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Wednesday, February 15, 2006

ENRON TRIAL UPDATE

As Mary Flood reports in the Houston Chronicle, the prosecution has called its second witness, former head of Enron Broadband Services Ken Rice.

Rice, a protege of sorts of former CEO Jeffrey Skilling, told the jury that he lied ("misled") investors about the financial health of Enron's internet business as a result of pressure from Skilling. Rice made repeated assertions that the broadband part of Enron's business was expanding, even though it was earning no revenues and was laying off employees.

The up-is-down mentality was part of the "pressure-cooker" atmosphere at Enron to meet or beat Wall Street's earnings estimates for the company and to avoid the perception that the company was just a plain old trading company making high-risk investments.

Rice also testified on an issue central to the defense's general contention that the problems of Enron were caused by wacky Andy Fastow's unknown self-dealing with his Raptors (companies Enron used to transfer debt off its books, making it appear much more profitable than its true financial state.) Rice testified that Skilling not only knew about the Raptors, but encouraged their use for off-loading debt from Enron's books.

Two different pictures of Enron's financial health portrayed in meetings in March 2001 epitomize the way Enron played ball. After fudging the numbers twice in 2000 to meet earnings estimates, Rice told Skilling they would have to revise their 2001 projections for Wall Street. At a meeting of Ernon Broadband Services employees on March 15, 2001, Skilling told employees: "It's bad."

Eight days later, on a conference call with analysts, Rice and Skilling reported that EBS had a great quarter, weren't laying anyone off, and were growing dramatically.

The prosecution played a video of the March 15 meeting.

More as it comes.

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