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US: Skilling's Lawyer Portrays an Accuser as Out of Touch


by Alexei BarrionuevoThe New York Times
February 16th, 2006

A lawyer for Jeffrey K. Skilling, a former Enron chief executive, tried Wednesday to portray the head of the company's broadband unit as an out-of-touch manager who was criticized for his free-spending ways and did not even know how many employees were working under him.

Kenneth D. Rice, once a close confidant of Mr. Skilling and the head of Enron Broadband Services until shortly before Enron's collapse in 2001, told jurors on Tuesday that Mr. Skilling had repeatedly misled the public about the performance and prospects of the unit, promoting it as a success even as Mr. Rice was scrambling to ensure its survival.

On Wednesday, Mr. Rice said he had believed that Enron's broadband business had the potential to make billions of dollars and had a network that was among the country's best.

But Mark Holscher, a lawyer for Mr. Skilling and a former federal prosecutor, struggled to shake Mr. Rice from his earlier testimony that the division had been struggling and on the verge of collapse.

With few customers and little revenue at the broadband business, by the spring of 2001 Mr. Rice was evaluating potential takeovers of other telecommunications companies, he testified Wednesday. The proposals included acquisition by Enron of Global Crossing, Sprint or WorldCom, while the broadband division looked at smaller companies like PSI Net.

"I had optimism about the long-term future," Mr. Rice said, "but I believed we needed to do one of these acquisitions to survive."

Even a deal struck with Microsoft to use Enron's network for the MSN portal — which could have given a huge boost to the Enron unit's long-term prospects — fell short in Mr. Rice's eyes. He preferred a deal that Microsoft rejected to buy parts of Enron's network. "I was disappointed because the other deal would have generated income," he testified.

Mr. Rice is the second witness to take the stand against Mr. Skilling and Kenneth L. Lay, another former chief executive and a former chairman. The two men are accused of conspiring to defraud Enron while enriching themselves.

Prosecutors say Mr. Skilling and Mr. Lay lied about Enron's financial health when they knew that complicated financial structures disguised debt and inflated profits. The defense says negative publicity and the loss of market confidence, not fraud, led to the company's December 2001 collapse into bankruptcy proceedings.

On Tuesday, Mr. Rice described Mr. Skilling as a hands-on leader focused on impressing Wall Street so analysts would promote Enron stock. He said Mr. Skilling had set earnings targets and expected division heads to meet them. And, Mr. Rice said, Mr. Skilling had repeatedly told analysts that the broadband unit could survive when he knew it was failing.

On Wednesday, Mr. Holscher tried repeatedly to question Mr. Rice about the broadband unit's technical capabilities and to show a video that Mr. Rice had given false testimony about in a trial last year. But Judge Simeon T. Lake III of Federal District Court confined Mr. Holscher to questions about the broadband division's commercial prospects.

Mr. Holscher at least partly defused Mr. Rice's Tuesday testimony that Mr. Skilling had stubbornly forced Mr. Rice to accept a far more optimistic earnings target for 2001. Mr. Rice said Tuesday that he met with Mr. Skilling in November 2000 and told him broadband would lose $110 million, when the company had forecast a $65 million loss. Mr. Rice said Wednesday that he did not view Mr. Skilling's insistence on the lower loss figure as improper.

"I said if everything went well and we hit a couple of home runs, we might hit that number," Mr. Rice testified. "But I also told him I was uncomfortable with it."

Mr. Rice continued to insist, however, that the decision to move about 240 broadband employees out of the division starting in March 2001 was a layoff, not a "redeployment," as Mr. Skilling had characterized it to employees and analysts. But Mr. Rice admitted that he did not remember how many employees were in the broadband unit — he estimated there were 1,200 to 1,500 at that time — or how many ultimately were transferred to other parts of Enron.

Mr. Holscher accused Mr. Rice of "checking out" of Enron in 2001 to pursue his passion for racing cars, which Mr. Rice denied. "I raced cars sometimes on weekends," he said.

Mr. Holscher said several people at Enron had become critical of Mr. Rice's work, and one executive had told Mr. Skilling that Mr. Rice should be fired.

"I don't know that," Mr. Rice said. But, he said, "A number of employees told me the wheels had fallen off at E.B.S. and they were disappointed with how I was handling it."



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