Enron exec faces more hard questions
Defense lands some blows against Ken Rice, but he keeps his cool.
HOUSTON (FORTUNE) - It was a bend-but-don't-break day for government witness Ken Rice, the former head of Enron's broadband business and a longtime Jeff Skilling intimate. After spending all day Tuesday accusing Skilling of duping investors and analysts about broadband's collapsing business, Rice faced an aggressive cross-examination Wednesday from former federal prosecutor Mark Holscher. A member of the Skilling "Dream Team" led by Daniel Petrocelli -- the former Enron CEO has five-star lawyers sitting at the defense table who have barely uttered a word so far in the courtroom -- Holscher came to the task with a theatrical courtroom flair, and a wide-ranging experience in high-profile cases. As an assistant U.S. attorney in Los Angeles, he prosecuted "Hollywood Madam" Heidi Fleiss for money laundering and tax evasion. In private practice, he won the release of Los Alamos National Laboratory scientist Wen Ho Lee, accused of passing nuclear secrets to China.
Waving his arms and pointing, Holscher landed some blows. He made it clear that Rice -- a government "cooperator" (as the defense likes to put it) -- had a loose command of details. He rubbed the witness' face in his inability to recall how many criminal counts he'd faced (42, not 37) before pleading guilty to just one -- or the exact number of employees his division employed at a specific point in time. (In fact, that number rapidly changed, as Enron threw staff into the division Skilling had proclaimed Enron's next "big enchilada.") Holscher also got Rice to admit that Skilling's talk about sailing the world in his own boat big enough for cars and a helipad -- Rice's testimony on Monday had conjured up visions of a mammoth yacht -- was really just a joke. In lengthy questioning, ultimately cut off by Judge Sim Lake, Holscher suggested that Rice, after being indicted, had pled guilty under intense pressure from the government (certainly true), and that he was making up his accusations about Skilling to assure himself a lighter sentence (which Rice vigorously denied). He did get Rice to acknowledge that the huge loss he initially projected for broadband in 2001 contained an element of "sandbagging" -- Enronspeak for internal gamesmanship -- and that he'd agreed, under pressure from Skilling, to try to meet a far smaller loss target of $65 million. Holscher used Rice's own repeated rosy public statements about broadband's prospects to suggest that what Skilling was saying was really true. In fact, Rice freely admitted he had lied about the business -- such remarks were, after all, part of the party line, and the basis for his guilty plea. Keeping his cool throughout the day, Rice doggedly stuck to his central claim that Skilling had knowingly lied, by repeatedly telling Wall Street that broadband's two profit centers (bandwidth trading and providing video-on-demand) were growing rapidly. In truth, Rice testified, they had "very few customers and almost no deal flow." Holscher spent a big part of the afternoon making a pitch that Enron broadband was an Internet startup, whose quarterly profits didn't really matter to Wall Street. That, of course, begged the question: If the numbers didn't matter, then why did Enron, quarter after quarter, employ elaborate gimmickry (including fiber sales, accounting maneuvers, and "monetization" of the projected future profits of the content business -- profits, by the way, that would never materialize) to make sure it hit its targets? The truth is that Wall Street, with the tech bubble having already burst, cared deeply about broadband's financial results, which Enron (and Skilling) explicitly held out as validation of its business model -- proof that broadband was well on its way toward profitability. While Rice acknowledged he believed the business had long-term potential, including a deal in the works with Microsoft, he testified that even that deal didn't solve "the problems we had at EBS" because "it provided no near-term income." On several occasions, Judge Lake cut off Holscher's detailed, far-ranging questioning. "If you're going to cross-examine him about Shakespeare," he declared, at one point, "you don't need to start with the invention of the alphabet." The day also offered glimpses into Rice's world, as a high-flying executive at Enron with the reputation of a fun-loving playboy. It didn't take long, for example, for Holscher to bring up Rice's extra-curricular interests -- and his underwhelming work habits. "In fact, Mr. Rice, starting in the spring of 2001, you essentially started to check out of Enron and pursue your passions, such as racing sports cars," Holscher declared. (Rice denied this, saying he only raced cars on weekends.) There was no mention of Rice's high-profile affair with an Enron executive who worked for him. Holscher also introduced an August 22, 2001 e-mail to Rice from Joe Hirko, who had served with him for a time as co-CEO of Enron Broadband. Hirko, who Rice described as a friend, had left Enron by then, and was writing after learning of Skilling's surprising decision to quit after just months as Enron's CEO. "It is amazing to think of all that has happened since we sat at the Ritz in Laguna and contemplated the future," Hirko wrote. Little did he know. Both men would go on to face criminal indictment. And when Hirko went to trial (in a case that ended in mistrial), Rice would appear as a key witness against him, just as he is now against Jeff Skilling. |
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