Skilling Allegedly Masked Losses

Former Enron Corp. Chief Executive Jeffrey K. Skilling gave misleading information to Wall Street analysts about the earnings of a highly touted business unit in 2001, the company’s former head of investor relations testified Thursday.

Skilling did not disclose in conference calls with analysts that the Enron retail energy division had suffered $726 million in first-half losses from its contracts, and insisted that the unit was profitable, Mark Koenig told jurors during the second day of testimony in the federal fraud trial of Skilling and former Enron Chairman Kenneth L. Lay.

Those losses had been moved into the Enron wholesale division, which was making enough money to absorb them -- but that accounting change was not initially disclosed to analysts, Koenig said.

“It would have been a big surprise, a negative surprise, a large surprise to investors” had they known the truth, he said.

Analysts did get a surprise when Skilling gave a sarcastic response to a hedge-fund worker frustrated with Enron’s lack of details in its reports.

Prosecutors played a tape of the worker asking Skilling during an April 2001 conference call why Enron had not published more detail on its finances.

“You’re the only financial institution that can’t produce a balance sheet or a cash flow statement,” complained Richard Grubman of Highfields Capital Management.

“Thank you very much,” Skilling answered. He then added, “We appreciate it,” and called Grubman an obscene name.

In the courtroom, Lay laughed aloud; Skilling smiled. Outside court, Skilling’s lead lawyer, Daniel M. Petrocelli, said he was not worried about the tape.

Koenig, the first government witness against Skilling and Lay, stopped short again of saying either defendant explicitly ordered the books cooked, or that Skilling was aware that he was giving analysts bad information.

The defense said in opening statements that many former Enron executives such as Koenig were pressured by prosecutors into pleading guilty when they had committed no crimes, suggesting that they were afraid of paying for long legal battles.

On Thursday, Koenig described his guilty plea in 2004 to aiding and abetting securities fraud. He is one of 16 former Enron executives who have pleaded guilty since the company filed for bankruptcy protection in December 2001.

He admitted on the witness stand that he lied to investors.

“I did it to keep my job, to keep the value that I had in the company, to keep working for the company,” he told jurors.

Kenneth Rice, who ran the Enron broadband unit, is expected to follow Koenig on the witness stand.

The trial is scheduled to resume Monday.