Risk & Compliance

Enron Defense Goes to the Videotape

''It's just difficult for us to show people how money flows through, particularly the wholesale business,'' Jeffrey Skilling told employees in earl...
Stephen TaubFebruary 8, 2006

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It was matinee day at the trial of former Enron Corp. executives Kenneth Lay and Jeffrey Skilling.

Daniel Petrocelli, the lead attorney representing Skilling, devoted a big part of the day to playing audiotapes of analyst conference calls as well as a videotape of an employee meeting that was part business discussion, part pep rally, according to the Associated Press.

In the videotape, recorded shortly after Skilling succeeded Lay as chief executive officer in early 2001, the two individuals were seen touting the company with words such as “outstanding” and “awesome performance,” to the applause of employees. At one point, Skilling reportedly declared, “This is it,” as Lay displayed a banner reading “From World’s Leading Energy Company to World’s Leading Company.”

On that same videotape, Skilling also acknowledged that Enron’s earnings were a “black box,” reported the AP. “I’m sorry, it’s true, it’s just difficult for us to show people how money flows through, particularly the wholesale business. He reportedly added, however, that since Enron’s businesses were growing, “that’s a good black box.”

According to the Houston Chronicle, the term “black box” was raised in a then-current Fortune article that asked “Is Enron Overpriced?” On the tape, Skilling reportedly asserted that the article was done for competitive reasons because BusinessWeek had published a favorable article on Enron the week before.

Elsewhere on the tape, however, Skilling acknowledged that the general telecommunications market where Enron Broadband Services did its business was “melting down right now,” according to the Chronicle. “The enthusiasm people had for broadband was at a peak level” a year before, he reportedly said. “It’s probably through the floors now.” At another point, Skilling added: “I think bandwidth is going to go through an enormous change. Our business model is perfect for that change, but it’s going to be a rocky road.”

The AP explained that the Lay-Skilling defense played the tapes to rebut charges that the two former executives repeatedly lied about Enron’s financial health and hid bad news to inflate the company’s stock. By listening to the tapes in their entirety, the wire service continued, jurors would heard comments in context.

(The Chronicle reported that Petrocelli did skip over a portion of the videotape in which Skilling answered an employee question about the company’s peer-review process. The newspaper also noted that given the prospect of listening to three to four hours of audio- and videotape, jurors in the Houston courtroom have a decided advantage over the rest of the spectators — they can have coffee at their seats.)

Petrocelli also spent part of the day asserting that the demise of Enron was akin to a good-old-fashioned run on the bank and that the company was a victim of short-sellers. He asked Mark Koenig, Enron’s former head of investor relations, about a February 2001 meeting called “Bears in Hibernation,” set up by hedge-fund manager Kynikos Associates and focused on short-selling companies. Petrocelli also showed a report by Off Wall Street, a research firm that specializes in short-selling ideas.

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