The Enron prosecution’s second witness testified on Tuesday that former chief executive officer Jeffrey Skilling justified the use of off-balance-sheet entities to help boost earnings at the company’s broadband unit.
Kenneth Rice, the former chief executive officer of Enron Broadband Services, said that a partnership set up by CFO Andrew Fastow “looked goofy,” reported Bloomberg. “Mr. Skilling explained that it was something that would facilitate getting transactions done,” he continued, according to the wire service. “He said we needed to do it so that we weren’t being stuck by the banks at the last minute.”
According to the Associated Press, Rice described Skilling as a hands-on boss who highly valued broadband’s role in boosting Enron’s share price. Skilling and his co-defendant, former Enron chairman Kenneth Lay, have asserted they had nothing to do with these off-balance-sheet deals, which they claim were the creations of Fastow.
Cutting to the chase, prosecutor Sean Berkowitz asked Rice whether Enron Broadband Services ever made a profit, reported the Houston Chronicle. “No,” said Rice.
Rice testified that he first learned about the partnership, called LJM, when it was created by Fastow in 1999 to buy poorly performing Enron assets and invest in company deals, according to the AP. Rice also reportedly asked Skilling whether it was proper for a partnership run by Fastow to do deals with Enron, and said that Skilling thought “it was an important thing for Enron to do.”
The Chronicle also reported that according to Rice’s testimony, Skilling encouraged him to lay off employees to help cut costs, then told Wall Street analysts that the company had simply shifted around some employees.
He also reportedly testified that Skilling, during preparation for an analyst conference in January 2001, coached Rice and other presenters about the importance of body language in reinforcing the bullishness of analysts. Rice admitted that he planned to mislead Wall Street when he went to the conference, according to the Chronicle. “I lied to them about the status of our network and the things our network could do…I also withheld the true state of our business,” he reportedly testified.
In a final bit of testimony before Judge Sim Lake dismissed jurors for the day, Rice told of an August 1, 2001, lunch meeting with Skilling, according to the Chronicle. Rice, who had already announced plans to retire from the company after 21 years, reportedly said he was surprised to hear that Skilling was leaving Enron, too, and that he planned to buy a ship and circle the globe.
“All I remember it was more like a ship. It was a big boat you could put cars on and a helicopter,” Rice reportedly testified.
After leaving the lunch meeting, the Chronicle continued, Rice returned to his office and sold stock — which became the basis of his 2004 guilty plea to a single count of securities fraud. He faces up to 10 years in prison, according to Bloomberg.