Wednesday, April 19, 2006

HOUSTON (AP) — Former Enron Corp. Chief Executive Officer Jeffrey Skilling, in his seventh day of trial testimony on fraud and conspiracy charges, was challenged repeatedly about whether the energy giant was a risky trading company.

Mr. Skilling tried to give detailed denials yesterday when asked whether he deliberately downplayed to investors the risks of Enron’s trading practices.

But federal prosecutor Sean Berkowitz repeatedly cut him off, seeking “yes” or “no” answers when the defendant insisted the issues weren’t so simple.

“We’re going to be here all day,” Mr. Skilling said after Mr. Berkowitz refused to let him elaborate on the nature of Enron’s business and how it managed risk. “We’re on fundamentally different planes here.”

The government contends that Mr. Skilling and his co-defendant, Enron founder Kenneth L. Lay, pointedly characterized Enron as a stable company with predictable growth rather than a trading company vulnerable to market volatility because Wall Street would be more bullish on the former. Mr. Lay is expected to testify next week.

Kenneth Rice, once a top trader and CEO of Enron’s failed broadband unit, testified in February that Mr. Skilling led an effort in early 1999 to define Enron as a company with consistent growth because analysts who influence stock prices supported stability. Mr. Rice said Mr. Skilling told him that Enron’s stock would get “whacked” if the market perceived Enron as a trading company.

Mr. Skilling maintained yesterday his often-repeated stance that Enron was indifferent to wild swings in commodity prices because it was an intermediary that packaged services for commodity buyers and sellers.

“I didn’t think ‘trading company’ reflected, in my view, what Enron was,” Mr. Skilling said.

“And you were communicating that to the marketplace, correct?” Mr. Berkowitz asked.

“That’s correct,” the former CEO replied.

His position appeared to contradict prosecution testimony from Timothy Belden, a former top Enron trader who ran the company’s Western power trading desk.

Mr. Belden told jurors that Enron was primarily a trader and profited heavily from what he called California’s “dysfunctional” market in the aftermath of electricity deregulation by correctly betting that prices would skyrocket. Mr. Belden said Enron pocketed almost $1 billion over nine months in late 2000 and the first half of 2001.

Mr. Berkowitz asked whether investors were concerned about whether Enron made the bulk of its profits from speculative trading in markets “going crazy” in California. “Yes or no,” the prosecutor demanded.

“Mr. Berkowitz, I think we tried very hard, very hard to communicate specifically the risk positions that were being taken with our business,” Mr. Skilling replied.

Mr. Skilling also said analysts weren’t concerned about whether Enron’s trading activity was risky because “we had a decade of discussion with investors” and they knew the company had daily trading-loss limits to mitigate risk.

That limit rose to $125 million in early 2001 from $75 million in mid-2000 — during the span when Enron’s trading profit from Western power markets spiked.

However, Mr. Berkowitz questioned why Mr. Skilling felt the need to tell analysts during a quarterly conference call in January 2001 that “some people have said Enron is a trading business. Let me hit that on the head. We are not a trading business. We are a logistics company.”

Mr. Skilling, appearing irritated, deflected the prosecutor’s insinuation that analysts needed clarification. “The people in this meeting followed Enron for 10 years,” knew about the company’s trading-loss limits and “absolutely understood the nature of the business, Mr. Skilling said.

Mr. Skilling also earned a rebuke from U.S. District Judge Sim Lake when he questioned Mr. Berkowitz’s motives in discussing a March 2001 Fortune magazine article that said Enron’s financial reports were so complicated that even sophisticated analysts couldn’t decipher them. The piece quoted a credit-rating agency analyst saying, “If you figure it out, let me know.”

Mr. Skilling noted that Mr. Berkowitz chose “the unfavorable one” from a time when other media outlets wrote glowing articles about Enron. The prosecutor noted that Mr. Skilling first discussed it during initial questioning from his lead attorney, Daniel Petrocelli, last week.

“Are you entering this as truth or just as what people are saying and what has been selected by various people?” Mr. Skilling asked, referring to the judge’s explanation to jurors last week that some items will be presented not as fact, but to show how the market responded to Enron.

“I did a long, thorough instruction last week. Apparently, you didn’t remember it,” Judge Lake sternly told Mr. Skilling.

Prosecutors say Mr. Skilling and Mr. Lay repeatedly lied to investors and employees about Enron’s health when they knew that their optimism hid weak business ventures and that accounting tricks obscured debt and inflated profits.

The two defendants say that no fraud occurred at Enron, and that the company was driven to seek bankruptcy protection in December 2001 because of bad publicity and lost market confidence.

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

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