HOUSTON – Enron Corp.’s former investor relations chief said Monday he spoke to no avail with company founder Kenneth Lay and former CEO Jeffrey Skilling about investors’ concerns over murky financial disclosures months before Enron imploded in December 2001.
In his third day testifying in Lay and Skilling’s fraud and conspiracy trial, Mark Koenig said the obfuscation continued even as Enron disclosed massive quarterly losses in mid-October 2001, two months after Skilling had resigned and Lay had resumed the role of chief executive officer.
When prosecutor Kathryn Ruemmler asked him if Lay encouraged him to always follow Enron’s code of ethics requiring candor, honesty and fairness, Koenig replied, “At times, no.”
But Skilling lawyer Daniel Petrocelli challenged the admitted liar’s credibility. Koenig pleaded guilty in 2004 to aiding and abetting securities fraud for lying to investors and is testifying under a plea agreement with prosecutors. He told jurors last week that before he cut the deal with the government, he lied to a grand jury investigating Enron because he hoped to avoid being charged with a crime.
“You’re still in a mode of trying to protect yourself, aren’t you?” Petrocelli asked.
“I don’t feel in the last three days I’ve protected myself,” Koenig said, noting that he faces shareholders’ lawsuits and will probably lose the $5 million he still has from his Enron days. He forfeited $1.5 million to the government as part of his plea.
He also acknowledged that prosecutors can recommend a lenient sentence if they are satisfied with his cooperation. Aiding and abetting securities fraud carries a maximum penalty of 10 years in prison.
The defense teams have suggested that most of the 16 ex-Enron executives who pleaded guilty to crimes are saying what they believe prosecutors want to hear to avoid lengthy prison terms.
Koenig sometimes appeared uncomfortable as Petrocelli grilled him, fidgeting in the witness chair. He fought back tears when Petrocelli asked how old his children were when he pleaded guilty.
U.S. District Judge Sim Lake called for a break though Koenig composed himself and insisted, “I’m fine.” During the break a somber Skilling comforted his weeping wife, former Enron corporate secretary Rebecca Carter.
Later Koenig told Petrocelli he believed he would have been indicted had he not pleaded guilty. While answering a separate question, Koenig said he has two children in college and one in high school.
Lay’s lead lawyer, Michael Ramsey, was expected to question Koenig today.
Enron went bankrupt in December 2001 within weeks of revelations of hidden debt and inflated profits. Prosecutors contend Lay and Skilling repeatedly lied about Enron’s health when they knew that accounting maneuvers propped up a facade of success.
The defendants say there was no fraud at Enron except for three former executives who skimmed millions from some deals.
In mid-October 2001, Enron announced more than $600 million in quarterly losses because of money-losing broadband and water ventures and bad investments. The company also wrote down shareholder equity by $1.2 billion because of an accounting mistake that had gone unnoticed for months.
Koenig said Lay was among top executives who wanted to keep that detail out of the company’s earnings press release.
“By not putting it in the earnings release, that was an attempt to minimize it,” Koenig said.
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