Enlarge imageBy Matt Daily and Deepa Babington
HOUSTON (Reuters) - A key witness at the Enron trial stuck to his claim that former CEO Jeffrey Skilling lied about the health of the company’s cash-burning Internet division, even as the defence poked holes in his testimony on Thursday.
The witness, Kenneth Rice, ran Enron’s broadband services business and was a one-time confidant of Skilling, 52, who is standing trial on fraud and conspiracy charges alongside former CEO Ken Lay, 63.
In his third day on the witness stand, Rice, 47, contradicted statements he made under earlier questioning by prosecutors that Enron sold Internet assets to a partnership controlled by its then-chief financial officer Andrew Fastow at an inflated price.
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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 on 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 United States, collapsed December 2001 into the biggest bankruptcy of its time.
Skilling and Rice had painted EBS as a vibrant business with rosy prospects, even as the division haemorrhaged $100 million a quarter. It was shut down just months before Enron filed for bankruptcy.
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, sighing deeply as Holscher exposed other inconsistencies in his testimony, Rice stuck to his main assertion that Skilling hid information about EBS’ 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 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, since 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 -- due to billions of dollars in hidden debts and inflated profits -- 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 on 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.
Enron continues to operate, although its skeleton staff is mainly charged with winding down its activities and disposing of a few remaining assets to pay off creditors.
