Risk & Compliance

Ex Broadband Exec Boosts Defense’s Case

Kenneth Rice testifies that legal and accounting experts okayed Enron's off-balance-sheet partnerships in 1999.
Stephen TaubFebruary 16, 2006


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The former head of Enron’s broadband business yesterday reportedly buttressed the defense’s case that special off-the-books partnerships received the seal of approval from the company’s board of directors as well as lawyers and accountants.

Testifying under cross-examination, Kenneth Rice, who ran Enron Broadband Services for two years, said that in 1999 legal and accounting experts approved the off-balance-sheet partnerships that many blame for Enron’s demise, according to Bloomberg. Defense attorneys have argued that the actions of defendants Jeffrey Skilling and Kenneth Lay weren’t criminal.

Rice’s testimony also hurt the defense’s case, however. He was cross-examined by Mark Holscher, a defense lawyer for former Enron chief executive Skilling, who along with former chief Lay is on trial in Houston for their alleged role in the former energy giant’s collapse. Holscher asked Rice: “You said, even if the board and the lawyers approved it, you didn’t like it?”

Rice, who was testifying for the second day, replied, “I didn’t like the way it looked.”

That appeared to be a setback for the defense, which claims that Lay and Skilling were victims of rogue subordinates. For its part, the prosecution claims Lay and Skilling used the partnerships to inflate earnings and deceive investors, Bloomberg noted.

Several published accounts of the trial reported that defense lawyers spent part of the day trying to undermine Rice’s overall credibility. For example, Bloomberg noted that Skilling’s attorneys pointed out that Rice gave false testimony in a related case last year.

The wire service noted that Rice acknowledged that at the July trial of five executives from the broadband unit, he gave incorrect testimony related to a videotape played at Enron’s 2000 analysts’ conference.

“You testified that you were certain Mr. Skilling presented a videotape with false information to all the analysts at the 2000 conference,” Holscher reportedly said.

Rice responded, “I was incorrect. I didn’t know it was false testimony. When I said it was played, I believed that.”

In addition, the Associated Press reported that Rice was portrayed as an out-of-touch manager and revealed to be an executive who didn’t know how many employees he had. Asked by Holscher if he knew how many people worked at Enron Broadband Services, Rice reportedly responded: “Twelve [hundred] to 1,500.”

Holscher was said to have responded: “You’re CEO. You don’t know?”

“I don’t know the exact number,” Rice said. “I’m saying I don’t know the number of employees.”

Rice also said he wasn’t sure if Skilling was on the plane with him when he was traveling to a 2001 meeting in Oregon with Enron employees to tell them they were about to be fired, according to the AP.

“I’m not positive if he was on the plane, but I remember having this discussion with him very near to the March 15 meeting,” Rice reportedly said.

Holscher also made much of the fact that Rice spent a lot of time in 2001 racing cars, accusing him of “checking out” of Enron, the AP reported. “I raced cars sometimes on weekends,” he reportedly said.

Holscher also noted that Rice was criticized by people above and below him for not being a hands-on manager and that his supervisor considered whether he should be fired, according to the wire service.

Rice, however, responded, “I don’t know that.”

According to The Houston Chronicle, Rice acknowledged that “there were a number of employees who came to me and said the wheels were falling off EBS and they were disappointed with the way I was handling. That is true.”