Enron Corp.’s former investor-relations chief grew tense Tuesday when challenged about his testimony that suggested former CEO Jeffrey Skilling participated in schemes to hike earnings estimates or minimize how much revenue stemmed from asset sales.
In his fourth day of testimony in the fraud and conspiracy trial of Skilling and Enron founder Kenneth Lay, Mark Koenig reiterated his belief that top executives bent on meeting or beating Wall Street earnings expectations made or knew of overnight changes to estimates that he considered suspect.
Failure to meet or beat analysts’ earnings expectations could trigger a drop in the company’s stock price, which Koenig said was all-important at Enron.
He also reiterated that Skilling told analysts that sales of inoperative fiber-optic cable accounted for $50 million in second-quarter 2000 revenue for a highly touted broadband unit when an internal company document distributed more than a week later said the sales accounted for three times that much.
When Koenig first made those statements during testimony for the prosecution, he stopped short of saying Skilling or Lay ordered any fudging of Enron’s numbers or that Skilling knowingly minimized revenue derived from fiber sales.
Skilling lawyer Daniel Petrocelli, in his second day of cross-examination Tuesday, demanded specifics as the matter-of-fact Koenig fidgeted with his tie, but Koenig still couldn’t say unequivocally that his former boss knowingly did anything improper.
Petrocelli planned to continue questioning Koenig Wednesday, after which Lay’s lawyer, Michael Ramsey, expected to get his chance.
Koenig said Tuesday he informed Skilling and former top Enron accountant Richard Causey, on the day before Enron was to announce fourth-quarter 1999 earnings, that analysts had kicked expectations to 31 cents per share from 30 cents. Drafts of earnings press releases showed Enron was to announce earnings of 30 cents per share.
He said Causey told him he would “work on it,” and “a decision was made to increase the earnings.”
But Koenig again did not say Skilling ordered the change, nor did he know how Enron justified the increase.
“I know they figured out a way to come up with the extra penny. I didn’t inquire into the exact transaction or adjustment, no,” he said. “To go back and sharpen a pencil to find another penny, that’s wrong.”
Causey was bound for trial alongside Skilling and Lay until he cut a deal with prosecutors and pleaded guilty to securities fraud three days after Christmas.
Regarding the fiber sales, Koenig conceded he couldn’t say whether Skilling made a mistake or deliberately lied.
“I said Mr. Skilling said it was $50 million. It was $150 million. I don’t know if it was a mistake or a lie,” Koenig replied.
Koenig pleaded guilty in 2004 to aiding and abetting securities fraud for lying to investors. His admitted lies include telling analysts during a 2001 quarterly conference call that the broadband unit’s sale of interest in future revenue from a video-on-demand deal was for a “pretty small amount” when the opposite was true.
Skilling turned to Koenig to answer an analyst’s question about the makeup of the revenue, and Koenig said he lied to stave off more probing questions about why the unit wasn’t earning more revenue from actual operations.
Koenig said no one told him to lie, and he didn’t know if Skilling knew he lied.
Petrocelli played a 30-minute videotape of Enron’s January 2001 analysts’ conference, which featured Lay and Skilling praising the company, its profits and lofty growth prospects.
On the video, the former corporate titans, casual with open-collared shirts and sport coats, appeared demonstrative, tanned and enthusiastic. That vibrancy was long gone Tuesday as each watched from the courtroom defense table, leaning back in leather chairs and peering up at their images of five years ago on a large screen, Lay thinner and paler and Skilling tight-lipped.
Skilling brightened when U.S. District Judge Sim Lake ruled that Skilling’s wife, former Enron corporate secretary Rebecca Carter, could be in the courtroom for most of the trial even though she will testify as part of his defense.
Enron was the nation’s seventh-largest company before it went bankrupt in December 2001 upon revelations of billions of dollars in hidden debt and inflated profits.
Prosecutors contend Lay and Skilling repeatedly lied about Enron’s health when they knew that accounting maneuvers propped up a facade of success. The defendants say there was no fraud at Enron except for three former executives who skimmed millions from some deals.
Skilling faces 31 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces seven counts of fraud and conspiracy. Both face decades in prison if convicted. Both sold millions of dollars in stock before Enron went bankrupt, but only Skilling faces allegations of improper stock sales.