Former Enron Corp. Chief Executive Jeffrey Skilling was among American shareholders who sold stock at their first opportunity days after the Sept. 11, 2001 terrorist attacks.
But prosecutors in his fraud and conspiracy trial allege he sold 500,000 Enron shares on Sept. 17 that year because he had inside information that the energy company was in serious trouble — not because he was a panicked shareholder in a roiled market.
On Monday, testimony turned to that specific trade, which raked in $15.5 million and is among 10 improper insider trades Skilling is alleged to have made. Skilling is on trial for charges including fraud and conspiracy alongside company founder Kenneth Lay, but only Skilling faces charges of improper stock sales.
Earlier Monday, Lay’s legal team sought to weaken testimony from ex-Enron treasurer Ben Glisan Jr. that Lay lied to employees and Wall Street about Enron’s financial health in October 2001, weeks before the company spiraled into bankruptcy.
Regarding Skilling’s trade, stockbroker Glenn Ray testified that the former CEO called him on Sept. 17, 2001 and said he wanted to sell 500,000 shares.
However, Skilling had called Ray on Sept. 6 — before the attacks — and said he wanted to sell 200,000 Enron shares. That sale wasn’t executed because Skilling told Ray he was no longer an officer at Enron, and therefore didn’t have to report trades to the Securities and Exchange Commission. The broker wanted a letter from Enron verifying that, and Skilling said he would get one.
Skilling resigned abruptly from Enron in mid-August 2001, citing personal reasons.
Glisan and other witnesses have testified so far that Skilling and Lay knew in 2001 that the company faced multibillion-dollar writeoffs on poor assets and was propped up by accounting maneuvers rather than healthy business operations.
Nine of Skilling’s allegedly illegal stock trades took place before he resigned. The September trade occurred more than a month later.
Both Skilling and Lay deny any wrongdoing and attribute Enron’s failure to negative publicity and diminished market confidence.
Prosecutor Leo Wise played audio tapes of telephone calls Skilling made to Ray regarding the stock sale for jurors Monday, during which an anxious Skilling told the broker he wanted to sell 500,0000 Enron shares quickly because “the market is dropping now.”
Skilling also told Ray on the call, “You can’t do anything if you have material inside information, but that’s true for any human being on the planet and that’s a decision I have to make.”
Skilling lawyer Ron Woods tried to show his client sold stock on that date because the stock market was plummeting on the first day it opened after the attacks.
“You were aware the market was dropping that day, every hour on the hour, correct?” Woods asked.
“It was dropping, yes,” Ray replied.
Skilling told the SEC in December 2001 that he ordered the September trade in light of the skittish market after the attacks — but he didn’t tell the agency he had tried to sell the 200,000 shares earlier that month.
Prosecutors read a transcript of that testimony for jurors in an effort to bolster their contention that Skilling misled the SEC by failing to disclose the earlier proposed sale.
Earlier Monday, Glisan finished his fourth day of testimony after acknowledging under cross-examination he had assured Lay and company directors that Enron had adequate access to cash to operate in October 2001 as scrutiny increased from regulators and Wall Street.
Glisan told directors on Oct. 22, 2001 that Enron had immediate access to $1.5 billion and could seek more, which appeared to contradict his testimony last week that he had given Lay a much darker financial forecast.
He said then that he had advised his boss in a separate conversation that liquidity was strained and cash flow was paltry. Glisan also had no tangible proof of such conversations with Lay, such as notes or e-mails.
During the same period, Lay told employees and analysts that Enron was financially strong.
But under subsequent questioning from prosecutor Kathryn Ruemmler on Monday, Glisan noted he sought approval at that meeting for Enron to seek an additional $1.5 billion loan from banks as well as a private $500 million loan.
“Neither step would be taken had we not felt we needed that additional liquidity,” he told jurors.
Glisan didn’t say whether those steps were approved. Three days later Enron drew down $3 billion in credit lines from banks.
Glisan pleaded guilty to conspiracy in September 2003 for creating one of four financial structures known as Raptors he said Enron used to manipulate earnings and hide losses. He is serving a five-year prison term.
Glisan said last week that when he presented information to the board about the first of those structures in 2000, Skilling and Lay knew it had no business purpose other than to let Enron manage accounting of losses and poor assets.
“We executed a number of transactions that had the effect of making the company appear more healthy than it was and we took pride — I took pride — in helping the company do that,” he told jurors Monday.
Prosecutors could rest their primary case as early as Tuesday with a few more witnesses. The defense will open its case next week. Both defendants are slated to testify.
Skilling faces 31 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces seven counts of fraud and conspiracy.