Risk & Compliance

Former Enron IR Exec Details More Fraud

Ex-official testifies that losses were hidden from investors and analysts. Skilling's lawyer maintains that his client did not know about the probl...
Stephen TaubFebruary 2, 2006

Examine our Enron archive

The former head of Enron’s investor relations (IR) department testified Thursday that one-time top executives Kenneth Lay and Jeffrey Skilling hid problems from investors related to company’s broadband operations and retail-energy units to keep the stock aloft, according to The Wall Street Journal.

In his second day of testimony, Mark Koenig said the retail-energy business had huge losses, and that revenue reported by the broadband unit in late 2000 and early 2001 did not come from customers using the network, but rather from selling parts of the network or from investments, noted the paper.

“The message I had from accounting and others was [that] the details were not to be discussed publicly,” Koenig reportedly testified. He also said that in early 2001, Enron’s retail-energy operations lost $230 million, but investors were told in earnings announcements and conference calls that the business was thriving. The earning releases and conference calls, said Koenig, were authorized or conducted by Enron’s two top executives reported The Journal.

Koenig recounted an April 2001 call with investors in which Skilling said “we had an outstanding quarter … retail business had a great, great quarter as well.”

Koenig elaborated that in late March, Enron had restructured the energy unit, combining part of the struggling retail operation into its much larger and profitable wholesale-energy unit. Yet, executives never mentioned the change at a late January meeting with Wall Street analysts or subsequent Securities and Exchange Commission filings, he added.

In fact, The Journal reported that prosecutors presented internal documents showing cumulative losses of $726 million in the first six months of 2001, which related to activities transferred from the retail unit to the wholesale operation.

The former IR executive said that Skilling and Lay typically did not mention the losses during analyst conference calls, reported Bloomberg. Skilling’s lawyer, Daniel Petrocelli, objected to Koenig’s testimony, asserting that Koenig was falsely “creating the impression that all the information was known to Mr. Skilling” at the time of the conference calls, added the wire service.

In the afternoon, jurors heard a recording of a 2001 conference call in which Skilling cursed at a Wall Street analyst asking tough questions, according to the Houston Chronicle. Asked his reaction to the expletive, Koenig reportedly said: “We were all surprised at the table.” Koenig admitted that after the call, he changed the recording. “I asked the individuals in my group … to take that stuff out,” he said, reported the paper.

Even though Koenig has already pled guilty to fraud, the afternoon’s questioning seemed to put him on trial. The Chronicle noted that when Koenig was asked why he committed securities fraud, he replied: “I wish I knew why I did it … I did it to keep my job, to keep the value that I had in the company, to keep working. I don’t have a good reason for that. If I did, I wouldn’t be here.”

4 Powerful Communication Strategies for Your Next Board Meeting