Witness Sticks to Story: Skilling Lied

From Reuters

A key witness at the Enron Corp. trial stuck to his claim that former Chief Executive Jeffrey K. Skilling lied about the health of the company’s cash-burning Internet division, even as the defense poked holes in his testimony Thursday.

The witness, Kenneth Rice, ran Enron’s broadband services business and was a one-time confidant of Skilling, who is standing trial on fraud and conspiracy charges alongside former Enron Chairman Kenneth L. Lay.

In his third day on the witness stand, Rice, 47, contradicted statements he made under earlier questioning by prosecutors that Enron had sold Internet assets to a partnership controlled by then-Chief Financial Officer Andrew S. Fastow at an inflated price.

That sale, to Fastow’s LJM partnership, was for about $90 million and generated a $55-million profit for Enron Broadband Services -- money the unit desperately needed to meet aggressive earnings targets Skilling had promised Wall Street, Rice testified Tuesday.


“It was a negotiated, arms-length transaction ... it was my understanding that the price LJM was paying could be considered the market price,” Rice said under questioning from Skilling’s lawyer Mark Holscher when confronted by evidence showing the assets were later sold at an even higher price by LJM.

Enron, once the darling of Wall Street and the seventh-largest company in the U.S., collapsed December 2001 into the biggest bankruptcy of its time.

Before the collapse, Skilling and Rice had painted Enron Broadband Services as a vibrant business with rosy prospects, even as the division hemorrhaged $100 million a quarter. It was shut down just months before Enron filed for bankruptcy protection.

Rice pleaded guilty in 2004 to securities fraud and is cooperating with the government in hopes of shortening a prison sentence that could run as long as 10 years.


Shifting uneasily in his chair at times and sighing deeply as Holscher exposed other inconsistencies in his testimony, Rice stuck to his main assertion that Skilling hid information about Enron Broadband Services’ woes from the public and even Enron’s own board of directors.

“I knew that Mr. Skilling and I had misled investors on a number of occasions on the prospects for our four businesses at EBS,” he told the court as Holscher ended his questioning.

Fastow and his off-balance-sheet partnerships are expected to play a central role in the trial, because both Lay and Skilling have blamed the financial chief for thefts at the company that triggered a confidence crisis and led to its eventual collapse.

Fastow, who has also struck a plea deal with prosecutors and is facing up to 10 years in prison, is expected to be the government’s star witness later in the trial.


Enron’s implosion -- because of billions of dollars in hidden debts and inflated profit -- cost thousands of employees their jobs and pensions and was the first in a series of corporate scandals to rock Wall Street, triggering stricter disclosure laws.

Rice’s testimony ended Thursday afternoon.

He was followed on the witness stand by Terry West, a 25-year veteran accountant at Enron who still works at the company. She was called to testify about documents introduced by prosecutors.