Judge Allows Prosecutors to Play Tapes of Enron Calls

By Greg Farrell

HOUSTON — In a ruling that is likely to boost the fraud case against former Enron chiefs Ken Lay and Jeff Skilling, a federal judge allowed prosecutors to zero in on specific statements the defendants made during conference calls with analysts in 2000 and 2001 that appeared to disguise how poorly the company’s broadband services division was performing.

Over repeated defense objections, U.S. District Judge Sim Lake allowed prosecutor Kathryn Ruemmler to play snippets of various conference calls in which Skilling told analysts that the Enron Broadband Services (EBS) unit was “looking good” or meeting its expected performance targets.

Instead, former investor relations head Mark Koenig testified, EBS was generating almost no revenue from its core business but was being buoyed either by peripheral investments in a volatile dot-com stock or by the sale of “dark fiber” capacity that had nothing to do with the division’s goal of delivering movies to home viewers via the Internet.

Ruemmler played portions of five conference calls Skilling hosted from July of 2000 to April 2001 in which the message from Skilling was the same: EBS, which was being touted as the next platform of explosive growth for Enron, was hitting its performance goals.

On the first conference call, an analyst tried to pin down how much of EBS’ $151 million in revenue came from sales of dark fiber. Skilling said it was about $50 million, and Koenig agreed. Wednesday, Koenig admitted that all $151 million in revenue was derived from sales of dark fiber.

In subsequent calls, Skilling turned EBS questions directly over to Koenig, who continued to lie.

“Why did you lie?” asked Ruemmler. “We were all on the same page of trying to portray EBS as thriving,” Koenig said of one response. “It was an effort to keep the momentum going,” he said, explaining a lie in a different quarter. In 2004, Koenig pleaded guilty to securities fraud and agreed to cooperate with prosecutors.

Skilling lawyer Dan Petrocelli and Lay attorney Mike Ramsey objected to the government’s editing of the tapes, saying they didn’t capture the full thrust of the hour-long presentations. But Judge Lake stood firm. He warned prosecutors not to edit the tapes in a way that circumscribed Skilling’s discussion of EBS, but he overruled all defense objections to their presentation.

After jurors left Wednesday, Lake said they would not have to listen to the entire tapes every time prosecutors wanted to make a point. “The government has a right to present its case in a reasonable manner,” he said. Ramsey tried to explain that in a securities fraud case, many factors go into the price of a stock.

“I’m not asking for comment on this,” Lake declared. “I’m telling you.” Koenig’s testimony continues today.

(c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.