HOUSTON – Former Enron Corp. CEO Jeffrey Skilling gave misleading information to Wall Street analysts about the earnings of a highly touted business unit in 2001, the company’s former head of investor relations testified Thursday.
Skilling did not disclose in conference calls with analysts that the Enron retail energy division had suffered $726 million in first-half losses from its contracts, and insisted that the unit was profitable, Mark Koenig told jurors.
The losses had been moved into the Enron wholesale division, which was making enough money to absorb them – but that accounting change was not initially disclosed to analysts, Koenig said.
“It would have been a big surprise, a negative surprise, a large surprise to investors” had they known the truth, he said.
Analysts did get a surprise when Skilling gave a sarcastic response to a hedge-fund worker frustrated with Enron’s lack of details in its reports.
Prosecutors played for the jury a tape of the worker asking Skilling during an April 2001 conference call why Enron had not published more detail on its finances.
“You’re the only financial institution that can’t produce a balance sheet or a cash flow statement,” complained Richard Grubman of Highfields Capital Management.
“Thank you very much,” Skilling answered. He then added, “We appreciate it,” and called Grubman an obscene name.
Lay laughed aloud Thursday when the tape was played in court. Skilling simply smiled.
The former executive vice president for investor relations is the first government witness against Skilling and former CEO Kenneth Lay, who are accused of fraud and conspiracy in the spectacular collapse of Enron in 2001.
In his second day on the witness stand, Koenig stopped short again of saying either Skilling or Lay explicitly ordered the books cooked, or that Skilling was aware he was giving analysts bad information.
Under questioning from prosecutors, Koenig described his guilty plea in 2004 to aiding and abetting securities fraud. He is one of 16 former Enron executives who have pleaded guilty since the company filed for bankruptcy protection in December 2001.
He admitted on the witness stand Thursday that he had lied to investors.
“I wish I knew why I did it,” he told jurors. “I did it to keep my job, to keep the value that I had in the company, to keep working for the company. I didn’t have a good reason. If I did, I wouldn’t be here.”
Koenig’s testimony took the jury of eight women and four men into new areas of the company, where he claims the books were cooked or investors were given bad information.
On Wednesday, Koenig testified that Skilling misled analysts about Enron’s broadband division – including one quarter in which virtually all of its revenue came from the sale of a type of fiber, not part of the sector’s core revenues.
Koenig spoke Thursday of a decision by Enron management to raise its forecast for 2001 profits in a news release on April 17, 2001. He said he was aware of no “bottoms-up analysis,” and said there was a “decision to simply raise it.”
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