Defense Attacks Enron Witness

Defense lawyers for the two men who headed Enron Corp. got their first crack at the lead prosecution witness Monday, trying to show that his agreement to testify against their clients was motivated by a desire to avoid prison and protect the $5-million fortune he still controls.

Daniel M. Petrocelli, head lawyer for former Enron Chief Executive Jeffrey K. Skilling, also tried to shake Mark E. Koenig’s previous testimony that Skilling knew of accounting manipulations meant to boost Enron’s reported profit so that the company could meet the expectations of Wall Street analysts and keep its stock price up.

Petrocelli and Michael W. Ramsey, lead lawyer for former Enron Chairman Kenneth L. Lay, had said in aggressive opening arguments last week that jurors ought to regard as worthless the testimony of witnesses who have cut deals with the government.

Petrocelli pressed Koenig, Enron’s former head of investor relations, on the August 2004 cooperation agreement under which he pleaded guilty to aiding and abetting securities fraud by lying to investors. The charge carries a maximum 10-year sentence.

Koenig, 50, acknowledged that he could avoid jail time entirely if prosecutors, who have sole discretion over the value of his cooperation, recommend such a sentence. But the former executive also said he expected to lose most of his remaining $5 million in the civil lawsuits filed by former Enron employees and investors.

At one point, Koenig choked back tears. Petrocelli, trying to make the point that Koenig had agreed to plead guilty and work with prosecutors because he wanted to protect his family, asked how old Koenig’s three children were when he signed the cooperation agreement.

Koenig lost his composure and momentarily couldn’t answer. U.S. District Judge Sim Lake called a 10-minute recess, during which Skilling comforted his wife, former Enron corporate secretary Rebecca Carter, who was in tears.

Except for that moment, Koenig did not seem rattled during four hours of cross-examination. He returned to Petrocelli’s question later and said he had one child in high school and two in college.

Petrocelli also focused on Koenig’s testimony that Skilling had lied in a July 2001 conference call with analysts by saying “we don’t even track” gains associated with the sale of certain Enron power plants. Koenig had said that Skilling must have known that to be false.

But asked whether he knew as a certainty that Skilling was lying or was just making an assumption, Koenig replied, “There’s no way I can know exactly what he was thinking.”

Earlier Monday, under questioning by co-prosecutor Kathryn H. Ruemmler, Koenig described a meeting with the board of directors, headed by Lay, in October 2001, two months before Enron’s filing for bankruptcy protection and two months after Skilling’s surprise resignation.

Koenig said he told the group he was worried about a plan to report $711 million in pretax losses from the company’s power-trading operations in the third quarter of 2001 as “nonrecurring,” because trading was inherently risky and big losses or gains were racked up in the normal course of operations.

Had the trading losses been folded into normal operating results, they would have caused the company to miss a key profit number that analysts watch closely, which would have resulted in a further drop in the already battered stock price. But with Lay’s support, the losses were listed as nonrecurring, Koenig said.

Cross-examination was to resume this morning and was expected to take all day. The next prosecution witness will be Kenneth D. Rice, former head of Enron Broadband Services.

Charged with multiple counts of fraud and conspiracy, Lay and Skilling could face decades in prison if convicted.