Defense Says Enron’s Troubles Were Known on Wall Street
Speculation about Enron’s troubles was swirling on Wall Street long before the company reported a massive loss, hardly a sign of an elaborate scheme to deceive investors, an attorney for former Enron Chairman Kenneth L. Lay argued Monday.
The assertion was aimed at the heart of the government’s argument that top Enron executives for months hid the myriad problems plaguing the once-highflying energy company, which spiraled into bankruptcy in December 2001.
As the fraud trial of Lay and former Enron Chief Executive Jeffrey K. Skilling entered its third week, Lay’s lawyer Michael Ramsey pointed to analyst reports that suggested Wall Street knew of troubles brewing at Enron well before it announced its weak third-quarter performance in 2001.
Sparring with prosecution witness Mark Koenig, Enron’s former investor relations chief, Ramsey also replayed a tape of the earnings conference call in which Lay described the company’s quarterly loss of more than $600 million, a $1.01-billion write-down in asset values and reduction in investors’ equity of $1.2 billion.
Ramsey said that one analyst had speculated the company would take an even larger asset write-down on its struggling water and broadband Internet business, and that the company’s stock price rose after the news.
“These write-downs were not a surprise, were they?” Ramsey asked Koenig.
“I don’t remember many people who were not surprised at the size of the loss and the nature of the loss,” Koenig replied in his seventh day on the witness stand.
Lay is facing seven charges of conspiracy and fraud linked to the period when he returned as CEO after Skilling abruptly resigned that post in August 2001, just three months before the company filed for bankruptcy protection.
Skilling faces 31 charges of conspiracy, fraud and insider trading. Both defendants face decades in prison if convicted.
Enron collapsed after using complex off-balance-sheet partnerships to hide billions of dollars in debt and prop up earnings.
The company’s downfall wiped out billions of dollars in employees’ pensions and was the first of several scandals that prompted tighter financial disclosure laws.
Koenig will return to the witness stand today for brief final questioning. The prosecution plans to call the former head of Enron’s troubled broadband division, Ken Rice, to the stand after that.
Like Koenig, Rice is one of several former Enron executives who have pleaded guilty to crimes during their employment with the company and agreed to cooperate with prosecutors in hopes of securing a lighter prison sentence.
Rice was one of Skilling’s top lieutenants and is likely to provide damaging testimony about how his former friend touted the new Enron Broadband Services business even as it was hemorrhaging tens of millions of dollars each quarter.
