Enron Exec: Skilling Might Not Have Misled

HOUSTON – The former head of Enron Corp.'s bust of a broadband business acknowledged that former CEO Jeffrey Skilling may not have knowingly misled anyone about the venture's prospects of success.

Under cross-examination Wednesday, Kenneth Rice, a former top lieutenant and friend to Skilling, said his own cheerleading for the unit may have fueled his former boss' broadband optimism.

Earlier Rice had told jurors in the fraud and conspiracy trial of Skilling and Enron founder Kenneth Lay that Skilling misled employees and Wall Street about the flailing business unit's strength in early 2001.

"You never once told Jeff Skilling you were uncomfortable with any statement he made to analysts about [Enron Broadband Services], is that right?" Skilling lawyer Mark Holscher asked.

"Yes," said Rice, who is among 16 ex-Enron executives who have pleaded guilty to crimes stemming from the government's investigation of the energy company's swift tumble into bankruptcy proceedings in December 2001.

On direct examination, Rice told jurors that on a conference call with analysts in March 2001, Skilling said the broadband unit had "strong growth as far as people, budgets, the whole thing." But Rice had said Enron was laying off broadband workers and the unit was bleeding cash without attracting significant money. The unit never turned a profit and crashed along with the parent company.

On Wednesday, Holscher pressed Rice about whether he thought the unit would survive a telecom industry meltdown and could potentially bring in billions for Enron despite those challenges.

In early 2001 deals were in the pipeline that could jump-start the broadband unit. They included a possible venture with Microsoft Corp. or buying part of AT&T.

Rice discussed the Microsoft deal — which eventually died — with Skilling the same day the former CEO talked up broadband on the March 2001 call.

Rice acknowledged it was "possible" that he told Skilling a future in bandwidth trading as a "Fort Knox opportunity," though he hedged and said, "I don't think I told him that."

Skilling smiled and cocked his head, as though he didn't believe Rice's answer.

Holscher also sought to portray Rice, who was to continue on the stand Thursday, as an out-of-touch manager who didn't know how many people worked for him.

"Twelve [hundred] to 1,500," Rice said when Holscher asked for a head count.

"You're CEO. You don't know?" Holscher asked incredulously.

"I don't know the exact number," said Rice. "I'm saying I don't know the number of employees."

Holscher also accused Rice, 47, of "checking out" of Enron beginning in 2001 to pursue his passion for race cars, an assertion Rice denied.

"I raced cars sometimes on weekends," he said.

But Holscher noted people above and below Rice at Enron complained that he was an absentee boss and underlings urged Skilling to fire him.

"I don't know that," Rice said, but added: "A number of employees told me the wheels had fallen off EBS, and they were disappointed how I was handling it."

Rice pleaded guilty to securities fraud in July 2004.

The government's next witnesses include Paula Rieker, Enron's former No. 2 executive in investor relations. She also served as corporate secretary, dealing directly with Lay and the company's directors, in the months before Enron failed. In May 2004 Rieker pleaded guilty to insider trading for selling shares in mid-2001 upon learning that Enron's broadband unit lost more money than publicly disclosed.

After Rieker, prosecutors expect to call Wes Colwell, former chief accounting officer for Enron's trading unit. Colwell in October 2003 agreed to pay $500,000 to settle Securities and Exchange Commission allegations of manipulating earnings by using trading profits to offset massive losses in Enron's retail energy unit.

Skilling faces 31 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces seven counts of fraud and conspiracy related to the months after Skilling abruptly resigned from Enron in mid-August 2001. Both sold millions in stock before the company crumbled, but only Skilling is charged with improper stock sales.