Enron Exec: Skilling Misleading on Enron Unit

HOUSTON – Former Enron Corp. Chief Executive Jeffrey Skilling misled employees and Wall Street about a flailing business unit's strength in early 2001, but the unit's former CEO said Wednesday he never corrected his boss.

"No, I didn't want to talk about that," Kenneth Rice told Skilling lawyer Mark Holscher in his second day testifying in the fraud and conspiracy trial of Skilling, his former boss and friend, and Enron founder Kenneth Lay.

"You never once told Jeff Skilling you were uncomfortable with any statement he made to analysts about (Enron Broadband Services), is that right?"

"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.

But under additional questioning by Holscher that suggested Skilling may not have knowingly deceived anyone, Rice acknowledged there was reason for long-term optimism at his beleaguered broadband unit.

Possible deals were in the pipeline, including a letter of intent with Microsoft; acquisitions were discussed, including Enron buying a piece of AT&T; and new top-level people were hired to beef up the operation, Rice said.

He discussed the Microsoft agreement with Skilling the same day as a March 2001 analysts' conference call, Rice said. It also was "possible," he said in response to a question, that he referred to a future in Internet-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.

"You're standing outside Fort Knox with billions of dollars inside," Rice said further. "The only problem is how are you going to get it out."

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.

Rice, once a top trader who ran Enron's money-losing broadband venture, testified that Skilling told him to characterize layoffs at the unit in early 2001 as "redeployment" so that employees would believe they would keep their jobs and Wall Street analysts who influenced the company's stock would remain bullish on the weakening venture.

For example, in March 2001 Skilling told analysts the broadband unit had "strong growth as far as people, budgets, the whole thing," at a time when Rice said workers were being laid off, the unit burned through $100 million per quarter, and efforts to stream video content on a fledgling network or trade Internet bandwidth were faltering.

But Rice acknowledged Wednesday he never followed up on whether anyone was actually laid off. He also was unaware of documents noting that some broadband workers were transferred to Enron's retail energy unit, another highly touted venture that never made a profit.

When Holscher asked if he knew how many people worked at EBS, Rice replied: "Twelve (hundred) to 1,500."

"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 pointed out that people above and below Rice at Enron were critical of his work, that he wasn't a hands-on manager, and that 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 defense teams have suggested most of those who pleaded guilty to crimes did so because of prosecutorial pressure and fear of lengthy prison terms.

Rice acknowledged Wednesday that before his plea, he faced trial on 42 criminal charges as well possible government seizure of millions of dollars in cash and property, including two sports cars, a Colorado vacation home and his Houston home.

"Were you angry about pressure from the government?" Holscher asked.

"I was angry about what was happening to me," Rice said.

He denied telling friends or ex-colleagues he was innocent when he was initially indicted in May 2003. He said he cut a deal that included turning over almost $14 million in cash and property, including the cars and vacation home, to the government, because he thought a jury would see his lies captured on videotape and convict him.

"I figured it was going to be a losing task," he said.

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

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.