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Skilling Denies Leading Enron Conspiracy

Posted on: Wednesday, 12 April 2006, 03:00 CDT

By KRISTEN HAYS

HOUSTON - Former Enron Corp. Chief Executive Jeffrey Skilling says partnerships once run by the company's finance chief were helpful risk management tools that benefited shareholders rather than sinister devices to manipulate earnings.

The ex-CEO, in his second day testifying in his fraud and conspiracy trial Tuesday, methodically addressed prosecution testimony painting him as an earnings-obsessed leader so intent on wowing Wall Street that his subordinates resorted to fraud with his knowledge.

Skilling said he was smart, but not smart enough to be the criminal the government alleges he is.

"Are you smart enough to mastermind this kind of conspiracy and pull it off without getting caught for years?" his attorney Daniel Petrocelli pressed.

"I don't think so," Skilling replied.

He addressed one of the most notorious elements of the scandal that included Enron's swift descent into bankruptcy protection in December 2001 - partnerships created and run by former Chief Financial Officer Andrew Fastow to conduct deals with the energy company.

Fastow testified last month that Skilling told him, "Get me as much of that juice as you can," regarding the personally lucrative partnerships the ex-CFO said were used to manipulate Enron's finances.

Skilling said he didn't recall saying that.

"I don't use the word 'juice' in that context," he said.

Fastow testified last month that Enron turned to the partnerships to buy its poor assets and investments so the energy company could hide debt and boost earnings. But Skilling said Fastow pitched the partnerships as quick buyers for Enron assets, which the ex-CEO thought would help the energy company manage risk while benefiting shareholders.

"Was LJM a puppet of Enron?" Petrocelli asked.

"No, it wasn't," Skilling said.

Skilling's highly anticipated testimony is expected to stretch into next week. Later his co-defendant, Enron founder Kenneth Lay, aims to take the witness stand.

Lay and Skilling are accused of repeatedly lying to investors and employees about Enron's financial health when they allegedly knew fraudulent accounting created a facade of success.

The two men say there was no fraud at Enron other than Fastow and a few others who skimmed millions from secret scams, and that bad publicity as well as lost market confidence skewered the company.

Skilling said Enron didn't turn to fraud because it didn't have to. Using terms like "very strong competitive performance" and "solidifying our cost position," he told jurors Tuesday that Enron deserved its accolades and wasn't the bed of corruption prosecutors say it was.

"In 1999, given that you're ahead of everybody else, was there any reason why the company needed to start breaking the law to continue that growth?" Petrocelli asked.

"No," Skilling replied.

Prosecutors allege Skilling predetermined that Enron's earnings would grow up to 20 percent annually and relied on Fastow's partnerships as well as accounting tricks to manufacture profits when business operations didn't meet Wall Street expectations.

Fastow testified the partnerships helped Enron meet earnings targets, but Skilling minimized their importance. He said the $125 million in deals one of the partnerships conducted at the end of 1999 was "something you would hardly notice, frankly."

Skilling also denied he gave Fastow "bear hugs" - the ex-CFO's term - or promises that LJM wouldn't lose money on deals with Enron.

By the spring of 2001, Skilling said he was "exasperated" with Fastow's relationship with the partnerships when the ex-CFO tried to move in on an asset sale and ordered him to choose between LJM and Enron. Fastow chose Enron - but maintained a secret partnership with the former Enron finance executive who bought his LJM interest.

Skilling also addressed allegations from other prosecution witnesses that he ordered - or knew about - fraudulent moves to increase Enron's reported earnings-per-share for the fourth quarter of 1999 and the second quarter of 2000 to ensure the company met or beat Wall Street performance expectations.

Paula Rieker, Enron's former No. 2 investor relations executive, testified that her boss, former investor relations chief Mark Koenig, told her Skilling twice ordered those last-minute increases. Koenig didn't go that far when he testified, saying only that Skilling had authority to do so.

And Wesley Colwell, former chief accounting officer for Enron's profitable trading division, said he wrongly dipped into reserves to increase second-quarter 2000 earnings to 34 cents from 32 cents because he understood Skilling and other top executives wanted to impress Wall Street.

Skilling said Tuesday he had "absolutely no recollection" of the fourth-quarter 1999 increase. He called the alleged skullduggery behind the 2000 increase "absurd" because Enron's trading profits had already pushed earnings above Wall Street expectations.

Skilling is charged with 28 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces six counts of fraud and conspiracy.

If convicted of all counts, Skilling faces a maximum of 275 years in prison and tens of millions of dollars in fines. But an actual prison sentence would likely only be 20 years or more. Lay faces a maximum of 45 years in prison if convicted of the six counts against him.

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Associated Press Writer Michael Graczyk contributed to this report.

Source: Associated Press/AP Online

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