Top Exec.: Skilling Ordered Others to Mislead Wall Street About Earnings

Former Enron Corp. CEO Jeffrey Skilling ordered subordinates to mislead Wall Street about the company's earnings, a former top executive testified Tuesday.

The testimony by Kenneth Rice, a former member of Enron management's inner circle, was one more blow against Skilling in the financial scandal that brought down the once formidable energy trader.

Even as Enron's broadband business buckled under soaring costs and few customers, Skilling insisted the company publicly forecast a far smaller loss than was expected, Rice said.

"Mr. Skilling would simply say, in fact he did say, 'This is what the number's going to be,"' said Rice, who oversaw the broadband business. "So we'd walk away and say 'All right, we're going to try and hit it."'

At one point, Enron's broadband business was on its way to reporting a quarterly loss of over $146 million despite publicly projecting a loss of $35 million, he said.

Rice also said Skilling knew Enron's business intimately.

"Mr. Skilling was very engaged in the business, he was very hands-on. Almost any transaction of any size we would bring to Mr. Skilling to get his approval," Rice said under questioning by prosecutor Sean Berkowitz.

The charges by Rice against his longtime friend came in the third week of the trial against Skilling and former CEO Kenneth Lay for conspiracy and fraud


Enron, which tumbled into bankruptcy in December 2001 in the largest collapse to date, was the first of a series of scandals that rocked Wall Street and prompted stricter disclosure laws for companies.

Rice, who has pleaded guilty to securities fraud and is awaiting sentencing, led Enron's Internet broadband business, EBS, until July 2001. He faces up to 10 years in prison.

Rice was well known within Enron for an extra-marital affair with a colleague and a penchant for flashy Ferrari and Shelby sports cars. He previously testified in the trial of five EBS executives.

That trial ended with the acquittal of some charges and a mistrial on the others. The five men are scheduled for retrial later this year.

Enron had hoped the broadband business would help it cash in on the stock market boom in the late 1990s but EBS struggled with virtually no revenue.

It ultimately sold some of its unused fiber-optic cable to partnerships run by Enron's former chief financial officer, Andrew Fastow, to meet the financial targets the company had promised Wall Street.

"Without that transaction, Mr. Rice, do you believe EBS would have achieved its target for that quarter?" Berkowitz asked Rice.

"No," he replied, adding the deal generated a $55 million profit — far higher than a sale to an independent company would have yielded.

Fastow, who has also pleaded guilty to crimes and faces 10 years in prison, is expected to be a key witness at the trial. Lay and Skilling have both blamed Fastow for any crimes at the company, which they claim triggered a crisis that led to its ultimate demise.

The partnerships run by Fastow have been blamed for hiding billions of dollars in debt. Rice said he complained about Fastow's partnerships to Skilling, but was rebuffed.

"He felt it was an important thing for Enron to do," Rice said.