Trial Video Shows Lay, Skilling in Enron's Hay Day

HOUSTON – Jurors in the fraud and conspiracy trial against former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling got a taste Wednesday of the self-congratulatory culture that permeated the company months before it collapsed in scandal and bankruptcy.

Lay and Skilling occasionally headlined employee meetings during the company's halcyon days that mixed rundowns of business operations with pep rallies.

Jurors watched a lengthy videotape of the first such meeting Skilling led in February 2001 after he succeeded founder Lay as chief executive.

During the nearly hourlong video, both Lay and Skilling unveiled Enron's vision to be the world's leading company rather than just the world's leading energy company, using words like "outstanding," "awesome performance," as they basked in applause from employees.

"This is it," Skilling said as Lay pulled a cord to display a banner that said "From World's Leading Energy Company to World's Leading Company."

Also on the tape, Skilling acknowledged that Enron's earnings were a "black box," meaning outsiders couldn't ascertain how it made money. "I'm sorry, it's true, it's just difficult for us to show people how money flows through particularly the wholesale business," he said on the videotape, referring to the division that included trading.

But Skilling said Enron's businesses were growing, so "that's a good black box."

About nine months later, what was once the nation's seventh-largest company filed for bankruptcy protection upon revelations of billions of dollars hidden debt and inflated profits.

Some jurors appeared bored, with one woman twirling her eyeglasses and staring at the ceiling. Others watched and took notes.

Lead Skilling lawyer Daniel Petrocelli played the tape as part of his third day cross examining former Enron investor-relations chief Mark Koenig, who is the prosecution's first witness. Lead Lay lawyer Michael Ramsey has yet to question Koenig.

Prosecutors have played clips of videos and audio tapes intended to bolster allegations that Skilling and Lay repeatedly lied about Enron's financial health and hid bad news to inflate company stock. But the defense teams wanted to play them in full to ensure jurors heard comments in context of entire presentations or conference calls. U.S. District Judge Sim Lake acquiesed, noting they would be played in full only once during what is expected to be a four-month trial.

The defendants say there was no fraud at Enron except for three former executives who skimmed millions from some deals.

On Tuesday, Koenig grew tense as Petrocelli challenged his testimony that suggested Skilling participated in schemes to raise earnings estimates or minimize how much revenue stemmed from asset sales.

Koenig reiterated his belief that top executives bent on meeting or beating Wall Street earnings expectations made or knew of overnight changes to estimates that he considered suspect.

Failure to meet or beat analyst earnings expectations could trigger a drop in the company's stock price.

But Koenig couldn't say Skilling lied or knowingly did anything improper. Koenig pleaded guilty in 2004 to aiding and abetting securities fraud for lying to auditors.

For example, Koenig said he informed Skilling and former top Enron accountant Richard Causey, on the day before Enron was to announce fourth-quarter 1999 earnings, that analysts pushed expectations to 31 cents per share from 30 cents. Koenig said "a decision was made to increase the earnings" and Enron announced it had hit 31 cents.

But Koenig again did not say Skilling ordered the change, nor did he know how Enron justified the increase.

"I know they figured out a way to come up with the extra penny. I didn't inquire into the exact transaction or adjustment, no," he said.

Causey was bound for trial alongside Skilling and Lay until he cut a deal with prosecutors and pleaded guilty to securities fraud three days after Christmas.

Skilling faces 31 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces seven counts of fraud and conspiracy. Both face decades in prison if convicted. Both sold millions of dollars in stock before Enron went bankrupt, but only Skilling faces allegations of improper stock sales.