updated 2/1/2006 8:01:03 PM ET 2006-02-02T01:01:03

Former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling are basing their defense against fraud and conspiracy charges on their insistence that no fraud occurred within the scandal-ridden company’s doors.

But the first former top executive turned felon to testify against them told a different tale in court Wednesday.

Former investor relations head Mark Koenig, a stern type with closely clipped hair and eyeglasses, said he joined Enron’s obsession with meeting or beating Wall Street expectations, feeling the ever-present pressure to keep the stock price up even if he had to mislead analysts to do it.

Koenig also said his former bosses knew about last-minute changes to earnings figures just before they were publicly disclosed to ensure Enron always made the numbers — though he didn’t call either a crook.

Investors didn’t get the true financial picture of the onetime seventh-largest company in the two years before Enron imploded in December 2001, Koenig said. Prosecutor Kathryn Ruemmler, in an effort to bolster the government’s contention that Lay and Skilling abused their positions of public trust, asked Koenig why it was important to tell investors the truth about how Enron’s finances.

“Their investment is at stake,” he replied.

Koenig’s career at Enron spanned 17 years, eventually rising to chief of investor relations. In that capacity, he stroked Wall Street, handled quarterly conference calls with Lay and Skilling, and wooed new investors.

He told jurors he lost his job in May 2002, several months after thousands of others were laid off upon Enron’s bankruptcy filing. His testimony will continue Thursday.

Neither Lay nor Skilling showed any visible reaction to Koenig, who is among 16 ex-Enron executives to plead guilty to crimes and cooperate with prosecutors in exchange for recommendations of lenient punishments. The former chief executives’ lawyers contend that most of the government’s so-called cooperators — including Koenig — admitted to crimes they didn’t commit because they were intimidated by zealous prosecutors and feared lengthy prison terms.

Koenig told jurors about two instances in which Enron’s expected quarterly earnings per share changed to match or beat those expected by Wall Street.

In July 2000, several drafts of a quarterly earnings press release pegged earnings at 32 cents per share. Then suddenly a draft — which became the final version — jumped to 34 cents. Wall Street expected 32 cents, and Enron wanted to beat it, he said.

“There was a determination made to report 34 cents that quarter,” Koenig said, noting he had discussed it with several executives, including Skilling. He did not address what accounting may have been behind the new figure.

“Who had the authority to make that determination?” Ruemmler asked.

“I believe Mr. Skilling did,” Koenig replied.

In another instance, in January 2000, Enron added a penny to its fourth-quarter 1999 earnings of 30 cents per share after analysts unexpectedly raised their expectation to 31 cents, Koenig said.

The morning after the change, Koenig said Lay told him he had awakened that morning to learn Enron’s earnings were 31 cents when they were 30 cents the night before.

He said Lay told him he had received a voice mail explaining the change. “He understood the issue, fairly matter-of-fact,” Koenig testified.

Jurors also heard clips from a quarterly conference call with analysts regarding second-quarter earnings in 2000 in which Skilling said a sale of inoperative fiber optic cable accounted for $50 million of the company’s broadband division’s $150 million in revenue.

Koenig said the fiber sale brought in all the revenue, but he went along with the incorrect disclosure so analysts would remain bullish on the much-touted division, which never earned a profit and died in 2001.

Koenig, 50, pleaded guilty in August 2004 to aiding and abetting securities fraud, admitting to misleading analysts about broadband earnings. He also admitted he knew Enron masked losses in an another highly touted and unprofitable unit — retail energy — by folding it into the division that included the company’s trading unit.

Koenig has not yet told jurors of his admitted crimes. But he said Wednesday he knew it was wrong to manipulate earnings figures.

Skilling faces 31 counts of fraud, conspiracy, insider trading and lying to auditors. Lay faces seven counts of fraud and conspiracy. Both have pleaded not guilty.

Koenig described his former bosses as intimately aware of how the company was performing compared with its peers and said they read analysts’ reports regularly.

He also said they disliked analysts bearish on Enron, to the point where Lay asked if they could no longer invite one analyst known for asking tough questions to future gatherings. Koenig said he told Lay that wasn’t a good idea.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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