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US: Top Enron Execs Knew of Changes

by Kristen HaysAssociated Press
February 7th, 2006

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 analyst 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.

Koenig said 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.

Lay's lead lawyer, Michael Ramsey, had yet to question Koenig.

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.


Associated Press Writer Michael Graczyk in Houston contributed to this story.




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