HOUSTON (CNNMoney.com) - Enron founder Kenneth Lay and former chief executive Jeffrey Skilling were aware of efforts to mislead the investor community about the true financial health of the company, a former Enron executive testified Wednesday.

Mark Koenig, Enron's former executive vice president of investor relations and the prosecution's first witness, said on the stand that the company was particularly intent on meeting or beating analysts' earning expectations, and both Skilling and Lay were hands-on leaders, keeping close tabs on the company's quarterly earnings reports and providing input in drafting earnings releases to the public.

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In response to Prosecutor Kathryn Ruemmler's questions, Koenig cited e-mail exchanges the day before Enron was releasing its 4th-quarter earnings report of 1999. Koenig was informed that day that analysts' consensus estimates had been raised to 31 cents per share, but Enron was planning to report earnings of 30 cents per share, according to a draft release offered into evidence by the prosecution.

"I was sick about it," he said. "This increase would cause us to miss estimates... I expected there would be a significant decline in stock price."

Koenig said he spoke to Enron's accounting chief, Richard Causey "to see if there was anything he could do about it." He also testified that he informed Skilling as well. A few hours later, a new earnings release was drafted reporting that earnings for the 4th quarter of 1999 were 31 cents per share.

"It was wrong," Koenig said.

In a conversation with Lay the day of the earnings release, Koenig explained why the late change had taken place. He testified Wednesday that Lay took the news in a "matter-of-fact" manner and expressed no displeasure at the tactics used by management to raise earnings.

Ruemmler then presented another earnings change from a July 5, 2000 report for the second quarter of 2000 to show a similar pattern.

When she asked how important Enron's stock price was to Lay and Skilling, Koenig replied, "Very important."

Koenig also said in response to questions that the company was intent on portraying its struggling broadband unit as a growth story to attract investors. During Enron's second-quarter conference call in 2000, then-COO Skilling lied to analysts about the true nature of the broadband unit's $150 million in revenue, Koenig said.

The prosecution presented a recording of the call, amid objections from defense counsel. On the recording, Skilling tells analysts that non-core sales of unused fiber, called "dark fiber," accounted for $50 million of the unit's total revenue. In reality, it accounted for all of the revenue, Koenig said.

He testified he went along with Skilling's lie in order to "minimize dark fiber sales to allow revenue to look like it was from core operations."

In the third quarter, Enron continued to present the unit's revenue in a bright light. In its earnings release, the company said the broadband unit's revenue was lifted by multiple investments. However, Koenig testified, in reality the unit only received one large investment -- a fact he said would have concerned investors because it showed a lack of core operating revenue.

Prosecutors are also set to call Kenneth Rice, the former chairman and CEO of the company's troubled broadband unit.

He also is expected to testify that the two defendants were aware of efforts to mislead the investor community about the true financial health of the company, and in fact may have promoted corporate executives toward that end.

Both Koenig and Rice have pleaded guilty to securities fraud.

Lay and Skilling, who now face former colleagues testifying for the prosecution, entered the courtroom smiling and looking relaxed Wednesday morning.

In opening arguments Tuesday, Assistant U.S. Attorney John Hueston portrayed Lay and Skilling as greedy leaders who had put their own financial interests ahead of the public -- selling millions of dollars in stock even as investors and employees lost billions when the company imploded in late 2001.

Hueston said the defendants knew that Enron had become "a ticking time bomb" and made the choice to lie. He presented audio and video tapes indicating that Skilling and Lay told conflicting stories to their employees and the analyst community.

Defense attorneys, however, scoffed at the evidence and accused the prosecution of cherry picking statements from the tapes and taking them out of context.

Lay attorney Michael Ramsey said the entire case was built on "false charges in the indictment, half-truths and witnesses with deals."

The defense dismissed the prosecution's witnesses, including Koenig and Rice, saying that the executives who planned to testify in the trial didn't believe there was any misconduct within the company until the government stepped in.

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