Tuesday, April 26, 2005

Ex-Enron exec says he, others deliberately lied


Ex-Enron exec says he, others deliberately lied
Former head of Internet unit implicates himself, ex-CEO Skilling
The Associated Press
Updated: 6:42 p.m. ET April 25, 2005

HOUSTON - The former head of Enron Corp.'s failed Internet unit said Monday that he and others deliberately lied to analysts about the network's abilities in hopes of winning Wall Street's support.

"We chose to lie about the capabilities of the network so that would take away the credibility issue," former Enron Broadband Services CEO Kenneth Rice told jurors in the second week of the fraud and conspiracy trial of five former broadband executives.

Rice, a key government witness who pleaded guilty last year, began testifying late last week. He implicated himself, four of the defendants and former Enron Chief Executive Jeffrey Skilling in lying to Wall Street to inflate company stock.

He continued Monday in a less explosive vein as prosecutors methodically examined the unit in 1999 leading up to a January 2000 analyst conference where he, Skilling and four of the defendants presented it as a viable business.

"A lot of our presentation in the analyst conference was designed to convey we were credible in our ability to deliver network control software," he said, referring to software Enron touted as unmatched by competitors.

"Was that accurate?" prosecutor Ben Campbell asked.

"No, it was not," Rice said.

Of the five defendants, Joseph Hirko — who ran the broadband unit with Rice in its early days — and former vice presidents Scott Yeager and Rex Shelby are charged with fraud, conspiracy, insider trading and money laundering. They are accused of lying about the network to get rich from selling hype-inflated stock.

The other two defendants, former unit finance chief Kevin Howard and in-house accountant Michael Krautz, are accused of faking earnings for the unit in late 2000 and early 2001 to minimize publicly reported losses. The unit never made a profit and went bankrupt along with Enron in late 2001.

In a separate case that includes more than 30 pending charges, Skilling is accused of knowingly making similar false claims about the network to analysts in 2000 and 2001. Skilling's trial is to begin in January.

The broadband defendants and Skilling have pleaded innocent.

Rice testified Monday that he and Hirko met with Skilling in July 1999 to discuss the division's future. Skilling told them he was committed to broadband as a new Enron business with a potential valuation of $10 billion to $20 billion. A consultant's review finished in October that year projected broadband could be valued anywhere from $4 billion to $20 billion — the latter of which would add $25 to Enron's stock price.

"We gave each other a high-five," Rice said of himself and Hirko upon getting the consultant's report.

Rice said he knew the network didn't live up to claims made in an Enron news release issued in April 1999 that said the network was "lit, tested and ready," but his objective was to "get a big valuation" quickly for the broadband unit.

Rice pleaded guilty last year to securities fraud. As part of his plea deal, he forfeited nearly $14 million in cash and property to the government, including a Ferrari and a Colorado vacation home.