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Enron Trial Ends for Week with Ex-Investor Relations Chief Still Testifying

The two-man defense team representing Enron Corp. founder Kenneth Lay and former CEO Jeffrey Skilling grilled the company's ex-investor relations chief for the sixth day in a row Thursday, attempting to lay the groundwork to prove their clients did nothing illegal in the months preceding the company's bankruptcy.

Mark Koenig, who has pleaded guilty to abetting and aiding in securities fraud at Enron, was the first prosecution witness placed on the stand last week, and for the final day of the trial for the week, he faced questioning by both Skilling attorney Daniel Petrocelli and Lay attorney Mike Ramsey.

Retracing his previous questioning, Petrocelli focused on statements made to the jury about Skilling's relationship with investors and financial analysts. Playing an audiotape from a quarterly earnings call in July 2001, Koenig was asked what he thought of Skilling's actions.

On the audiotape, Skilling briefed financial analysts on 2Q2001 earnings and explained problems within Enron Broadband Services (EBS), the company's telecommunications business. Skilling told investors on the call that it had been a "difficult" quarter for EBS (see Daily GPI, July 13, 2001). Periodically, Petrocelli stopped the recording to ask Koenig to clarify details on the calls, which Koenig attended. The prosecution contended in its opening statements that Skilling and Lay hid financial losses within EBS.

"You had no reason at the time to doubt that Mr. Skilling believed 100% in the company?" Petrocelli asked.

"I had no reason not to believe that, no," replied Koenig.

"Did Skilling ever ask you to hide the losses at Enron Broadband Services," Petrocelli asked.

"No," Koenig said.

After playing the audiotape, Petrocelli asked Koenig to read Enron's stock prices from various dates over the course of 2001, noting the volatility of the stock price. The defense is also maintaining Enron was a victim of short sellers trying to lower the stock price in 2001.

Petrocelli then questioned Koenig about Skilling's resignation in mid-August 2001. Koenig read from an interview between Skilling and BusinessWeek, in which Skilling indicated he left the company for personal reasons but also because of the falling stock price. Asking Skilling what his future plans were, he said he was considering becoming the head of an unnamed business school that had contacted him. Skilling also told the magazine, "I'm not leaving Houston," and added prophetically, "You probably haven't seen the last of me."

When he finally took over cross examination, Lay's attorney Ramsey focused on the conference call conducted Aug. 14, 2001, the day Skilling announced his resignation (see Daily GPI, Aug. 15, 2001). With Skilling's departure, it was the day Lay returned to his role as CEO. All of the seven counts against Lay in the current trial are based on his actions in the months after he returned to the CEO role. (Lay also faces four felony charges involving his personal banking, and he will face a separate trial after this one is completed.)

"I can honestly say that the company is probably in the strongest and best shape that it's ever been," Lay said in the recording. He said he regretted Skilling's decision, "as he has been a big part of our success for over 11 years. But we have the strongest and deepest talent we have ever had in the organization, our business is extremely strong, and our growth prospects have never been better." He said there were no company problems related to Skilling's departure. "There are no accounting issues, no trading issues associated with Jeff's departure," Lay said.

In a humorous aside, presiding judge U.S. District Judge Sim Lake called the prosecution and defense teams to the bench in the Thursday morning break, then announced after the sidebar discussion that "scheduling" problems would require an additional five-minute break.

The extra time was used so that Petrocelli could wash off his cologne. Apparently, a female juror sitting in the front row was overwhelmed by the scent while Petrocelli was cross examining Koenig. She told the judge she was "gagging" and felt strong enough to ask for a fragrance correction.

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