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Ken Rice breaks ranks
JULY 30, 2004
 NEW YORK (FORTUNE) - Among the 77 people on the list of potential witnesses for the prosecution, no one was closer to Jeff Skilling than Kenneth Duane Rice. A high school wrestler from Broken Bow, Neb., Rice broke into Skilling's inner circle with a billion-dollar gas deal in 1992 that helped launch Skilling's revolutionary ideas for energy markets. In the years that followed, Rice became one of Skilling's go-to men for key assignments, and a confidant who helped him lead daredevil expeditions -- such as a 1,200-mile dirt-bike race through Baja, Mexico -- that became symbols of Enron's macho, risk-taking culture. But it was Rice's reluctant role as CEO of Enron's broadband business (accepting the job, he later said, was "probably the biggest mistake I could have made") that placed him onstage in the investigation of Enron.
In commonsense terms, what happened at broadband was perhaps Enron's most brazen illusion. Prosecutors have focused on a January 2000 analysts' meeting at which Skilling touted broadband as the company's hot new business, projected billions in operating profits, and declared that it merited a huge premium for Enron stock. Though Enron's shares soared 26 percent that day, the company's broadband business really wasn't anything more than a grand, untested plan. Using financial machinations, Enron had made its broadband business appear to be a valuable enterprise when it really wasn't. In May 2003, Rice was among seven broadband executives charged in a 218-count criminal indictment that alleged conspiracy, securities and wire fraud, money laundering, and insider trading. (While the broadband hype helped Enron shares skyrocket, Rice had sold more than $53 million worth.) And for a year, Rice and his lawyers swore he'd done absolutely nothing wrong. Then, on July 30, 2004, Rice cut his deal. Pleading guilty to one count of securities fraud for misleading securities analysts at the January 2000 meeting, he agreed to serve up to ten years in prison, forfeit $13.7 million in cash and property, pay a $1 million fine, and tell all. That positioned Rice as a voice in court against his old dirt-biking buddy. Rice testified that it was at Skilling's urging that he lied about the state of Enron's broadband network to pump up the company's stock -- and that Skilling lied too. Skilling, he said, was determined to use broadband to add $10 billion to $20 billion to the company's market value -- "one way or another." Then something peculiar happened, illustrating how commonsense reality may be hard to explain in the courtroom. The broadband case was billed as a "mini-preview" for the showdown against Lay and Skilling, and Rice was the star witness against five former Enron executives who had refused to strike deals with the government. After three months of testimony focusing on technical questions about the state of Enron's broadband technology and what analysts were led to believe, the case ended in a mistrial when the jury acquitted the men on some counts and hung on the rest, without rendering a single guilty verdict. The defendants are scheduled to face retrial on the remaining counts later this year. The broadband case offers a clear message: What looks like deception may not amount to criminal fraud in a jury's eyes, whether because the details are simply too complex or because one thing is not really the same as the other. Next: DEC. 28, 2005 The "Pillsbury Doughboy" jumps the fence _________________________ The former Enron chiefs fear a Houston trial may be their downfall -- full story here.
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