Witness: Skilling said company was in 'great shape'
Defense lawyer keeps pressing prosecution witness Mark Koenig, and there's more to come.
By Amanda Cantrell, staff writer

HOUSTON (CNNMoney.com) - Just months before Enron filed for bankruptcy in 2001, its top executives, Ken Lay and Jeff Skilling, told investors and employees that the company was in good financial health at the same time the company's stock was plummeting in value.

Now jurors must decide whether Lay and Skilling were deliberately misleading investors when they made those statements.

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Jurors heard several such tapes during testimony throughout Wednesday and Thursday in the trial of Lay and Skilling, who are being tried in federal court in Houston for a combined 37 counts of conspiracy and fraud. The charges are connected to alleged schemes to trick investors into thinking Enron was healthy.

Attorneys for Lay and Skilling have used the content of the tapes as the basis for questions to Koenig, a cooperating witness for the government, who faces up to 10 years in prison and $1 million in fines for his role in the collapse of Enron.

Ramsey and Skilling's attorney Dan Petrocelli has attempted to discredit Koenig's earlier testimony that Lay and Skilling deliberately hid losses from investors and doctored the company's numbers to match what Wall Street analysts expected.

As part of his cross-examination of Enron investor relations chief-turned-government witness Mark Koenig, famously tough Houston lawyer Mike Ramsey played for jurors a tape of a conference call in which Skilling announced his resignation from Enron, claiming at the time that it was strictly for "personal reasons." Ramsey followed that with a tape of an employee-wide meeting held at Enron after Lay became chief executive again.

During the employee meeting, Lay discussed several problems facing the company, including a fatal accident at one of its plants, investor concerns about potential losses from its plant in India, and allegations that it manipulated energy prices in California during the state's energy crisis, among other concerns.

But even after listing the company's problems, Lay declared, "I think the next few months and the next several years are going to be great for Enron and great for Enron's employees."

Attorneys for the defendants are trying to suggest that the government's witnesses pleaded guilty only under coercion from the government and that there was no company-wide illegal activity at Enron apart from crimes committed by Andrew Fastow, the company's chief financial officer.

Ramsey's questions during his cross-examination of Koenig drew several testy responses from Judge Sim Lake. The judge frequently shot down Ramsey's questions to Koenig regarding the employee meeting, calling one question "an undue waste of our time."

Ramsey started his cross-examination of Koenig by pointedly asking him whether he told a close friend before the trial that he was not guilty of the crimes that he told the government he'd committed.

Under questioning, Koenig described the woman in question as "one of my best friends," but said he did not tell her that he was not guilty.

"So if she said that in court, she'd be perjuring herself?" asked Ramsey. Koenig responded yes.

Ramsey then dropped the subject and moved on to playing tapes of the conference calls.

Koenig in the hot seat

Earlier in the day, Skilling's attorney Petrocelli wrapped up his three and a half-day cross examination of Koenig by attacking the credibility of Koenig's statement to the government entered as part of his 2004 guilty plea to charges of securities fraud.

Petrocelli played a tape of Enron's second quarter 2001 earnings call, held in July of 2001, in which Skilling proclaimed the company had "just another outstanding quarter" in some of its business units, such as the wholesale energy business, just months before Enron declared bankruptcy.

During the call, Skilling noted that the company's broad band division had suffered a big loss but portrayed it as an opportunity for the company to restructure the unit and shore up losses.

Petrocelli focused on Skilling's disclosure of losses in the broad band unit in an attempt to show that Skilling was not in fact trying to hide losses from investors, asking Koenig point blank if Skilling ever instructed him to hide the loss.

Koenig testified that he did not. In testimony on the same topic later that day, Koenig testified that he remembered conversations with senior executives, including Enron's accounting officers, executives from Enron Energy Services and members of his investor relations staff, to discuss how to tell investors about the losses.

Petrocelli asked Koenig whether Skilling had ever participated in any of those meetings. When Koenig replied no, Petrocelli turned combative, asking, "Don't you think this is pretty thin stuff?

"I pled guilty to aiding and abetting securities fraud, I didn't plead guilty to one statement on a conference call," Koenig replied. "I don't think it's thin or I wouldn't have pled guilty."

Enron's falling stock price throughout 2001 has been a recurring theme in Petrocelli's cross-examination of Koenig. Petrocelli appears to be underscoring the defense's case that negative publicity and rising short interest triggered a "run on the bank," and that this, rather than fraud, led to Enron's collapse.

Enron's 2001 bankruptcy was the largest in history at the time and cost 4,000 employees their jobs and many of them their life savings, and led to billions of dollars of losses for investors. Enron was once the nation's seventh-largest company.

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Find out what former Enron employees are doing now, and what they think about Skilling and Lay. Click hereTop of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.