who influence stock prices supported stability, Rice said Tuesday, his first day on the witness stand.

"Mr. Skilling told me on several occasions our stock would get whacked" if the market perceived Enron as a trading company, Rice said. He was to resume testimony on Wednesday.

Prosecutors contend Lay and Skilling lied about Enron's financial health when they knew complicated finance structures hid debt and inflated profits. The defense teams say negative publicity and loss of market confidence - not fraud - fueled the company's December 2001 collapse.

He said the broadband unit never lived up to its hype, had paltry cash flow and millions in losses after he, Skilling and others unveiled it with much fanfare at a January 2000 analyst conference. Rice pleaded guilty to securities fraud in July 2004.

He told Skilling in late 2000 that 2001 losses would reach $110 million - almost double the $60 million in losses for 2000. Skilling told him to limit them to $65 million.

"Mr. Skilling would simply say, in fact he did say, `This is the number, this is what the number is going to be,'" Rice said.

Rice said the broadband unit struggled in 2000 and 2001 to contain losses at the level Skilling told Wall Street to expect and show progress in gaining market share.

In March 2001 Skilling told analysts in a conference call that the broadband unit had "strong growth as far as people, budgets, the whole thing," when workers were being laid off and the unit burned through $100 million per quarter, Rice said.

However, he stopped short of saying Skilling lied.

Rice was more explicit last year when he testified in the 2005 fraud and conspiracy trial of five former broadband executives. In that case Rice said he, Skilling and most of the defendants in that case lied when they told analysts in January 2000 that Enron's broadband network was up and running when it wasn't, to generate Wall Street buzz and inflate the company's stock price.

Within two days of the conference, Enron's stock price leaped from $54 a share to $72.

A videotape of Skilling's presentation played during the broadband trial showed he alternated between saying what the network could do at the time and what it would do in the future.

That trial ended with acquittals on some counts, and jurors hung on others. Those defendants are to be retried in three separate cases this year.

Rice said he decided in July 2001 to leave Enron when the broadband unit was to be folded into the larger trading division. Skilling asked him to stay, and they both would leave in "a couple of years," Rice said.

About two weeks later Skilling told Rice that he was going to resign in mid-August and get a boat to travel the world.

"All I remember is it was more like a ship," Rice said. "It was a big boat you could put cars on and maybe a helicopter."
Credit to BellSouth