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Feds Allege Skilling Attempted to Deceive SEC on Stock Sale

Federal prosecutors filed a motion last week in U.S. District Court alleging former Enron Corp. CEO Jeffrey Skilling attempted to deceive the Securities and Exchange Commission (SEC) in a deposition made in December 2001 concerning the sale of 500,000 shares of Enron stock. Court observers said the move may be in part to strengthen the case against Skilling, who faces trial later this month with Enron founder and former Chairman Kenneth Lay. The motion against Skilling by prosecutors came just days after Richard Causey, once Enron's chief accounting officer, pleaded guilty to securities fraud and agreed to help pursue convictions against his former bosses.

Causey pleaded guilty Dec. 28; he had been scheduled to go to trial with the Skilling and Lay in Houston. Under the plea agreement, Causey, 45, who was facing decades in prison if convicted, will be sentenced to up to seven years in prison and will forfeit $1.25 million. However, the sentence may be reduced to five years if the government considers Causey's cooperation in the Skilling and Lay trial to be substantive.

Causey is the 16th cooperating witness for the Enron Task Force, which was put together by the U.S. Attorney's Office after the company declared bankruptcy in December 2001. The former chief accounting officer had originally pleaded not guilty in January 2004 to 36 counts of conspiracy, fraud, insider trading, lying to auditors and money laundering (see NGI, Jan. 26, 2004).

In 1998, Causey was made chief accounting officer and executive vice president, and in that role, he managed accounting practices and reported directly to Lay and Skilling. Causey also was principal manager of Enron's financial disclosures to the investing public, and he regularly participated in analyst conferences and other public forums to discuss Enron's financial condition. Causey also signed Enron's annual reports, including Form 10-Ks, and the quarterly Form 10-Qs filed with the Securities and Exchange Commission.

According to the filing against Skilling last Tuesday, the former CEO and president made a deposition to the SEC concerning his stock sale on Dec. 6, 2001, just days after Enron had declared bankruptcy. The deposition concerned his stock sale on Sept. 17, 2001, from which he gained $15.6 million. Skilling at the time no longer worked for Enron; he had resigned for personal reasons in August 2001 (see NGI, Aug. 20, 2001).

The indictment by the U.S. Justice Department's Enron Task Force is the first to allege that Skilling attempted to deceive the SEC. Skilling in early 2004 pleaded not guilty to more than 30 criminal counts concerning his involvement in alleged wrongdoing at Enron, including manipulating Enron's reserves through off-balance sheet transactions and reaping personal gains through illegal insider trading of Enron's stock (see NGI, Feb. 23, 2004).

The latest charges were filed in opposition to a motion by Skilling's defense team in December, which attempted to block the SEC testimony from the criminal trial. The defense said the SEC testimony should be excluded because it contended that SEC officials, in the course of their civil investigation, did not properly warn Skilling about his criminal exposure before he spoke about his Enron dealings.

Skilling's defense motion in December 2005 noted that Skilling spoke with SEC officials six times between Dec. 5, 2001, and Jan. 31, 2003, and apparently declined to answer further questions only when he learned that he was a target of the criminal probe. "Consistent with the Fifth Amendment, due process, and basic notions of fairness, the government may not use civil discovery devices to obtain evidence from the target of a criminal investigation."

The latest charges against Skilling deal specifically with the 2001 stock transaction, alleging that Skilling knew of and helped to hide from the public the financial problems at Enron. According to prosecutors, Skilling attributed the Sept. 17, 2001 stock sale to his fears about the impact of the Sept. 11, 2001 terrorist attacks. "There was no other reason other than September 11th that I sold the stock," the filing quoted Skilling as saying. "Oh, I agonized over it, absolutely agonized over it."

However, prosecutors contend Skilling "failed to inform" the SEC that he had actually attempted to sell 200,000 shares of the Enron stock on Sept. 6, 2001 -- five days before the terrorist attacks -- through Charles Schwab Corp. The earlier trade was not approved because the brokerage firm had not received formal notification that Skilling was no longer an Enron officer, which would have restricted his ability to sell shares. The government argued, "Skilling's attempt to deceive the SEC about the reason for his sale in sworn testimony gives rise to an inference that material nonpublic information was a factor in his decision to sell in September 2001."

Meanwhile, Lay and Skilling last week requested once again for their impending trial to be moved from Houston. The defense teams on Wednesday filed a motion requesting Judge Sim Lake move the trial from Houston. The motion, earlier denied by Lake, is based on questionnaire responses from the jury pool, according to Skilling attorney Daniel Petrocelli. He and Lay attorney Mike Ramsey are requesting the trial be moved to either Phoenix, Atlanta or Denver. However, if Lake refuses the request, the defense teams are requesting more time to question potential jurors.

About 400 Houston residents received jury questionnaires, and already, more than 200 have been dropped for hardship or obvious bias. About 175 remain in the pool of possible jurors, and most of them are expected to be called to court on Jan. 30, from which a jury of 12 and four alternates will be chosen.

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