April 12, 2006

Skilling denies using illicit cash reserve

By Matt Daily

HOUSTON (Reuters) - Former Enron Chief Executive Jeffrey
Skilling testified on Wednesday that Enron never used bogus
cash reserves to smooth out its earnings and disguise massive
trading profits.

Skilling's testimony in his third day on the witness stand
at his criminal trial was an effort to counter claims by a
former top executive that the company reaped massive profits
from trading power during the California power crisis in 2000
and illicitly dumped the money into a "cookie jar" account to
cover possible earnings shortfalls in the future.

"There were no cookie jar reserves at Enron," Skilling said
under questioning from his own lawyer, Dan Petrocelli.

Skilling, 52, and former Enron CEO and Chairman Kenneth
Lay, 63, are charged with lying to analysts and investors about
the financial health of the company, which collapsed in
December 2001 into the then-largest-ever U.S. bankruptcy.

Skilling faces 28 charges of conspiracy, fraud and insider
trading at the trial, which has lasted nearly three months, and
Lay faces six charges of conspiracy and fraud.

Both men have pleaded not guilty and face decades in prison
if convicted.

Petrocelli has been methodically guiding Skilling through
the criminal indictment, seeking to refute government witnesses
and specific charges against the former executive who helped
turn Enron from a quiet pipeline operation into the
seventh-largest U.S. company.

Earlier in the trial, the former head of Enron's North
American energy wholesale unit, David Delainey, testified that
Skilling embraced him at a meeting in October 2000 after
Delainey told him his unit had sharply surpassed profit
targets. The extra funds were put into an $800 million reserve
account, he said.

Skilling said he remembered being very happy with
Delainey's news.

"I may have kissed him; I certainly hugged him, but I may
have kissed him," Skilling said.

But he countered the claim that the company put the extra
earnings into a reserve account illegally, saying the company's
reserve accounts held only $363 million, and that money was
designated to cover potential liabilities in the volatile
California power markets.

Skilling said the reserve account was vetted by internal
Enron accountants and the company's outside auditor, Arthur
Andersen -- a firm which itself imploded because of its
connections to the scandal at Enron.

Under U.S. accounting rules, companies can only set aside
reserves for specific purposes or liabilities and cannot create
accounts that can be used as slush funds.

Prosecutors have also contended that Enron did not want to
report sharply higher than expected profits from its wholesale
unit's trading arm because analysts would begin to question the
volatility of its business.

At the time, Enron was portraying itself to Wall Street as
an energy "logistics" firm rather than as a trader in an effort
to appear more stable and achieve a higher stock price.