January 31, 2006
Enron Jury Chosen in First Day, Setting Stage for Opening Arguments
By ALEXEI BARRIONUEVO
HOUSTON, Jan. 30 — In a single day, the federal judge presiding over the Enron trial here defied skeptics by selecting a 12-person jury to decide whether Kenneth L. Lay and Jeffrey K. Skilling, the former chief executives, conspired to defraud investors in the biggest business collapse in history.

Despite expressing serious reservations about Judge Simeon T. Lake III's plans to make final jury selections in a day, defense lawyers and Mr. Lay himself said afterward that they were satisfied with the jury of eight women and four men. The 12 were selected out of a final pool of nearly 100 prospects.

"They're a well-educated jury, better educated than most," said Michael Ramsey, Mr. Lay's lead lawyer. The jurors range in age from 24 to 66.

Of the 12 jurors, 6 have college degrees and of those, 2 also have master's degrees. Three work in the oil and gas industry, and a few are in accounting. Three are in the education field, and two are self-employed. Two are Hispanic and one is Indian; the rest are white.

"We had some issues, but we are very pleased with the jury that we have," said Daniel Petrocelli, Mr. Skilling's lead lawyer. "They know this is a court of law, not a court of public opinion."

Mr. Lay, speaking to a throng of news media gathered behind a metal barricade, said: "We are pleased with the outcome. My fate and Mr. Skilling's are in their hands."

Mr. Lay arrived early Monday, walking briskly past a phalanx of cameras, tightly clutching the hand of his wife, Linda, and looking downward. When a journalist yelled from the crowd, asking if this trial would be "a chance to clear your name," he called back, "It certainly is."

Inside the courtroom, Mr. Lay appeared tired and kept mostly to himself on one end of a table, tapping a pen and flipping through a yellow legal pad, talking little with his lawyers. At another table, Mr. Skilling used a laptop to watch the live feed of the court reporter's transcript of the conferences between the judge and prospective jurors.

The rapid jury selection set the stage for the much-anticipated trial of Enron's former top brass to begin early Tuesday with opening statements.

The trial of Mr. Skilling and Mr. Lay, the two men most directly responsible for Enron's meteoric rise from a stodgy pipeline company into an energy-trading powerhouse, is the culmination of four years of investigation by the government's Enron Task Force into the company's spectacular bankruptcy filing in December 2001.

Mr. Lay and Mr. Skilling are accused of participating in a suspected conspiracy to defraud the company and mislead investors about the true health of the company's businesses. Mr. Skilling, 52, is charged with 31 counts of conspiracy, fraud and insider trading. Mr. Lay, 63, is charged with seven counts of conspiracy and fraud.

Judge Lake held true to his promise, made last week, that he would strive to seat a jury in one day. He made it clear to the full panel of 96 prospective jurors gathered in the morning that the court was "not looking for people that want to punish anyone or seek vengeance" against Enron for the company's failure.

The 96 jurors had survived from an original pool of 400 jurors selected randomly from among registered voters. Lawyers on both sides had whittled the pool using responses to a 14-page jury questionnaire sent out in November. Judge Lake questioned the prospective jurors one by one at the bench, out of earshot of reporters and others in the courtroom, including Mr. Lay and Mr. Skilling. Lawyers from both sides were allowed to ask prospective jurors follow-up questions at the bench. They typically spent less than 10 minutes with each prospective juror.

At 4 p.m. Judge Lake announced that the panel had been narrowed to 38 and gave the defense and prosecution 40 minutes to decide on their final strikes. An hour later, the jury had been seated.

Legal scholars and jury consultants have expressed surprise that Judge Lake would seek to seat a jury in just one day for such a complex trial. The judge himself estimated on Monday that the trial would take four months.

"It's unusual, given the projected length of the trial and the obvious complexity as well as the rampant notoriety," said Jonathan N. Halpern, a former federal prosecutor who is now a partner at the law firm Winston & Strawn. "But to a certain extent it is to be applauded for efficiency and for moving the trial process along."

The lawyers for Mr. Skilling and Mr. Lay, who are reportedly spending more than $20 million on their joint defense, twice tried to move the trial to other cities and fought for more time to question jurors individually. But Judge Lake, 61, a Ronald Reagan appointee known for his blistering efficiency, rejected those requests. He said in court that the detailed nature of the jury questionnaire, which asked jurors 16 specific questions about Enron out of 76 total questions and included queries about the people jurors admired the most and the least, had done much of the work in culling the prospective pool.

Still, a number of jurors in the morning told the judge that they knew several of the pastors on the witness list for the defense, and other potential witnesses. One 20-year-old black man said that he did not think he could stand in judgment of Mr. Lay and Mr. Skilling. "Everyone in here at least once in their lives has been falsely accused of something," he said. He did not make the panel.

Judge Lake did not impose particularly harsh protections on the jurors, who will be reimbursed for "reasonable" travel expenses — "don't go out and buy a Lexus," he jokingly cautioned — but will not be bused or sequestered. The judge carefully safeguarded the privacy of the jurors on Monday, admonishing those who accidentally uttered their names instead of their badge numbers when asked questions.

Handling juries has proved a delicate matter for judges in other high-profile white-collar cases. In the first trial of L. Dennis Kozlowski, the former Tyco chief executive, in 2004, loose protection of jurors' identities allowed two newspapers to learn the identity of a juror and publish it, leading to a mistrial in the six-month trial. In the trial against Martha Stewart that same year, the judge in the case banned reporters from jury selection, saying it could impede Ms. Stewart's chances of getting a fair trial with an impartial jury.

Outside the courthouse, the scene took on a carnival-like atmosphere.

Four mounted Houston police hired by the United States Marshals Service flanked Mr. Skilling and Mr. Lay as they entered and exited the courthouse. At one point, Mr. Lay looked up at one of the police on horseback and said, "Thank you."

Vikas Bajaj contributed reporting from New York for this article.



Copyright 2006The New York Times

January 30, 2006
An Enron Jury Free of Grudges? Easy, Judge Says
By ALEXEI BARRIONUEVO
and SIMON ROMERO
HOUSTON, Jan. 29 — Chances are that in this city's pool of 2.3 million registered voters, there are at least 16 people who are not angry about the implosion of Enron, the largest business collapse in history. But finding them in a single day could be a challenge.

That has not deterred Judge Simeon T. Lake III of Federal District Court, who will begin the much-anticipated criminal trial of the former Enron chief executives Kenneth L. Lay and Jeffrey K. Skilling on Monday.

Judge Lake said in court on Thursday that he expected to choose a panel of 12 jurors and 4 alternates from 100 prospective members in one day. After examining responses to the jury questionnaires, Judge Lake indicated that he felt they did not show evidence of prejudice against the defendants. "I've been impressed by the apparent lack of bias or influence from media exposure," he said.

The lawyers defending Mr. Lay and Mr. Skilling have contended for months that finding impartial jurors in Houston would be difficult, if not impossible. But the judge has rejected two requests to move the trial outside of Houston, where Enron was based, and has repeatedly denied pleas by the defense lawyers to allow them to question individual jurors during the final selection process, called voir dire.

The defense lawyers say they are deeply troubled by responses to jury questionnaires, which came back with mostly negative comments about Enron and the defendants. Many Houstonians hold a grudge against Enron's leadership for the company's collapse, which directly wiped out more than 4,000 jobs and retirement accounts and sent shock waves through the city's economy.

Edward J. Bronson, a jury consultant from California who was hired by the defense to study the potential juror responses, noted that among 280 questionnaires, "greed" appeared 272 times and "crook" appeared 55 times.

"Someone has to be held accountable for what happened to Enron," Leslie Pierce, a special education teacher, said here on Saturday. "How could these men not have known what was going on? People here will be in an uproar if they are not blamed."

The notion that a judge overseeing something as far-reaching and complex as the Enron trial could pick a jury in a day was assailed by several outside legal experts and jury consultants, who argued that rushing the process could only hurt the chances that Mr. Lay and Mr. Skilling would get a fair hearing in Houston.

"To get this done in one day would be a travesty of justice," said Howard Varinsky, an independent jury consultant who worked for the prosecution in the Martha Stewart and Scott Peterson trials.

"About a week would be more appropriate," said Mr. Varinsky, who nevertheless believes Houston, the nation's fourth-largest city, is varied and big enough to produce objective jurors for the trial.

Of course, the one-day idea could simply be an effort by Judge Lake, who is known for his efficiency, to establish his authority and inject some urgency into the process. But if he proves to be serious, the defense could well begin a trial that is expected to last up to six months facing an uphill fight to disabuse jurors of any prejudices about Mr. Skilling and Mr. Lay. The government has charged Mr. Skilling with 31 counts of conspiracy, fraud and insider trading in connection with Enron's spectacular collapse in December 2001. Mr. Lay is charged with seven counts of fraud and conspiracy.

Mr. Lay and Mr. Skilling are reportedly spending more than $20 million on their joint defense. Their lawyers have dedicated considerable resources to the jury issue, hiring pollsters, political scientists, sociologists and jury consultants to study the prospective pool, which began with 400 people. "This is a monumental problem," said Michael Ramsey, Mr. Lay's lead lawyer. "It overshadows all the other problems we have."

Trying in a defendant's hometown a case that involves allegations of corporate corruption is not always a disadvantage. In last year's trial of Richard M. Scrushy, the former chief executive of the HealthSouth Corporation, Mr. Scrushy, who is white, used the hometown venue to his advantage by working to appeal on an emotional level to the predominantly black jury.

Mr. Scrushy joined a black church in Birmingham and was accompanied to the courtroom by groups of black supporters, including pastors from local churches. One of those pastors recently said Mr. Scrushy had paid him and an employee to make public displays of their support.

Even with local hostility, "the courtroom is where you create the level playing field," said Donald V. Watkins, Mr. Scrushy's lead defense lawyer. "It is the forum where you can demonize the government's witnesses and humanize your client." Mr. Watkins said that before the trial, polling in Birmingham showed that more than 90 percent of residents there thought Mr. Scrushy was guilty. In the end, he was acquitted of all charges.

Still, it might be challenging for Mr. Skilling and Mr. Lay to turn Houston into an advantage. In the late 1990's Enron was the highest-profile company here, and even Houston's beloved downtown baseball stadium was first named after it. The effects of its collapse were deeply felt.

Richard Trippie, a pediatric dentist who lives in Baytown, about 25 miles east of Houston, said Mr. Lay and Mr. Skilling "were playing fast and loose with other people's money." But, he said, "I think they will find enough people that don't have an ax to grind" to serve as jurors.

Moira Barela, a retired high school teacher, said of Mr. Lay and Mr. Skilling, "They should throw the book at them." Her negative views about the men were shaped, she said, by watching the documentary "The Smartest Guys in the Room," which was showing at one Houston theater not far from Enron's former headquarters for more than six months. Still, she said, "There are still a lot of very conservative people in Houston who wouldn't think a big corporation could do any wrong."

The level of emotion in Houston was palpable in the pool of prospective jurors, which started out numbering 400 and was culled to 100, mostly through responses to a 76-question form. (If a jury cannot be chosen from the 100 on Monday, a few dozen prospective jurors remain in reserve.)

"In my experience I have never seen the type of vituperative responses and opinions expressed by 80 percent of the large jury panel as are present in this case," said Dick DeGuerin, a Houston defense lawyer, in a filing on behalf of Mr. Lay and Mr. Skilling's second request to move the trial.

Mr. Bronson, the defense's jury consultant, said that only 18 jurors among the 280 whose questionnaires he analyzed said they did not harbor negative views about Enron — "hardly a cross section of the Houston community," he said.

Sean M. Berkowitz, the director of the Enron Task Force at the Justice Department, said in a recent filing with the court that the detailed questionnaire provided "safeguards for determining the impartiality of jurors" that "exceed those sought by" Mr. Lay and Mr. Skilling. Samantha Martin, a Justice Department spokeswoman, declined to comment further.

Mr. Bronson said Judge Lake should allow the lawyers ample time to question the jurors in court on Monday, a recommendation echoed by other outside legal experts. Federal judges like Judge Lake generally question jurors themselves in an effort to explore in greater depth the answers that the jurors have given to written questions, while in state courts lawyers are more involved in the process.

Abraham Abramovsky, a professor of criminal law at Fordham University, said the Enron trial was "a unique case and should be handled as such." He added: "If you want jurors to concentrate and really believe in the presumption of innocence, you have to show them that you really are concerned with prejudices and adverse publicity."

Without the chance to do additional questioning, Mr. Ramsey and Daniel Petrocelli, Mr. Skilling's lead lawyer, may have few options except to try to influence the jurors during the trial.

The defense could opt to hire a "shadow jury" composed of people who closely match the racial and economic profile of the jurors chosen by the court. The shadow jury would monitor the trial from the spectator benches in the courtroom and then be quizzed by consultants on their impressions, without ever knowing if they were working for the defense or for the prosecution. But Mr. Ramsey said he was not in favor of this approach, having been unsatisfied with a shadow jury he used in a high-profile murder case three years ago. "It is a total luxury item that can be misleading," he said.

Some in Houston say that in the end their city will not prove to be a liability for the defense. "This is probably the best place they could have gotten a trial," said Cameo Wachinsky, a film producer, as she walked out of a bookstore here on Saturday. "People are crooked here. This is Texas. They definitely will listen to both sides."

Kyle Whitmire contributed reporting from Birmingham, Ala., for this article.



Copyright 2006The New York Times

Skilling, Lay Lied About Enron's Health, U.S. Argues (Update2)
Jan. 31 (Bloomberg) -- Former Enron Corp. executives Kenneth Lay and Jeffrey Skilling deceived investors about the company's financial health to make millions in stock profits, a prosecutor said in opening arguments of the pair's fraud trial today.

U.S. Justice Department lawyer John C. Hueston told the eight-woman, four-man jury in Houston that Lay, Enron's former chairman, and Skilling, its former chief executive officer, knew the energy trading firm was on the brink of collapse in 2001. They hid that fact from investors while selling millions of their own shares in the company, he said.

Lay and Skilling ``told lie after lie about the true financial condition of the company,'' Hueston said. ``Those lies propped up their stock holdings and deceived investors about information they needed'' in making decisions about whether to sell the company's shares, he said.

Skilling, 52, and Lay, 63, are charged with overseeing a wide-ranging financial fraud that led to the demise of what was once the nation's largest energy trader.

Enron had more than $68 billion in market value before its bankruptcy filing wiped out more than 5,000 jobs and at least $1 billion in retirement funds virtually overnight. Outside investors suing over the company's collapse contend accounting fraud led to at least $25 billion in losses.

Lay is charged with seven counts of fraud and conspiracy, plus four counts of bank fraud that will be tried separately after the first trial. Skilling faces 31 counts of fraud, conspiracy and insider trading.

Skilling's Testimony

U.S. District Judge Sim Lake gave Hueston two hours to make his opening statement. Daniel Petrocelli, Skilling's lead defense lawyer, began his two-hour statement by vowing to put Enron's former chief executive on the witness stand ``to tell you in his own words that he never'' committed any of the crimes the government alleges.

Lay's defense lawyers will get the same amount of time to talk to jurors later today.

Hueston told jurors the government would focus on Skilling's and Lay's efforts to deceive investors and employees, not on the arcane accounting systems used do to it.

``This is a simple case,'' Hueston said. ``It's not about accounting. It's about lies and choices.''

For example, the executives were briefed by subordinates about performance problems at several Enron subsidiaries in 2001, including its Internet and wholesale energy units, Hueston said. Both had millions in losses.

Instead of alerting investment analysts about the problems, Skilling provided ``fiction'' when he talked about the units' growth potential, the prosecutor said.

Sunshine for Investors

``It was good news and sunshine for investors,'' Hueston said after playing tapes of Skilling's comments during conference calls with analysts. He didn't mention anything about the losses, the prosecutor said.

Later that year, Enron employees told Lay that the company was a ``ticking time bomb'' because of accounting irregularities, Hueston said.

Lay then stepped ``up to a microphone and falsely assured the investing public there was nothing wrong at Enron,'' the prosecutor said. ```There are no shoes to drop,''' Hueston quoted Lay as saying.

Enron former chairman knew Enron was heading toward bankruptcy in December 2001, Hueston said. Instead of warning employees to sell company shares tucked away in retirement funds, Lay sold $6 million worth of his own shares, he added.

No Conspiracy

In his opening remarks, Petrocelli told jurors that Skilling and Lay contend that prosecutors are seeking to criminalize normal corporate practices and are seeing conspiracies where there were none.

Skilling ``didn't know about any criminal conspiracy, didn't see any criminal conspiracy and didn't hear any criminal conspiracy,'' Petrocelli said. ``And the same for Mr. Lay.''

Petrocelli, Skilling's main defense lawyer, spoke for Lay because the former executives are mounting a joint defense to the government's charges.

The government alleges that Skilling and Lay were ``consumed by greed and that's what brought down Enron,'' Petrocelli added. He added that the government' accusation ``isn't true.''

Enron collapsed as a result of an ``unexpected liquidity crisis'' caused by its trading partners, the defense lawyer said. ``It was a tragedy that happened'' to Enron, Petrocelli added. ``It wasn't a crooked company. It suffered a tragedy.''

Enron Thefts

Petrocelli noted that prosecutors haven't charged Skilling with any Enron-related thefts. ``The evidence in this case is that Mr. Skilling did not steal one nickel,'' he said.

``There is a man who stole a nickel -- stole $25 million in nickels -- and his name is Andrew Fastow,'' Petrocelli said. Fastow is Enron's former chief financial officer whose already pleaded guilty to a fraud charge connected to Enron's collapse.

Fastow, who allegedly reaped more than $25 million from off- book partnerships he created to buy faltering Enron assets, is expected to be the government's star witness.

Petrocelli said Fastow, along with former Enron executives Ben Glisan and Michael Kopper, ``ripped off Enron'' through their participation in Enron-related deals with the off-book partnerships. Glisan and Kopper made millions off the deals while still working for Enron.

``What they stole was hidden from Jeff Skilling, hidden from Ken Lay and hidden from'' Enron's board, Petrocelli said.

The case is U.S. v. Skilling, H04025, U.S. District Court, Southern District of Texas (Houston).



To contact the reporters on this story:
Jef Feeley in Houston at jfeeley@bloomberg.net;
Laurel Brubaker Calkins in Houston at laurel@calkins.us.com.

Last Updated: January 31, 2006 12:25 EST

UPDATE 2-Enron was "ticking time bomb" --prosecutors
Tue Jan 31, 2006 12:06 PM ET
(Recasts with start of opening arguments, adds prosecutor quotes)

By Matt Daily

HOUSTON, Jan 31 (Reuters) - Enron Corp. was a "ticking time bomb" in its final months, as top executives lied to the public about the billions of dollars in losses it faced, prosecutors said on Tuesday at the start of the trial of former chief executives Ken Lay and Jeffrey Skilling.

"To the outside world, Enron appeared to be a picture of corporate success," prosecutor John Hueston told the jury in his opening arguments. "Inside the doors of Enron, things were terribly wrong."

The government's case, the culmination of four years of investigation by the U.S. Justice Department's Enron Task Force, contends Lay and Skilling schemed to hide the company's mountain of debt stashed in off-the-books partnerships and lied to analysts and investors as it hurled toward bankruptcy in December 2001 in a scandal that rocked the financial world.

The Enron name became synonymous with corporate greed and a wave of corporate scandals that went on to snare HealthSouth, WorldCom, Global Crossing and Adelphia and led to the passage of the 2002 Sarbanes-Oxley Act that toughened financial reporting and auditing requirements for publicly owned companies.

Lay, 63, who headed the company as CEO and chairman for 15 years, and Skilling, 52, who also served as CEO, are charged with more than three dozen counts of conspiracy and fraud.

When Lay returned to the CEO post in August 2001 that Skilling had vacated after holding it only a few months, "He is told the (the company) is the equivalent of a ticking time bomb, that Enron is facing billions of dollars in losses," Hueston said.

"His response? He steps to the microphone and falsely assures the investing public" that the company is healthy, Hueston said.

Lay took home $220 million in salary and from the sale of Enron stock from 1999 through 2001, Hueston said, while Skilling pocketed $150 million.

Skilling has been charged with insider trading for his stock sales. Lay will face a separate trial later on charges he misused bank loans to buy Enron stock.

Their lawyers will argue their case later in the day, but the two men have denied any wrongdoing and laid the blame for Enron's demise on the financial misdeeds of former Chief Financial Officer Andrew Fastow.

The defense lawyers are expected to argue that any wrongdoing at Enron was kept secret from their clients, and much of the vitriol directed at the company since its demise was unjustified.

Fastow has pleaded guilty to conspiracy and agreed to cooperate with prosecutors in exchange for a maximum 10-year prison sentence. He is expected to testify against his former bosses.

The jury for the trial that is expected to last four months was sworn in on Monday after presiding U.S. District Court Judge Sim Lake questioned 100 potential jurors individually to ferret out possible bias.

He told the panel on Monday he did not want people on the panel who were there to "right a wrong or provide a remedy for those who suffered," but who could fairly weigh the evidence in the case.

Bitterness and anger over the company's demise linger in Houston, where thousands lost their jobs and saw their retirement accounts vanish with the company's December 2001 bankruptcy filing.

Lay is facing seven charges in the trial, and Skilling is facing 31 charges.

© Reuters 2006. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.

Enron Prosecutor: Skilling, Lay 'Told Lie After Lie' Trial Begins for Enron Former CEO and Founder Accused of Conspiracy
Former Enron CEO Jeff Skilling, right, arrives at Houston's federal courthouse with his attorney, Daniel Petrocelli, left, on Tuesday, Jan. 31, 2006. Skilling and Enron founder Ken Lay are facing fraud and conspiracy charges. (David J. Phillip/AP Photo)
By GINA SUNSERI

Jan. 31, 2006 — It's Andrew Fastow's fault. So said Jeff Skilling's lead defense attorney in opening arguments in the Enron trial today.

Attorney Daniel Petrocelli blames Fastow, the former finance chief, and two others, former treasurer Ben Glisan and Fastow aide Michael Kopper.

"The evidence in this case is that Mr. Skilling didn't steal one nickel, you would have heard it, and you didn't. Not one nickel. They accuse him of a lot of things, but they don't accuse him of that," Petrocelli said.

The prosecution went first, telling the jury, "This is a simple case. It is not about accounting, it's about lies and choices. Defendants Lay and Skilling chose to falsely assure the public there were no problems at Enron. They chose to lie."

The conspiracy trial of Lay, Enron's founder, and Skilling, the former CEO, began Monday with jury selection. The case is being called the most scandalous corporate collapse in recent memory.

"We will take you inside the doors of the seventh-largest company, with two men at the head of the company who told lie after lie, lies that deprived common investors of the information they needed to make decisions," Prosecutor Sean Berkowitz told the jury.

Enron was at one time the largest energy trader in the world. It declared bankruptcy in December 2001 and unceremoniously sacked thousands of employees. It also froze its employees' 401(k) retirement programs for a time, during which many workers found most of their life savings were wiped out, as Enron's stock plummeted from $90 a share to less than $1 share in just weeks.

Lay and Skilling are charged with intentionally lying about the health of the company while dumping half a billion dollars of their own stock, charges that both deny. Lay, in a speech to the Houston Forum Club last month, vowed to clear his name and that of the company he built and loved.

"I will testify at my trial. I will do my best to get the truth out. I for one do not wish to leave the responsibility for undertaking the difficult task of clearing Enron and my name to my children or my grandchildren or those willing to dig through the rubble long after we are gone."

Diana Peters once believed in Lay. She worked at Enron for 10 years, starting as a graphic designer. But she has no time for regrets now. She has house payments to make, groceries to buy, and no health insurance. Her husband has been battling cancer for years. He had a biopsy last week; they will get the results on Wednesday.

Peters will go to the trial if she can get time off from work. After all, she has been waiting years to see someone at Enron held accountable for its collapse.

"I think closure for me is going to be when Jeff Skilling goes to jail. This has been a nightmare that keeps going and going and going. I sometimes feel like I don't have a permanent job because my resume is only going to say Enron, and people look at us as being like our bosses," she said.

The first witness takes the stand Wednesday. The trial is expected to last four months.

Enron Prosecutors State Their Case

HOUSTON, Jan. 31, 2006
--------------------------------------------------------------------------------
(CBS/AP) The blockbuster criminal trial of former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling is about lies, not numbers, a federal prosecutor told jurors Tuesday, launching the much-awaited case against the scandal-ridden company's former corporate titans.

Prosecutor John Hueston said it's a simple case. He said, "It is not about accounting. It is about lies and choices."

He told jurors that Lay and Skilling assured investors that all was well despite crushing debt and chaotic finances propped up by fragile structures designed to hide liabilities, and maintain Enron's well-polished image of success.

"They chose to lie," Hueston said.

Enron, once the seventh-largest company in the United States, crashed in December 2001 within weeks of revelations of hidden debt, inflated profits and alleged accounting tricks. The trial is under way just blocks from the former headquartersof the company adored by Wall Street in the late 1990s as a trading pioneer with a lofty stock price.

Skilling faces 31 counts of fraud, conspiracy, insider trading and deceiving auditors for allegedly lying about Enron's financial strength. Lay faces seven counts of fraud and conspiracy for perpetuating the alleged scheme after Skilling resigned in August 2001. Both have pleaded not guilty.

The former head of Enron's investor relations department, Mark Koenig, who worked with Lay and Skilling on quarterly conference calls with analysts, is expected to take the stand, CBS News reports. Koenig pleaded guilty in August 2004 to aiding and abetting securities fraud.

Lay and Skilling contend that Enron's success was genuine and that they committed no crimes.

Hueston used Skilling's own words to illustrate the alleged lies. Skilling was a top cheerleader for Enron's defunct broadband business, touting it as a multibillion-dollar behemoth to Wall Street in 2000 and 2001 while the rest of the once-hot telecom industry struggled.

Skilling told broadband employees in March 2001 that the telecom market was in "absolute meltdown," and workers needed to be moved elsewhere in the company because "the whole revenue opportunity we saw is gone or shrunk significantly."

Eight days later Skilling told analysts the broadband division was "coming along just fine," and "in fact, I'm pretty optimistic about it."

The jurors, including an additional two women and two men as alternates, were picked after just one day of jury selection in Houston federal court. Opening statements were scheduled for Tuesday.

While thousands of Houston-area residents were laid off in the flame-out of the energy giant, U.S. District Judge Sim Lake made clear to the pool of almost 100 potential jurors assembled Monday morning that the jury box was not the place to avenge those who lost jobs or investments.

"We are not looking for people who want to right a wrong or provide remedies for those who suffered in the collapse of Enron," Lake said.

Observing the trial, CBS News legal analyst Andrew Cohen writes, "It was an extraordinary quick selection process that is sure to generate lingering questions of fairness no matter what ultimately happens at trial."

Skilling abruptly resigned from Enron in August 2001 — after serving as CEO for just six months — and Lay, who was chairman, resumed the CEO role.

"The evidence will show he was told of the equivalent of a ticking time bomb," Hueston said, referring to a celebrated memo from former Enron executive Sherron Watkins warning that the company could "implode in a wave of accounting scandals" if fragile accounting tricks designed to hide debt were revealed publicly.

Yet Lay assured employees and investors "that there are no problems, there are no shoes to drop."

Both Skilling and Lay also lied about the strength of Enron's retail energy unit, which never made a profit and was so mismanaged that Enron didn't keep track of customer payments for energy management services.

Former heads of broadband and retail energy are among 16 ex-Enron executives who have pleaded guilty to crimes and agreed to help prosecutors. At least eight of those, including former Enron finance chief Andrew Fastow, are expected to testify against their former bosses. Watkins also is slated to testify for the government.

Opening statements were expected to last through Tuesday, followed by testimony Wednesday.




©MMVI, CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.

January 31, 2006
At Enron Trial, 2 Sides Chart Widely Different Courses
By ALEXEI BARRIONUEVO
and VIKAS BAJAJ
HOUSTON, Jan. 31 — The government and the defense in the criminal trial of the two central figures at Enron outlined widely different approaches to their cases during opening arguments here today, with the prosecutors eschewing arcane financial detail and the defense embracing it.

"This is a simple case," John Hueston, a federal prosecutor, said. "It is not about accounting, it is about lies and choices."

In the first hours of arguments in the trial of Enron's former chief executives, Kenneth L. Lay and Jeffrey K. Skilling, the government made it clear that it would not get bogged down in the kind of mundane details that, legal experts say, have cost prosecutors convictions in other recent high-profile white-collar criminal trials.

But a lawyer for Mr. Skilling countered that accounting was central to the case and would play a key role in the defense of the executive. "This place was infested with accountants and lawyers, so it is about accounting," the lawyer, Daniel M. Petrocelli said.

The role of accounting will not be the only distinction between the two sides approach to the case. Whereas Mr. Hueston described Enron as a "ticking time bomb" and said the executives had lied to the investors and analysts about the true state of the company's finances, Mr. Petrocelli characterized Enron as a successful and healthy enterprise that was brought down by a "punishing drain on its liquidity."

"This is not a case of hear no evil and see no evil," Mr. Petrocelli said. "This is a case of there was no evil."

The jury of eight women and four men, which was selected from a pool of almost 100 on Monday, listened attentively; several jurors took notes and others held their heads in their hands as they followed a presentation on an overhead projector. The group includes three people who work in the oil and gas industry and few in accounting.

The trial of Mr. Skilling and Mr. Lay, the two men most directly responsible for Enron's meteoric rise from a stodgy pipeline company into an energy-trading powerhouse, is the culmination of four years of investigation by the government's Enron Task Force into the company's bankruptcy filing in December 2001.

Mr. Lay and Mr. Skilling are accused of participating in a suspected conspiracy to defraud Enron and mislead investors about the true health of the company's businesses. Mr. Skilling, 52, is charged with 31 counts of conspiracy, fraud and insider trading. Mr. Lay, 63, is charged with seven counts of conspiracy and fraud.

The prosecution and two defense teams each have two hours to make their opening arguments today in a trial that is expected to last for four months. (Lawyers for Mr. Lay are expected to speak later this afternoon.) Each side is expected to call dozens of witnesses; Mr. Lay and Mr. Skilling are also expected to testify in their own defense.

Mr. Hueston identified a couple of the key witnesses the government plans to call, many of whom are cooperating in plea deals and in exchange for reduced sentences. They include Andrew S. Fastow, Enron's former chief financial officer; Mark E. Koenig, who headed investor relations and is expected to be the lead witness for the government; Paula H. Rieker, his deputy; and David W. Delainey, who headed the company's retail energy business.

The government said the witnesses will recount how Mr. Lay and Mr. Skilling kept the public in the dark about the myriad financial problems at Enron. While they ignored warnings from subordinates that troubles at the company were mounting, Mr. Hueston said, the executives were taking home large compensation packages and seeing the value of their Enron shares soar. He noted that Mr. Lay's compensation totaled $220 million from 1999 to 2001, and Mr. Skilling netted $150 million in the same time.

"But inside the doors of Enron, something was terribly wrong," Mr. Hueston said.

He said the evidence would show that Mr. Skilling, for instance, knew when he left the company in mid-August in 2001 that Enron was in trouble but continued to assure investors that the energy company was doing fine. Mr. Hueston said Mr. Skilling sold 500,000 shares of Enron stock after the Sept. 11 terrorist attacks, up from the 200,000 shares he had tried to sell just a few months before.

Though in testimony given to the Securities and Exchange Commission, Mr. Skilling said he "absolutely agonized" over the sale, Mr. Hueston said a taped conversation between the executive and his broker would show that Mr. Skilling was lying.

Mr. Skilling's lawyer did not specifically address the stock sales but said the former chief executive left the company to pursue teaching and other business interests. Mr. Petrocelli spent about half his opening statement rebutting the government's assertions, and said the evidence would show the government was quoting Mr. Skilling out of context when it sought to portray his positive public comments about Enron as being out of step with his private actions.

"I cant tell you how happy Jeff Skilling is to be in sanctity of this courtroom," Mr. Petrocelli said. "He knows this is where the facts will finally be told."

The defense will also argue that Mr. Fastow and his subordinates were responsible for the frauds at the company, particularly those involving off-balance sheet enterprises meant to hide losses.

To make their case, the defense will try to discredit the testimony of Mr. Fastow and other former officials and seek to attack the reasons they were testifying against their former bosses. The defense has listed 199 potential witness, including some prominent Houston business and religious leaders who are expected to testify as character witnesses for the executives.

Mr. Skilling's ex-wife, Sue, and three children from his marriage sat in the second row during the proceedings today. During breaks in the proceedings today, Mr. Skilling occasionally would embrace or touch his children.

Alexei Barrionuevo reported for this article from Houston, and Vikas Bajaj from New York.



Copyright 2006The New York Times

February 1, 2006
Opening Arguments in the Trial of Ex-Enron Chiefs
By ALEXEI BARRIONUEVO
HOUSTON, Jan. 31 — On the opening day of the much-anticipated trial of Kenneth L. Lay and Jeffrey K. Skilling, lawyers for the government and the defense on Tuesday told a tale of two Enrons, portraying starkly different versions of why the energy company collapsed in late 2001.

That Enron blazed a path to the summit of the energy world was not in dispute. In the 1990's, it was a Wall Street darling, the pride of an energy city and the creator of an industry that bought and sold natural gas, electricity and anything else its ambitious employees could dream up. But since its bankruptcy, Enron has come to symbolize the corporate malfeasance that infected so many American corporations in the 1990's.

After nearly six hours of opening statements, it was clear that Enron's sudden failure — and the reasons behind it — were as much on trial here as Mr. Skilling and Mr. Lay.

In its statement, the government painted a picture of a company whose stunning rise in profits was accounting "hocus pocus." It said that two of Enron's trumpeted businesses were in bad shape and that its chief executives chose to lie about the company's true condition to the investing public out of personal greed. In the end, the government said, the comments of Mr. Skilling and Mr. Lay contributed to investors and employees losing millions when Enron's share price cratered in 2001.

"This is a simple case," John Hueston, an assistant United States attorney, told the jury of eight women and four men. "It is not about accounting. It is about lies and choices."

Mr. Hueston, who spoke for 90 minutes, said the government would focus not on the Byzantine accounting that many have attributed to the criminal activity inside Enron, but on the purportedly misleading statements that Mr. Skilling and Mr. Lay gave to investors in 2000 and 2001 — lies, the government said, that hurt Enron and gave the two men insider knowledge about when to sell stock.

The defense countered with its own portrait of a pioneering company built by Mr. Skilling, a former management consultant, and Mr. Lay, a poor Missouri farm boy, that grew rapidly through risk-taking. What ultimately killed Enron, the defense said, was a "death spiral" that began when the market panicked and creditors pulled their support for Enron's trading operation.

"Ken Lay has, does and will continue to accept responsibility for the fall of Enron," Michael Ramsey, Mr. Lay's lead lawyer, said. "He was the man at the controls. But failure is not a crime."

Mr. Ramsey and Daniel Petrocelli, Mr. Skilling's lead lawyer, vowed to attack the government's case by defending the allegedly fraudulent accounting that the government now says it will not focus on. But Mr. Lay's lawyer also laid out a case that will blame outsiders, including short-sellers, The Wall Street Journal and Enron's own over-reliance on trading to produce profits, for stoking the crisis of confidence that led to the company's descent to the largest bankruptcy filing in history at the time.

The courtroom was packed for opening arguments. Family members of Mr. Lay and Mr. Skilling filled one row. Mr. Skilling smiled and, during breaks, touched the heads of his three children and his wife, Rebecca Carter, a former Enron corporate secretary. Mr. Lay sometimes left the courtroom with his arm around the shoulders of his wife, Linda.

The jurors focused intently; several took notes on yellow legal pads.

Lawyers said the trial would be a pitched battle. "It is going to be extremely difficult for this jury to sit in judgment," said Philip Hilder, a lawyer representing Sherron S. Watkins, a likely government witness. "Both sides made very compelling cases. You can see it is going to be a real slugfest between the parties."

The government has accused Mr. Skilling of 31 counts of conspiracy, fraud and insider trading; Mr. Lay is accused of 7 counts of conspiracy and fraud.

To make its point, the government told the judge, Simeon Lake III, that the first witness on Wednesday would be Mark E. Koenig, the former head of investor relations. Kenneth D. Rice, the former head of the broadband unit and once a close friend of Mr. Skilling, will be the second witness, prosecutors said. Mr. Koenig is expected to testify about purportedly misleading statements both men made to analysts and large investors about Enron.

Mr. Hueston, in his opening statement, said that by the middle of 2001 Enron had grown to the seventh-largest company in the country with 28,000 employees, profit growth of 15 to 20 percent a year and stock that "seemed to defy gravity." But inside the company, the true conditions of Enron's broadband unit and the retail energy unit, which handled the energy needs of large-scale businesses like J. C. Penney department stores, were far worse than Mr. Skilling was telling investors.

Mr. Hueston played for jurors a series of audio tapes and videos that contrasted Mr. Skilling's apparently truthful statements about the units to employees, where he seemed to lay out the problems, and then quite different statements he made to investors just days later. On March 15, 2001, Mr. Skilling told employees in Portland, Ore., that Enron would be redeploying about 240 people out of the broadband unit. "The whole revenue opportunity we saw in this marketplace is gone," he said. Eight days later he told investors on a conference call that broadband was "looking good" and that the redeployment of the employees was "good news."

Mr. Skilling, Mr. Hueston said, knew when he abruptly left Enron in August 2001 that there were "billions of dollars of losses at Enron." Those included losses of more than $500 million in the retail unit that had been disguised by a transfer to the profitable wholesale energy-trading unit.

In addition to Mr. Koenig and Mr. Rice, Mr. Hueston said other witnesses include the former chief financial officer, Andrew S. Fastow; Paula Rieker, who worked under Mr. Koenig; Ben Glisan, the former treasurer; and David W. Delainey, the former head of Enron Energy Services, the retail unit.

Mr. Petrocelli portrayed Mr. Skilling as a visionary who helped Enron transform itself into an energy-trading powerhouse. But he stressed that, for Mr. Skilling, the chief executive job was never a dream job and that Mr. Skilling never would have left the company had Mr. Skilling known that the company was in trouble.

Mr. Petrocelli said that Mr. Skilling would definitely take the stand in the trial, which is expected to last at least four months.

Mr. Ramsey portrayed Mr. Lay as a risk-taker who rose to be a civic leader and philanthropist who rubbed elbows with world leaders, including the family of President George H. W. Bush.

"Ken Lay did not try to kill his own child, which was Enron," Mr. Ramsey said. "The panic is what killed Enron."

Mr. Ramsey blamed articles in The Wall Street Journal about off-the-books partnerships controlled by Mr. Fastow, as well as short-sellers who Mr. Ramsey said were sources for the stories, for starting a panic on Oct. 22, 2001, that led to a sharp drop in Enron's stock price.

Mr. Ramsey said that Rebecca Smith, a reporter for The Journal, had hurt Enron by failing to listen to a conference call on Oct. 16, 2001, where Mr. Lay revealed a $1.2 billion equity reduction. The paper reported two days later that Enron had failed to disclose the reduction in its earnings press release. Paul Steiger, The Journal's managing editor, said the paper was "proud" of the work Ms. Smith and others at the paper did in "uncovering questionable accounting at Enron."

Mr. Ramsey said the only fraud committed at Enron was the minor thievery by Mr. Fastow, Mr. Glisan and former executive Michael Kopper, all of whom have pleaded guilty to carrying out schemes to help Enron manipulate its books while skimming millions for themselves.

Ultimately, Mr. Ramsey said, Enron was vulnerable because of the way wholesale trading dominated its profits by October of 2001. At the time 92 percent of Enron's quarterly profits, or $2.18 billion, came from energy trading, he said.



Copyright 2006The New York Times

Want to Help Datamine the Enron Emails?

now playing ENRON DB datamining continues: Buckham

please just make sure to let us know what goodies you find there.

Thanks!

February 2, 2006
Ex-Executive Says Enron Fudged Data
By ALEXEI BARRIONUEVO
HOUSTON, Feb. 1—In surprising testimony on Wednesday, Enron's former head of investor relations said that the company fudged its quarterly earnings and repeatedly lied to Wall Street about the true condition of its troubled broadband services division to keep its stock price soaring.

Mark E. Koenig, the first witness to take the stand in the criminal trial of Enron's former chief executives Kenneth L. Lay and Jeffrey K. Skilling, said he lied to analysts on several occasions about the source of supposed revenues in the broadband business.

He said that at one point, in July 2000, he told an analyst that only $50 million of the broadband unit's quarterly revenue came from sales of fiber optic cable, when Mr. Koenig knew the real number was $152 million—all of the unit's revenue in that period.

Mr. Koenig explained that the higher figure showed that Enron, forced to meet its earnings targets by selling off some of its broadband assets, had produced revenues that could not be sustained in future quarters and were not a core part of Enron's mission. Such revenues also might lead analysts to doubt that Enron's broadband business had much of a future.

While his testimony was powerful, Mr. Koenig did not directly implicate Mr. Skilling in any decisions that caused Mr. Koenig or any other executives to lie about Enron's businesses.

Mr. Koenig, however, said that he lied while talking on recorded conference calls where Mr. Skilling and other chief executives were present. None of those executives, Mr. Koenig told jurors, corrected him when he misrepresented Enron's performance, and he certainly did not correct himself.

"We were all on the same page of attempting to portray EBS as self-thriving and just fine," Mr. Koenig said, referring to Enron Broadband Services. "I wasn't about to jump in."

The reason, Mr. Koenig said, was that none of Enron's top executives wanted to pull back the veil and reveal a struggling business that could threaten Enron's "growth story," as he put it — one that was driving its stock price up and giving it dot-com-like share prices through 2001.

Whether Mr. Koenig, 50, can directly tie Mr. Skilling or Mr. Lay to false statements made to analysts and investors about Enron's financial performance will be important if the government is to prove its contention that the two executives are guilty of lying and misleading the public about Enron.

Mr. Skilling, 52, is charged with 31 counts of conspiracy, fraud and insider trading. Mr. Lay is charged with seven counts of conspiracy and fraud.

Mr. Koenig, a Nebraska native who spent 16 years at Enron, met regularly with Mr. Skilling, flew with him on the company plane to talk to important investors, and sent him drafts of press releases about earnings days before they were sent out publicly.

In its opening statement on Tuesday, the government highlighted Mr. Koenig as an important witness in making its case that Mr. Lay and Mr. Skilling lied and enriched themselves with little concern for average investors, who collectively lost hundreds of millions of dollars in retirement savings when Enron went under in late 2001 in the biggest business collapse in history.

Defense lawyers have indicated that they plan an aggressive cross-examination of Mr. Koenig, who pleaded guilty to aiding and abetting securities fraud and agreed to cooperate with the government. He faces a maximum of 10 years in prison. He is one of 16 Enron executives who have pleaded guilty to crimes in exchange for their cooperation.

The defense has suggested that prosecutors pressured many executives who were not guilty into striking deals. Defense lawyers also have said that those who have pleaded guilty might embellish their testimony to reduce their sentences.

In his testimony Wednesday, Mr. Koenig painted a picture of an Enron culture that was intent on meeting or exceeding the earnings estimates of Wall Street analysts. In January 2000, Mr. Koenig learned just days before Enron was scheduled to publish its fourth-quarter 1999 financial statement that earnings were likely to be 30 cents a share, a penny below the 31 cents a share that had been forecast on Wall Street, he said.

Mr. Koenig said he alerted the chief accounting officer, Richard Causey, that the company would miss its forecast. The day before the earnings report was scheduled to be publicly released, Mr. Koenig said, he saw a draft saying that the company would earn 31 cents a share.

"Mr. Skilling had to approve anything that went into the earnings release," Mr. Koenig said.

On Jan. 19, the day after the earnings release, Mr. Koenig said, he discussed the sudden change with Mr. Lay, who himself seemed surprised. "He said he went to bed and we were at 30 cents and when he woke up we were at 31 cents," Mr. Koenig said.

"Was that wrong?" asked Kathryn H. Ruemmler, the deputy director of the Justice Department's Enron Task Force.

Mr. Koenig responded: "Yes, it's wrong. The results of the operation of the company for the quarter were 30 cents, not 31 cents."

Mr. Koenig did not explain if he later learned the reason for the change. Companies often sell businesses or make other legitimate moves to tweak earnings.

In July 2000, Mr. Koenig said, it happened again. He described writing several drafts of the second-quarter earnings release. At first, Enron was planning to report earnings exactly in line with analysts' average estimate of 32 cents a share, he said, but after five drafts over about two weeks, the company reported earnings of 34 cents, 2 cents higher than analysts were expecting.

When asked by Ms. Ruemmler who had made the determination for 34 cents, Mr. Koenig replied, "I believe that Mr. Skilling did."

Ms. Ruemmler played several portions of recordings from the second- quarter conference call. Mr. Skilling said the results "looked great."

When asked by an analyst for more information on where broadband's $152 million in reported revenue was coming from, Mr. Koenig responded that about $50 million of the total came from sales of "dark fiber," uninstalled fiber optic cable. That, Mr. Koenig admitted, was a lie.

He testified that the next day, on July 24, Paula Rieker, the managing director of investor relations who worked for Mr. Koenig, sent him an e-mail message outlining the truth: all of the revenue was related to fiber sales.




Copyright 2006The New York Times

February 14, 2006
For Enron, Unwitting Assistance
By ALEXEI BARRIONUEVO
HOUSTON, Feb. 13 — At first glance, Mark E. Koenig appeared to be the perfect lead-off witness for the government in the criminal trial of Jeffrey K. Skilling and Kenneth L. Lay, Enron's former chief executives.

Clean-cut and articulate, Mr. Koenig, 50, ran investor relations for Enron and was a polished performer on Wall Street who was present at many of the crucial discussions, prosecutors say, where Mr. Skilling and Mr. Lay lied to the public about Enron's true financial condition in the days leading up to its spectacular collapse in late 2001.

But after seven days on the stand, including four days of withering cross-examination, Mr. Koenig may have served to advance the defense's argument as much, if not more, than the government's. Indeed, by using Mr. Koenig broadly to cover many aspects of the far-ranging case, some outside lawyers argued, the government opened the door to the defense to lay out its own contention that Mr. Skilling and Mr. Lay did nothing wrong. And they allowed the defense lawyers to showcase Enron's former top executives favorably to the jurors through hours of audio and video tapes.

On Monday, Mr. Koenig nearly got off the stand — but not quite. Michael Ramsey, Mr. Lay's lead lawyer, finished his questioning late in the afternoon, and Kathryn H. Ruemmler, a government prosecutor, completed her redirect questioning in about an hour and a half.

But then Daniel Petrocelli, Mr. Skilling's lead lawyer, said he would need another half-hour to question Mr. Koenig early on Tuesday. "It may be shorter after you reflect on it overnight," responded the frustrated judge presiding over the case, Simeon Lake.

Last week, the defense lawyers were clearly on the offense. They exploited the opening Mr. Koenig provided to play seven hours of video and audio tapes of investor presentations and employee meetings in their entirety. The tapes showed Mr. Skilling and Mr. Lay in their element at the peak of their power, winning plaudits from awed analysts and cheering employees.

In the early days of a trial expected to last more than four months, the defendants have already in effect testified, leaving jurors with an impression of their command of Enron's complex businesses and of their enthusiastic cheerleading about the company's future prospects.

Whether the hours of tapes will stick in jurors' minds remains to be seen. Outside legal analysts said Mr. Koenig's long stint on the stand allowed the defense to deflect an early barrage of accusations against Mr. Skilling and Mr. Lay.

"If they could do it all over again," said Christopher Bebel, a former federal prosecutor, "the prosecutors would be inclined to call a different lead-off witness."

Mr. Koenig's testimony for the government, he added, "allowed the defense attorneys to paint their theory of the case with an unduly broad brush and make sweeping inferences in the first leg of the trial. That in effect gives them reason to be hopeful and positively influence the jurors at this very early juncture."

But other outside lawyers argued that the prosecution used Mr. Koenig well and that the lengthy cross-examination by the defense might have backfired by testing the patience of Judge Lake, who grew particularly irritated with Mr. Ramsey.

"I am not going to warn you again," the judge told Mr. Ramsey at one point on Monday. "I have said you cannot question him about the indictment. He is not a lawyer. Ask him a question about the facts."

The judge repeatedly tried to stop both Mr. Petrocelli and Mr. Ramsey from arguing aspects of the case and pushing their cross-examination to the edge. He did not always succeed. Last Thursday, the judge realized after an objection outside the presence of the jurors that the defense had introduced a BusinessWeek article that the government had never discussed.

Mr. Petrocelli defended the move by saying it had been Web-linked to an article in the magazine that the government used in questioning Mr. Koenig.

Joel M. Androphy, a Houston trial lawyer and author of books on white-collar crime, argued that prosecutors got off to a decent start.

"We have to assume that Koenig was the government's best fact witness" and the one "least tainted by the activities of Enron," Mr. Androphy said. His testimony showed that Mr. Lay and Mr. Skilling "decided to close their eyes to what was occurring inside Enron and not take any corrective action."

Under the legal concept of "willful blindness," Mr. Androphy argued, the men could be convicted without a smoking-gun meeting or other eyewitness to a crime being discussed.

In any event, jurors clearly paid attention to the scenes of the former executives in action. In one video from Aug. 16, 2001 — two days after Mr. Skilling abruptly resigned — Mr. Lay, in shirtsleeves wearing a red tie, returned as chief executive to a standing ovation from Enron employees in a packed auditorium.

At that meeting, Mr. Lay displayed toughness and resolve, lawyers said, defending Enron against criticism of its role in California's electricity crisis, saying, "I have never seen such demagoguery, such vile and poisonous allegations."

The meeting came just weeks before Enron spiraled into oblivion. Mr. Lay told the employees that day, "We have faced a number of challenges but the worst is behind us, and the business is doing great."

When Ms. Ruemmler, the prosecutor, returned to the witness late Monday, she used her final questioning of Mr. Koenig to emphasize to jurors his main assertions: that revenues claimed by Enron's broadband unit were misleading and that a transfer of more than $700 million from the retail Energy Services unit to Enron's wholesale energy division was done intentionally to disguise losses in the retail unit.

And Mr. Koenig was able to remind jurors that Mr. Skilling was in control of every aspect of Enron's operations. "Mr. Skilling was a hands-on C.E.O.," he testified. "He knew a lot more about what was going on at the company than I did. I wouldn't have had to tell him what was going on at the company."

Still, defense lawyers repeatedly badgered Mr. Koenig, contending he had limited understanding of the suspected fraud and needed to rely on accountants and managers in business units for the information he disseminated to investors. His own credibility was called into question, including why he initially lied to federal regulators and bank examiners looking into Enron's collapse.

Mr. Koenig, who has agreed to plead guilty to aiding and abetting securities fraud, did not cooperate with prosecutors until 2004. He faces a maximum sentence of 10 years in prison. And his plea deal, defense lawyers stressed in trying to cast further doubt on his testimony, allows him the possibility of avoiding prison altogether.



Copyright 2006The New York Times Company

http://www.chron.com/news/specials/enron/

This is a good site for Enron News.


Videos:

http://www.piratevideo.tv/Real/EnronBushClip.rm
http://www.ifilm.com/ifilmdetail/2458431?r...7063&ns=1ttp://
http://www.cbsnews.com/stories/2005/09/26/...=enron&x=33&y=4
http://www.ifilm.com/ifilmdetail/2668268?refsite=7063&ns=1

http://www.counterpunch.org/

Greed, Debt, Incompetence
The United States of Enron
By ROBERT BRYCE

Jeff Skilling had a vision for Enron. In February of 2001, he told the company’s employees that Enron, would, within five years, “be the leading company in the world.”
World dominance was the main message that Skilling and Enron’s chairman, Ken Lay, imparted to their employees in the video of that 2001 meeting, which was re-played on Wednesday morning in courtroom 9B of the federal courthouse in Houston. Forget talk that Enron was short on cash, or that the mighty juggernaut was overextended and hobbled by competitors. Ignore the doubters, like the journalists at Fortune magazine, who had, a few days earlier, published a story saying that Enron’s business model was based on a “black box.” “The company is doing great,” Skilling told the Enron employees. “We’ve got a vision for the next century.”

It was during the playing of that video that it became clear: the Bush Administration has become Enron. World dominance.

The old rules don’t apply. Machiavellian vengeance toward naysayers. Corrupt accounting. And holding all of those ingredients together: a heaping helping of hubris, a hubris that leaves no room for doubt or uncertainty.

That George W. Bush has morphed into his old pal, “Kenny Boy” Lay shouldn’t be surprising. Enron was, until the 2004 campaign, Bush’s biggest career patron. The intrigue lies in the myriad parallels that can be drawn between the Bush regime and the Enron regime.

On a personality level, you have the similarities between Bush and Lay: both are the detached executives who couldn’t know -- or didn’t bother to pay attention to -- what was happening in their operations. Lay, his defense lawyers insist, had no idea that Enron’s chief financial officer, Andy Fastow, was cooking the books. Lay was in charge of the big picture. He was the public face of Enron, Mr. Outside. Never mind that Lay was a PhD. in economics who couldn’t read a cash flow statement. As for Bush, neither he nor his defense secretary, Donald Rumsfeld, can be held accountable for the torture of Iraqi prisoners that occurred at Abu Ghraib. That was done by rogue soldiers without approval from their commanders.

Both Lay and Bush have backed their subordinates, no matter how grievous their wrongdoing. In October of 2001, after Fastow’s double-dealing was exposed, Lay insisted that he and the Enron board “have the highest faith and confidence in Andy and think he's doing an outstanding job as CFO.” In May of 2004, right after the Abu Ghraib scandal broke, Bush insisted that Rumsfeld was “doing a superb job” and that America owes him “a debt of gratitude.”

The old rules no longer apply. For Enron, it was the old rules of accounting. As Skilling once told Enron’s chief accounting officer, Rick Causey, “Cash doesn’t matter. All that matters is earnings.” Enron had blown up the old methods. It was operating in a new paradigm, and those who didn’t understand that, well, as Skilling often put it, they just “didn’t get it.”

For the Bush Administration the old rules include anachronisms like the Geneva Convention. Bush insist that he’s fighting a new, stateless, enemy, and thus the “global war on terror” cannot be constrained by old treaties, old rules, or the countries that Rumsfeld calls “old Europe.” That means that “illegal enemy combatants” can be held at Guantanamo Bay, or in secret prisons in Syria, or elsewhere, for as long as Bush deems necessary.

Cheney, plays the role of Skilling. Like the monomaniacal Enron executive who never doubted that his vision for a business that would dominate global markets in everything from natural gas and electricity to paper and steel, Cheney is the true believer in America’s global dominance, the one who constantly pushes against old notions that might constrain America’s power. If that means torturing prisoners, no problem. As Cheney said shortly after the 9-11 attacks, the U.S. government must, “work through, sort of, the dark side.” And that means that it is “vital for us to use any means at our disposal, basically, to achieve our objective.”

Opponents of the regime must be dealt with quickly and harshly. For Enron, that meant that stock analysts like Merrill Lynch’s John Olson, who never parroted the company’s rosy predictions, had to be silenced. Merrill fired Olson after Enron made its displeasure known. For the Bush regime, it meant smearing former ambassador Joe Wilson and his wife, Valerie Plame. Wilson’s offense: publicly questioning the story that Iraq was trying to buy radioactive materials from Niger.

Opponents who don’t follow the script are “assholes.” That was made clear in September 2000, when Bush, unaware that his microphone was on, pointed to New York Times reporter Adam Clymer and told Cheney, who was standing nearby, that Clymer was a “major league "expletive deleted".” Cheney readily agreed.

Skilling used the same term a few months later during an April 2001 conference call with analysts. When Boston hedge fund manager Richard Grubman pressed Skilling on a financial question, Skilling cut him off, and let all of the analysts and his Enron pals know that Grubman, too, was an “"expletive deleted".”

Finally, the defense strategies adopted by Bush and his cronies at Enron are exactly the same. That is: everything we did was legal. From the beginning of their trial, the attorneys for Lay and Skilling, Mike Ramsey and Dan Petrocelli, have stuck to that theme. During his opening argument, Petrocelli declared that Enron was “no house of cards…It was a wonderful company, a shining star.” Ramsey told jurors that Enron didn’t fail because of the billions of dollars in accounting shenanigans, it failed because of a “market panic.”

That same tactic has been used consistently by the Bush Administration to defend the CIA’s rendition of terror and the indefinite imprisonment of terrorism suspects – without charges -- in places like Guantánamo Bay. Last week, about the same time that the first prosecution witness began testifying on the stand in Houston, Attorney General Alberto Gonzales was testifying before the Senate Judiciary Committee, telling the senators that the secret wiretaps that Bush has authorized are legal. And why are they legal? Well, because Gonzales and the president say it’s legal.

Unlike the execrable Gonzales who has yet to utter a credible word in defense of torture or wiretaps, the Enron attorneys are at least partially correct in their diagnosis of the failure of Enron. It’s true that the collapse of Enron was hastened by a “market panic.” That panic was a direct result of Lay’s incompetence. Lay simply did not know how much money Enron had borrowed to fund its global ambitions. Nor did he grasp just how deeply distrusted Enron was by its peer companies.

Incompetence. Huge debts. Lack of trust. Just another set of parallels for Kenny Boy and his pal, W.

Robert Bryce is the author of Pipe Dreams: Greed, Ego, and the Death of Enron.

http://blogs.chron.com/legalcommentary/

Enron: Legal Commentary
Lay-Skilling trial analysis from Texas attorneys
Editor's note: The bloggers posting here are attorneys who will provide their own perspectives and commentary on the Enron trial. Their posts and opinions are their own, and are not edited by the Chronicle. They are solely responsible for the content of this blog. Several have connections with the Enron trials or parties involved in those cases.


February 10, 2006
Does a Faster Trial Mean a Fairer Trial?
Many of the stories coming out of the Enron trial this week have to do with the efforts of Judge Lake to move the trial along and about his locking horns with Mike Ramsey, counsel to Ken Lay, about the supposed dilatory tactics of Mr. Ramsey. This is not a totally unusual occurrence because courts will often try to accommodate jurors by moving a trial along as quickly as possible so that they may get back to their families as soon as possible. The question though is whether a speedy trial necessarily equates to, what we regard as, a fair trial. The answer is, not necessarily.

It is rare that during the prosecutions case, that the judge will rush the government along and will usually pay great deference as the prosecutor spends hours or even days taking a witness through direct examination. On the other hand, when that witness is passed for cross examination, all of a sudden the judge becomes acutely aware of time. That is not to say that all judges curtail cross examination, but it is not uncommon for many judges to begin to try to rush the defense along, after patiently enduring direct examination. I have actually seen some judges begin to vocally chastise and criticize lawyers, in front of jurors, just a few questions into cross, claiming that the defense lawyer is wasting time. Of course, there are sometimes going to be times that defense lawyers will ask questions that are pointless or less than relevant, but this is typically due to poor trial skills or a deficient understanding of the case. This is never done, as some sort of trial tactic that is used to maximize the odds of victory, since all you do is piss people off when you waste their time. You can be sure that the lawyers representing Messrs. Lay and Skilling do not ask, what appears to be, meaningless questions, just for fun or to delay the trial past the 4 months that have been predicted. So, what takes so long?

Despite the assertions of my fellow blogger, Mr. Buell, I have never seen a criminal defense lawyer try to score points with the jury by drawing the wrath of the judge by slowing things down. He opines that an effective trial tactic of defense lawyers is to do things that will purposely draw objections and slow things down, so that when he has drawn the ire of the judge, he can haplessly assert "I'm just trying to get a fair trial for my client" or even "I just don't get all these rules and procedures ya'll are insisting on". First, contrary to the belief of my New York colleague, we really don't talk that way in trial and that "aw shucks" mentality is something usually found in movies. Second, after having tried over 100 cases as a defense lawyer, it has never entered my mind to purposefully delay a trial or to act like a hick, in order to win a case.

What I have seen happen, just as it is happening in this case, is the defense having to mount an uphill battle against a well rehearsed prosecution case that has, as a cast of characters, the best witnesses that money can buy. It is typical for the government, in such a case, to introduce voluminous evidence and then publish to the jury snippets of tapes, portions of articles, and select lines from statements that are designed to make the defendant and his conduct look as nefarious as possible.

The evidence comes in, as in this case, from cooperating witnesses who have plead guilty and are trying to buy down their sentence, in exchange for testimony. These witnesses typically are not paid with money, but rather with a commodity that is much more valuable, freedom. They come into court with plea agreements that set out the extent of their deal with the government, but these agreements are purposefully vague and really say very little about what the witness will actually receive in exchange for his testimony. The language usually states that in exchange for "cooperation", the prosecutor may file a motion to depart from the sentencing guidelines, if the prosecutor believes that the witness has rendered substantial assistance to the government. It is made clear that the prosecutor, and only the prosecutor, will make the decision as to whether the "cooperation" was substantial and it is then in his discretion as to whether or not to file a motion for a downward departure to a lower sentence. That is a lot of power for one person to have over a vulnerable defendant/witness and it is a powerful incentive for that defendant/witness to do whatever he thinks it will take to earn the blessing of the prosecutor. By keeping the terms of the deal vague, the witness then can honestly say that he does not know if he will get a reduction or, if he does, then what that reduction will be. Of course everyone in the courtroom, except the jury, knows that at the time of the defendant/witness's sentencing the prosecutor will beg the judge for a sentence reduction and often a very healthy one.

When the defense lawyer begins his cross-examination, he has the duty and responsibility to not only test the veracity of the government's story, but the storyteller as well. The lawyer must take those snippets of tape, portions of articles, and select statements and put them in their proper context so that the jury sees the bigger picture and not just the well choreographed and rehearsed presentation that the government puts on. He must explain the background of what occurred and make sure that the jury understands how and why things occurred and this is not always a quick and speedy process. In the average criminal case, this is not such a daunting task and it can move rapidly. In the Lay/Skilling case, where the evidence deals with complex series of transactions, accounting procedures, and business deals, it can take a substantial amount of time to explain these things and put things in the proper context so that the jury can understand what really occurred. It also can be a painstaking process to expose the motivation, bias, and prejudice of a witness. Witnesses like Messrs. Koenig, Fastow, Rice, etc. are extremely bright and highly motivated to do the best job they can for the government and they have undergone hundreds of hours of preparation and rehearsal for their testimony. With witnesses like this, they will fight hard to keep from being impeached, since they have so much at stake, and it can take hours, if not days, for the jury to understand the desperate nature of their plight.

The answer to the question is this: a fair trial takes as long as it takes. No more, no less.


Posted by Kent Schaffer at 11:23 PM | Comments (9) | TrackBack (0)

February 09, 2006
Top Dogs and Underdogs
Reports from the courtroom indicate that attorney Ramsey and Judge Lake are butting heads. This may be the start of a long story.

Trials can be like sports, even if in their pace they're more like international cricket tournaments than NFL games. Juries, the conventional wisdom says, like to root for underdogs. This presents a problem for the wealthy white collar defendant. How do you play the little guy up against the big bad government when the jurors all know you ran a Fortune 500 company, made millions, maybe hundreds of millions, and you're probably paying your lawyers some of those millions for what they're doing in the courtroom?

One solution is for a defense lawyer to get everyone else in the courtroom, especially the prosecutors and the judge, aligned against him. Do lots of things that draw objections from the prosecutors and admonitions from the judge. At first, this behavior might irritate everybody because it slows things down. But if it's persistent, and accompanied by refrains about how "I'm just trying to get a fair trial for my client," pretty soon jurors might start feeling sorry for the beleaguered lawyer, even rooting for him a bit. It also helps to be a likable, ordinary person and to accompany it all with a country lawyer dose of "I just don't get all these rules and procedures y'all are insisting on" (after all, the jury doesn't really get them either).

Most lawyers can't pull this off. It would seem fake and if it seemed fake to the jury for even a moment, the strategy would be toast. But for the lawyer who can make it work, it just might get a juror or two to start seeing a top dog client more like an underdog.

A lawyer pursuing this strategy can be a challenge for a trial judge. How does the judge control the proceedings without simply encouraging more of the behavior, leading to the need for more aggressive efforts to control things, and so on? Perhaps we'll find out.

Posted by Samuel Buell at 05:41 PM | Comments (3) | TrackBack (0)

http://blogs.chron.com/enrontrialwatch/

Enron: TrialWatch
Blogging the trial of Ken Lay and Jeff Skilling with the Houston Chronicle staff.
February 15, 2006
"checked out" and past errors in testimony
Holscher tried to get Rice to admit that he had "checked out" of Enron in the spring of 2001 and spent little time at work, choosing to follow his passion for racing cars instead.

"There were a number of employees who came to me and said the wheels were falling off EBS and they were disappointed with the way I was handling. That is true," Rice said.

Holscher then brought up an error Rice made while testifying last spring in a trial against several former Enron Broadband executives.

In that trial, he said Skilling presented a video during an analyst meeting that contained false information, but it turned out the video was not shown at the meeting. Rather, it was added to a tape of the presentation later.

During his direct testimony with the government on Tuesday, Rice said he had previously made errors during a trial but did not go into further details.


Posted by Tom Fowler at 09:15 AM | Comments (0) | TrackBack (0)

Proof of transfer
Holscher went through e-mails from Enron that described the plan for EBS employees as a redeployment. He also tried to get Rice to say Skilling cared more than he did that EBS employees found jobs elsewhere in the company, noting that Rice did not follow-up with human resources managers about that topic.

"I wouldn't say that," Rice said.

Holscher also presented documents that showed EBS employees were transferred to other Enron business units. This appears to be an attempt to undermine Rice's prior testimony that the redeployment plan was unlikely to lead to actual employee transfers, but rather would lead to layoffs.


Posted by Tom Fowler at 09:08 AM | Comments (0) | TrackBack (0)

When did you discuss the EBS plan with Skilling?
Skilling attorney Mark Holscher appears to be trying to show Rice was incorrect when he said Skilling " ... asked you to pitch immediate layoffs of the Portland employees as a redeployment," referring to a March 15, 2001 employee meeting in Portland, Ore.

Rice said that Skilling asked him and others to do so, but he didn't remember if the discussion with Skilling was the day before the meeting or the day of the meeting, or whether Skilling was on the plane that Rice took to the meeting.

"In fact, Mr. Rice the redeployment plan was put in place days before your discussion with Mr. Skilling," Holscher asked.

"That could be true. I was out of town," Rice said.


Posted by Tom Fowler at 08:39 AM | Comments (0) | TrackBack (0)

Surprise
Government passed the witness without any questions first thing this morning. Mark Holscher, another Skilling attorney, will do re-direct.

Posted by Tom Fowler at 08:29 AM | Comments (0) | TrackBack (0)

Day 11, Rice on the stand
Former Enron Broadband Services CEO Ken Rice will continue to face direct questioning from the prosecution this morning. Yesterday most of his testimony concerned statements by defendant Jeff Skilling during several analyst and employee meetings about the health of EBS.

The government will likely wrap up its questioning of him this morning and hand him over to the defense. It will be interesting to see how the defense's attack of Rice -- who was close to Skilling while at the company -- differs from that of the first witness, Mark Koenig.

Posted by Tom Fowler at 08:14 AM | Comments (0) | TrackBack (0)

February 14, 2006
Skilling's big boat
Rice took several weeks off after he met with Skilling to discuss his departure. During an Aug. 1, 2001 lunch meeting with Skilling where Rice said he expected to discuss future projects, he was surprised when Skilling told him he planned to leave.

"I said 'I'm surprised. I didn't see this coming,'" Rice said. "I didn't realize when I talked to him a few weeks before about leaving he was going to leave."

Skilling talked to Rice about buying a boat to sail around the world.

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

Right after the meeting Rice went back to his office and sold stock. It was this stock sale that was part of his government plea agreement.

Judge Sim Lake let the jury leave early at about 4:15 p.m.


Posted by Tom Fowler at 04:17 PM | Comments (3) | TrackBack (0)

"I can't control the traders"
In a July 11, 2001 breakfast meeting at the St. Regis Hotel, Rice told Skilling he wanted to leave the company after 21 years.

Rice said the company was planning on merging EBS into Enron's wholesale trading business, which would hide the problems with the division and essentially put Rice under people he used to consider his peers.

Rice said he told Skilling during the meeting he made a lot of money and wasn't having fun any more.

Skilling agreed the business wasn't fun anymore, noting that many of his friends at the company, like Cliff Baxter and Lou Pai, were leaving and that "the traders have taken over," Rice said.

"I can't control the traders and it's not fun for me" Rice said Skilling told him, referring to the large energy trading business that was responsible for much of the company's revenues, according to its financial statements at that time.

Rice said he thought Skilling was referring to others in the trading business, such as Jon Lavorato, Greg Whalley, Jeff Shankman and John Arnold.


Posted by Tom Fowler at 03:54 PM | Comments (0) | TrackBack (0)

A possible EBS merger?
Despite the restructuring that EBS went through in early 2001, the business was still in bad shape in the second quarter of 2001, Rice said in testimony.

In April and May of 2001, Enron Broadband Services was in deep discussions to acquire PSINet, the owner and operator of a large broadband network with a large number of pre-existing customers, according to Rice. It was seen as a way to "reset market expectations" for EBS but would have cost billions of dollars.

A merger would have required disclosing the weaknesses of EBS’ business however, he said. Enron decided not to proceed with the merger.

Rice said he felt like the business needed to do a major deal like the PSINet acquisition or seriously cut back EBS even further.

Skilling asked Rice to make a presentation to Enron's board of directors in May 2001 but asked him to be less candid than he originally planned, Rice said.

Skilling wanted him to note the deterioration in the broadband market but say the company was still committed to the business and still felt good about the content and mediation businesses. Rice said that was not the case.


Posted by Tom Fowler at 03:37 PM | Comments (0) | TrackBack (0)

Misleading statements in analyst rumor call
The prosecution had Rice read the transcript of a March 23, 2001 analyst call that Skilling held to answer the rumors of layoffs and other problems in EBS. He repeatedly called statements Skilling made false, misleading and incorrect.

Skilling said the rumors of EBS problems were "absolutely not true" and that the company has an "enormous lead over other players in the industry."

Rice said those statements were not correct because "We hadn't generated any transactions that I can recall that had any significant gross margin in them," Rice said.

The company was able to meet its targets for bandwidth trading volumes, but they weren't making profitable trades, he said.

"We were able to get people to do trades with us on zero margin," Rice said, meaning Enron would not make money.

Skilling also said in the call that EBS' plans to move people around to other businesses was "good news," and that the company did not have to make as large an investment in building out a fiberoptic network because there was an excess supply in the marketplace.

"[The statements were] misleading in that we were laying off people in EBS because our cost structure was too high and we had no revenues to speak of to offset that cost structure," Rice said.

Skilling also said the EBS business model was "predicated on a surplus of supply and declining prices" in bandwidth.

"Our strategy at EBS contemplated a decline in prices, but it wasn't prepared to deal with a complete collapse," Rice said.

It was widely known that the broadband Internet industry was seeing serious problems, but Rice said the news that was coming from Enron was that the meltdown wasn't really effecting the company and was actually good news for Enron.

"And that's misleading," Rice said.

He also countered an analogy Skilling made in the call -- and in previous calls -- that the meltdown in the telecommunications business was similar to one that hit the natural gas business in the 1980s. It was during that downturn that Enron grew rapidly by offering new financial products to customers.

"It's true it fell apart but in the 1980s in the natural gas industry there were still relatively high prices. We could find customers who would pay us high prices," Rice said. "The buyers of bandwidth were not willing to pay high prices."


Posted by Tom Fowler at 03:12 PM | Comments (0) | TrackBack (0)

"I know this is a downer"
The Q&A part of the March 15, 2001 employee meeting in Portland, Ore. focused on what kind of business the broadband business was going to become (one that was very deal driven, with a small team working on getting content from a small number of providers according to Rice and Skilling) and what the other job opportunities were within the company (the natural gas business and a business incubator called the Enron Excellerator that was being developed).

"I know this is a downer, I know it's not great," Skilling said. "Thank you for your civility. It's not a great thing to talk about."
Toward the end of the meeting video, prosecutors had to go back and play part of the Q&A that appeared to be skipped or cut accidentally.

"Revenues are gone," Skilling said in describing the collapse of the broadband internet business. "It's bad."
Posted by Tom Fowler at 01:54 PM | Comments (0) | TrackBack (0)

Layoff or redeployment?
Before a March 15, 2001 meeting in Portland, Ore. with Enron Broadband employees, Rice said he and Skilling discussed the bad news they were going to deliver that about 235 jobs would be cut.

"In that discussion Mr. Skilling told me he wanted to characterize the layoffs as redeployments," Rice said. "He just said that would be a better way to pitch it. I said that’s fine."

Rice told prosecutor Sean Berkowitz that redeployments were efforts to find other jobs for the employees elsewhere in the company. Layoffs meant a worker had to leave the company immediately.

"In my mind we were going up there to layoff people," Rice said.

Posted by Tom Fowler at 01:27 PM | Comments (0) | TrackBack (0)

Truth and courage
With one-time Enron investor relations head Mark Koenig finally off the stand after seven days plus a few minutes this morning, his Washington, D.C.-based lawyer Philip Inglima released this statement today:

"Mark Koenig has completed his testimony, and he will have nothing more to say until this case is concluded. However, I would like to offer an observation.

When a person makes wrongful choices and violates the law, that person confronts another choice. Mark Koenig chose to confront and admit his wrongdoing, and to undertake the most meaningful effort available to him to begin making up for his offense. Over the past year and a half, and especially over the past two weeks, that's exactly what he has done. He embraced responsibility for what he knew to be wrong, and spoke truth about what happened. And in doing that, he displayed a great deal of courage and strength of character."


Posted by Mary Flood at 12:18 PM | Comments (2) | TrackBack (1)

Dark Fiber sales
Ken Rice testified that he and others at Enron's Internet division told his then-boss Jeff Skilling at a February 2001 meeting that profits at the company were made in great part by selling off unneeded assets and not via core business.

Rice said sales of so-called "dark fiber," which is unused fiber optic cables, accounted for a good chunk of what Enron Broadband Services was declaring as revenue in 2001.

Rice told jurors that selling dark fiber was not part of the company's core business, which was trading bandwidth like the company traded energy and providing video services such as movies on demand.

LJM, a contentious partnership run by former Enron CFO Andy Fastow, made a large purchase of dark fiber from EBS. Rice said, however, that Skilling was not made aware of that sale to LJM.

Rice also said that Skilling gave him the go-ahead to lay off some employees to help cut costs. Skilling later told analysts that the company did not layoff workers but instead shifted them around.

At the time of the February 2001 meeting, Rice was scrambling to meet budgetary goals he said were set by Skilling. The company, at the time a pricey startup, was slated to lose $35 million in the first quarter of 2001.

Posted by John Roper at 11:41 AM | Comments (0) | TrackBack (0)

Rice ties Skilling to key analyst conference
Ken Rice, the former head of Enron's Internet division, testified that Jeff Skilling helped prepare presentations for a Jan. 25, 2001, analsyst conference in which Rice himself later pleaded guilty to a charge of securities fraud.

Rice said that Skilling was concerned that presenters at the conference not show analysts that they were less than confident about the health of the business. Rice said that Skilling even told them "body language" was very important to keep analysts in favor of the company.

Prosecutors are trying to link Skilling to fraud committed at the conference.

Rice said that going into the conference, he intended to mislead Wall Street.

Rice told jurors that he lied to analysts at the conference about Enron Broadband Services, telling them that the company had technical capabilities that it did not. He also testified that he lied about the overall health of EBS, telling analysts it was in good shape when it was in fact struggling severely.

"I lied to them about the status of our network and the things our network could do...I also withheld the true state of our buseinss," Rice testified.

Rice faces up to 10 years in prison for the securities fraud charge related to the analyst conference.

He told jurors that while at Enron he sold roughly $70 million in Enron stock, netting about $40 million. He said he has about $5 million left, but still faces civil law suits.

Posted by John Roper at 11:01 AM | Comments (0) | TrackBack (0)

Under (budget) pressure....
Jeff Skilling pressured the head of the then-fledgling Enron Broadband Services business to show a significantly lower loss than that division could realistically obtain, according to testimony today.

Ken Rice, who ran EBS, said that planners at the division had previously and more realistically projected a $490 million loss in 2001 due to high start-up costs. They lowered that number of $110 million before presenting it to Enron Corp., explaining that it would be very tough for the $110 million to be reached.

Skilling told Rice at the budget meeting that $110 million was not good enough and that they would have to have only $65 million in losses for the year.

Prosector Sean Berkowitz asked Rice whether he thought he could achieve Skilling's goal.

"I thought...(it) was very unlikely that we would achieve that number," Rice said.

Asked why he didn't simply tell Skilling the number wasn't achieveable, Rice said: "Because there really wasn’t an option. Because he said this is the number, this is what the number is going to be."

Prosecutors are trying to show jurors that the environment created at Enron by Skilling forced EBS executives to later hide losses in order to make budget goals.

Rice told jurors previously today that Skilling's overarching goal was to push EBS and a second division into the core business of Enron and make them appear to be strong growth divisions. In turn, analysts, he said, would place a higher value on Enron stock.

Posted by John Roper at 10:33 AM | Comments (0) | TrackBack (0)

Rice vs. Skilling...
Rice, 47, worked for Enron for 21 years. He last testified in 2005 during the trial of five former Enron Broadband Services executives. The trial ended in no convictions and is scheduled to be retried later this year.

Skilling entered the courtroom the day Rice first hit the stand at the EBS trial and was quickly told by the judge to leave.

Skilling wouldn't have liked Rice's testimony that day and is probably not enjoying what his former pal is telling jurors today.

The key issue on which he testified in the Broadband trial was that Skilling helped prepare the presentation for a January 2000 analyst conference that the government says falsely hyped EBS as a solid company with real profits.

Posted by John Roper at 10:11 AM | Comments (0) | TrackBack (0)

A Splash of Red
Jurors walked into the courtroom with a little smile this morning as most of them looked splendid were wearing red or pink in some form. Five of the women had red jackets of some kind, other women wore red blouses under jackets, one man had a pink shirt and others had red ties.

Judge Lake, showing a glimpse of a red tie beneath his own robes, wished the panel a Happy Valeentine's Day and commented on their cheery attire.

A few others in the courtroom played along. An FBI agent at the prosecution table wore a red checked jacket, Linda Lay in the front row sported a bright red jacket and one journalist also wore bright red.

Defendants Lay and Skilling had red ties as did a few of the lawyers.

Attorneys generally like a jury that's enjoying itself and looks like it could reach a consensus be it on dress, lunch or the big questions at the end of the case. Though not every single juror or alternate had obvious red or pink, for their third week together this looked like a jury that could maybe get the case to verdict.

The jury has off Presidents's Day on Monday, so no Washington wigs or Lincoln hats are in the offing. The next chance for a show would be St. Patrick's Day in March but that's a Friday and this case doesn't meet on Fridays. I'm sure most jurors hope they will not still be around on the Fourth of July to coordinate red, white and blue outfits.


Posted by Mary Flood at 10:02 AM | Comments (4) | TrackBack (0)

'There ain't no more 'e' in earnings....'
Jeff Skilling was concerned in 1999 that Enron's stock price was not rising so he ordered executives to bolster the value of the company by making some its business units appear to be growth companies, the former head of Enron's Internet division testified.

"Mr. Skilling said that for us to grow the stock price we have to increase the earnings or increase the multiple," said Ken Rice, the latter referring to growth potential.

Skilling "went on to say...'There ain't no more 'e' in the earnings.'"

Rice testified that Skilling wanted to have divisions EBS and Enron Energy Services become part of Enron's core business so that Wall Street would see more growth potential.

"Mr. Skiling said he wanted to substantially increase the value of Enron's stock price and to do that we needed to grow the multiple of EES and EBS," Rice said.

Prosecutors are having Rice set the table for jurors to show them EBS was like a shell game where losses were shifted around the company and the only profits were actually from sales of unused fiber optic cable.

EBS, Rice said, never actually made a profit.

Rice testified that when EBS couldn't find a buyer for some of its excess fiber--called 'dark fiber--it sold it to a partnership run by ex-CFO Andy Fastow for a $55 million profit.

Asked whether EBS would have met its earnings goals that quarter without the sale, Rice said, "No."

Rice said that prior to the sale, he raised concerns to Skilling about Fastow's partnership, called LJM.

Rice said Skilling said the LJM partnerships were above board.

"I didn't agree with him," Rice said. "I thought it looked goofy."

Rice began working for EBS on July 1, 1999, after Skilling requested he lead the unit. Enron invested more than $1 billion into EBS, which was rolled out in earnest at a 2000 analyst conference.

Enron's stock rose considerably after the roll out, with analysts firmly buying into EBS as a growth business.

Rice said Enron's stock went up "from around $55 a share to about $65 a share."


Posted by John Roper at 09:32 AM | Comments (0) | TrackBack (0)

Rice testimony...
Ken Rice's testimony for the government began by explaining to jurors the business of Enron Broadband Services, the division for which he was chairman and CEO.

Enron Task Force Director Sean Berkowitz is questioning Rice. He handed Rice a piece of fiber optic cable as a prop to tell jurors how data is transmitted and what it is used for.

Essentially, EBS was set up to sell and trade bandwidth. It was also set up to ulimately sell movies on demand.

The hundreds of millions of dollars of losses by EBS are now legendary.

Asked by Berkowitz whether EBS ever made a profit, Rice simply said, "No."

My colleague, Mark Babineck, wrote a very good profile of Rice you can find here http://www.chron.com/CDA/archives/archive....id=2006_4060203

Posted by John Roper at 09:00 AM | Comments (0) | TrackBack (0)

Rice debuts
Mark Koenig has wrapped up his testimony and the government has called Ken Rice to the stand.

Rice was a close friend of Jeff Skilling and led the Enron Broadband Services.

Posted by John Roper at 08:51 AM | Comments (0) | TrackBack (0)

Re-cross of Koenig
The former head of Enron's investor relations department is again facing defense attorneys who are trying to pick apart testimony implicating Jeff Skilling and Ken Lay.

"We're going to get you out of here this morning," Dan Petrocelli told Koenig prior to the start of Tuesday's hearing.

Koenig, who is on his eighth day of testimony, gave Petrocelli a brief smile and nodded his head.

That's about as cordial as Koenig gets with lawyers for Lay and Skilling. In his seven previous days on the stand, the Nebraska native firmly stood his ground when Petrocelli or Mike Ramsey tried to rattle him.

Koenig's testimony was designed to lay the ground work for the government by telling jurors that Skilling and Lay were aware of and involved in manipulating data when describing the health of the company to the public and Wall Street.

Petrocelli and Ramsey spent five days--today is the sixth--showing jurors that when anything illegal happened at Enron it was done by a few bad apples, which did not include their clients. Other events, they said, were simply not illegal.

Judge Sim Lake had warned Petrocelli Monday afternoon when the court recessed that he needed to be brief today with his re-cross of Koenig.

Before starting in on Koenig, Petrocelli told the judge he had "sharpened my pencil last night" to streamline his questioning.

When Koenig is finally off the stand, prosecutors will call Ken Rice, a former protege of Skilling's who headed Enron's failed Internet unit. Rice was known at Enron as a something of a daredevil. He would frequently race motorcycles and Ferrari's and had a highly publicized affair with a female Enron executive.

Like Koenig, Rice pleaded guilty and has agreed to cooperate with the government. His testimony could be a highlight of the trial.

Posted by John Roper at 08:21 AM | Comments (0) | TrackBack (0)

February 13, 2006
Recess for the day, Koenig returns Tuesday
Mark Koenig just can't seem to get off the witness stand.

The defense finished its cross-exmamination of Koenig, the former head of investor relations for Enron, and then passed him over to the government for final questioning, or re-direct.

Koenig has been on the stand for seven days.

Prosecutor Kathy Ruemmler spent about an hour questioning Koenig Thursday before announcing she was finished.

Defense lawyers, who have spent five days cross-examining Koenig, then said they wanted another crack at him, or re-cross.

Judge Sim Lake decided at about 4:30 p.m. that he'd had enough for the day, even though Dan Petrocelli said he would take no longer than a half hour.

"It may be shorter after you reflect on it," Lake said before excusing the jury.

Lake vowed to jurors at the onset to keep the trial at a brisk pace, and he's not likely to allow attorneys to spend much more time on Tuesday grilling Koenig.

Posted by John Roper at 04:39 PM | Comments (1) | TrackBack (0)

Defense wraps up with Koenig
The defense has completed its long cross-examination of the government's first witness where some seven hours of audio and video recordings were played for jurors.

Prosecutor Kathy Ruemmler has picked up on re-direct where she will work to repair any possible inconsistencies defense attorneys have created in the eyes of the jury by picking apart Koenig's testimony.

Koenig, a native of Omaha, Neb., has been on the stand for seven solid days, five of those under questioning from defense attorneys.

He has at times been combative with lawyers for Jeff Skilling and Ken Lay, refusing to allow them to parse his statements or even paraphrase his testimony.

With his deep, monotone voice and dead-serious mannerisms, Koenig rarely showed much emotion, except to snap back at attorneys.

"I was finishing!" said Koenig, waving his hands in the air, when Lay's attorney Mike Ramsey interrupted his reading of evidence Monday afternoon.

On one occasion, when being questioned about his family by Skilling's attorney Dan Petrocelli, he nearly broke down on the stand but quickly regained his composure.

The government is expected to finish its follow-up questioning with Koenig this afternoon and turn to its next witness Tuesday morning. That witness, Ken Rice, was a protoge of Jeff Skilling's who used to run Enron's Internet unit. Like Koenig, he has pleaded guilty to crimes and agreed to cooperate with the government.

Posted by John Roper at 03:28 PM | Comments (0) | TrackBack (0)

Next caller, please...
Jurors listened to a conference call led by Ken Lay a day after Enron acknowledges it was under an SEC inquiry.

Analysts on the call hammered Lay and other Enron executives over the probe, which was looking into the company's books and how it was recording debt.

One hard-pressing analyst, later identified in court here today by Lay's lawyer as "a short-seller," was abruptly cutoff by Lay after asking a series of challenging questions.

"I know you want to drive the stock price down and you're doing a good job of it," Lay shot back at the analyst during the Oct. 23, 2001, conference call.

The analyst was apparently then disconnected from the call.

Lay then invited other analysts to step forward who "have more serious questions to ask."

The analyst was asking detailed questions about massive debt Enron had in some of its European ventures, particularly with its failing water business there. He was less than satisfied with the answers being given to him by Enron's chief of accounting, Rick Causey.

Other analysts, however, weren't exactly tossing softballs. One called on Enron to be more forthright and even requested the company do daily conference calls with Wall Street to clear up the matter.

Lay explains to the analyst that because the partnerships created by Andy Fastow, called LJM1 and LJM2, were being scrutinized by the federal government they needed to speak about them with caution.

"We're not trying to hold anything back," Lay explained.

Yet another analyst requested Enron provide financial statements from Enron's partnerships to "help to settle any real or imagined business here."

The day after the call, Fastow was ousted from the company; one week later, Enron announced that the SEC probe had turned into a full-blown SEC invesigation.




Posted by John Roper at 02:41 PM | Comments (1) | TrackBack (0)

Focus on Fastow
Jurors were played a recording of an Oct. 23, 2001, analyst call where Ken Lay professes support for then-CFO Andy Fastow who, at the time, had become the subject of media scrutiny and an investigation by the Securities and Exchange Commission.

"Andy has been doing an outstanding job as CFO," Lay tells analysts.

One day later, Fastow is ousted from the company for his involvement in shady partnerships set up through the company where he was profiting personally.

Ramsey is taking pains to explain to jurors that Lay was not required by law to divulge the SEC probe, which he did during the conference call.


Posted by John Roper at 01:28 PM | Comments (0) | TrackBack (0)

Reading the newspaper
Judge Sim Lake is known for his swift-moving trials. So far, this is not one of them.

This morning, a full October 17, 2001 Wall Street Journal story was read into evidence, this after the playing of an hour-long audio tape. It was Lay's lawyer Mike Ramsey who first suggested only little snippets be read --- this after jumping up repeatedly during the government's case complaining if the prosecutor just an excerpt from a story, video or audio tape.

Clearly frustrated by how long this case has already become, the judge tried to cut short the reading. Prosecutor Kathryn Ruemler said it seemed only fair to read this whole article after so many others had been read at the defense's behest.

The Journal article was the one that put the first critical spotlight on the side dealings of ex-CFO Andrew Fastow.

"I'm just trying to move the trial along," said a clearly frustrated jurist. "We can read the Wall Street Journal all day if you want to."

That's what he said but not likely what he'll do. If first wtness Koenig isn't off the stand by the end of today, one would expect this judge to read the riot act instead.


Posted by Mary Flood at 12:30 PM | Comments (0) | TrackBack (0)

A little Fastow before lunch...
Just before breaking for lunch, Ramsey peppered Koenig with a series of questions related to Andy Fastow, the former CFO of Enron.

Fastow pleaded guilty in 2004 to one charge of conspiracy to commit wire fraud and a charge of conspiracy to commit wire and securities fraud. He had faced 98 counts before he pleaded out and agreed to cooperate with the government.

His two charges involve transactions with LJM partnerships that were under his control in which he improperly siphoned profits from Enron for himself and others.

Asked by Ramsey whether people were starting to point a finger at Fastow following a dismal earnings report Enron filed in October, Koenig said: "Oh, yes."

Ramsey had Koenig read a lengthy article from the Wall Street Journal published in 2001 that was the first to seriously question Fastow's partnerships.

Fastow, who faces 10 years in prison, is set to be a key government witness in the trial against Lay and Skilling. Defense attorneys frequently attack Fastow in an apparent effort to bolser their claims that "only a few bad apples" committed crimes at Enron, with Fastow being the worst of the bunch.


Posted by John Roper at 11:54 AM | Comments (0) | TrackBack (0)

Details in draft
Defense attorney Mike Ramsey ran through the vetting process Enron used as it made revisions to the draft of a contentious third-quarter 2001 earnings announcement.

Several drafts reviewed in court were sent around to Enron's lawyers and accountants to sign off on or to offer changes or feedback to before a final report was delivered to analysts by Ken Lay in mid- October of that year.

Ramsey had government witness Mark Koenig go through the process step by step in an apparent effort to show jurors that the report went through the proper checks and balances.

The drafts showed changes were made as more information from the company's global operations dribbled in to the Houston headquarters of Enron.

Ramsey seemed particularly eager to show jurors how the drafts reflected the process the company used to report a write down of shareholder equity by some $1.2 billion that the company blamed on an accounting error.

Drafts showed that number rise by hundreds of millions of dollars until it reached $1.2 billion shortly before the day earnings were released.

Koenig previously testified that Lay wanted to keep those details out of Enron's earnings press release.




Posted by John Roper at 11:26 AM | Comments (0) | TrackBack (0)

Slo mo
Mark Koneig, on the stand for the seventh day now, isn't the only one in the chilly courtroom waiting for him to yield the stand to second witness Ken Rice, ex-head of Enron's broadband division.

This morning, the audience on the 9th floor includes both Bill Dolan, Rice's Washington-based lawyer; and Barnes Ellis, the lawyer based in Portland, Oregon, for one of the broadband trial defendants.

Morning highlights were few. Another audio tape is being played and jurors are listening like the veterans they have become. Lay lawyer Mike Ramsey continues to butt heads with Judge Smim Lake as the attorney works to both make arguments in his questions and to get into areas that the government didn't ask about in direct examination of Koenig.

Among the courtroom's sea of charcoal this morning is one bright spot.The only female lawyer with a speaking role, prosceutor Kathryn Ruemmler, wore a red jacket today bringing color to an otherwise bland sector of the courtroom.

One lawyer attending the trial for the first time this morning asked: "Is it always this dull?" Again, if this case goes forward like other Enron cases, the answer will surely continue to be: Yep.

Posted by Mary Flood at 10:03 AM | Comments (2) | TrackBack (0)

Was Lay upfront about big losses?
Ramsey has finished playing a Aug. 16, 2001 recording of Lay speaking to an all-employee meeting where he worked to calm workers about the sudden departure of Skilling a few days before.

Ramsey then quickly moved to the October 2001 time frame when Lay is accused of hoodwinking investors about the health of the company.

He cited an analyst at the time who said Enron's stock, which had plummeted during recent months, was "a good buy," which Ramsey said would signal that the company may have been on the upswing.

Ramsey then began to play an audio recording of an Oct. 16, 2001 conference call with analysts where Enron announced more than $600 million in quarterly losses that it blamed on its badly performing broadband and water divisions as well as poor investments.

It was a time the company also wrote down shareholder equity by some $1.2 billion due to an accounting mistake.

Koenig previously testified that Lay wanted to keep those damaging details out of Enron's earnings press release.

Koenig told jurors last week that Lay was trying to "minimize" the sagging numbers and that he only reluctantly agreed to mention the $1.2 billion write down in the conference call.

Ramsey is using the conferece call recording to show his client was being open and upfront about the health of the company.

About half of the tape was played before the court broke for morning recess.

Posted by John Roper at 09:09 AM | Comments (0) | TrackBack (0)

Day 9: Koenig back on the stand
Mike Ramsey continued his cross-examination of Mark Koenig this morning, working to dismantle his testimony for the government.

Koenig, the former head of Enron's investor relations team, entered his seventh day on the stand where his testimony has largely been focused on accounting and finance. Koenig is expected to wrap up his testimony by day's end.

Under questioning from prosecutors, Koenig has told jurors that Enron fudged earnings numbers and hid massive losses using accounting trickery.

Koenig, who has pleaded guilty to aiding and abetting securities fraud and faces up to 10 years in prison, testified that former Enron executives Jeff Skilling and Ken Lay were aware of shenanigans at the company.

Ramsey began by playing a recording of a Webcast of Lay addressing employees in 2001, shortly after Skilling abruptly left Enron.

Prosecutors are trying to prove that Lay lied to Wall Street and employees about the health of the company. Ramsey is using the tapes, played in their entirety, to provide context to jurors about what Lay said.


Posted by John Roper at 08:14 AM | Comments (0) | TrackBack (0)

February 09, 2006
Recessed for the day...
Court has recessed for the day and will meet again on Monday. Ken Lay's attorney Mike Ramsey will continue to cross-examine Enron's former investor relations chief, Mark Koenig.

Posted by John Roper at 04:39 PM | Comments (4) | TrackBack (0)

2001 webcast: Lay outlines company health
Defense attorneys are playing a lengthy recorded webcast to jurors of Ken Lay addressing Enron employees two days after Jeff Skilling stepped down as CEO.

In the Webcast, made Aug. 16, 2001, Lay outlines the challenges the company faces with a power plant project in India and how the woes of the telecom industry at the time are adversely affecting Enron's Internet division.

Overall, Lay tells the company's 20,000 workers that "the business is doing great" despite the challenges and the current value of its stock, which had fallen considerably at the time.

He tells them that overseas assets were doing poorly. Ramsey stops the recording to confer with the government witness, Mark Koenig, asking him about Lay's assessement of those assets.

"A lot of those assets were not doing very well in generating returns," Koenig told Ramsey.