Challenged by the defense team on Monday, a former Enron Broadband Services (EBS) executive acknowledged that he, too, lied to employees, investors and investigators with the Securities and Exchange Commission (SEC) before making a deal to cooperate in the trial of Enron founder Kenneth Lay and ex-CEO Jeffrey Skilling.
At times tense and fidgety, former EBS COO Kevin Hannon admitted to jurors that he lied during a conference call with investors in 2001 and later lied to the SEC in early 2002 concerning EBS' business prospects. However, despite numerous attempts by the defense to chip away at the veracity of his earlier testimony, Hannon, 45, remained steadfast. The witness was clearly uneasy. He bumped into his microphone at times, kept his arms tightly folded across his chest and often pursed his lips. But he held to the statements he made to the prosecution last week, taking his time to answer pointed, and at times hostile, questions.
Skilling lawyer Mark Holscher spent most of Monday attempting to discredit Hannon's dramatic testimony last week when he said Skilling had lied about EBS in a conference call in March 2001, calling its performance "great" when in fact it was losing money. Recalling statements he made to the SEC in early 2002, Holscher pointed out Hannon had said he too was optimistic about the future of EBS.
"For jurors to believe you today they'll have to [realize you] perjured yourself several dozen times in your testimony with the SEC, right?" Holscher asked.
"Yes," Hannon replied. "When I went to the SEC, I did so essentially to get them to focus not on me." Hannon first spoke to the SEC in early 2002; he was indicted in 2003 (see Daily GPI, May 2, 2003). He later made a deal to cooperate in exchange for a reduced sentence (see Daily GPI, Sept. 1, 2004).
Holscher questioned Hannon's recollection of a meeting of top level Enron executives on March 7, 2001 in Houston. At that meeting, Hannon earlier testified Skilling had said, "They're on to us" in reference to a report critical of Enron's business practices and stock price.
Was it possible, Holscher asked, that Skilling was "dripping with sarcasm" when he made the statement because the report was done by analysts for short sellers, those who bet Enron's stock price would fall?
"Anything's possible," Hannon said quietly.
"Do you remember Mr. Skilling saying at the meeting that this [report] is a pile of short-seller crap?" asked Holscher.
"I don't remember him saying that," Hannon said.
Using a large sketch pad and marker, Holscher listed other Enron executives at the March 2001 meeting. He asked Hannon whether anyone else of the 20 or so executives at the meeting said anything after Skilling's statement.
"Not that I'm aware of, no," Hannon replied.
What about a joke by Skilling, in which he allegedly imitated a Saturday Night Live clay-animated character named Mr. Bill?
"You don't recall Mr. Skilling saying, 'Oh, nooooo, Mr. Bill!'?" Holscher asked.
"No. I don't remember that," Hannon said dryly, never breaking a smile.
"You're a kind of tightly wound and intense person, aren't you?" asked Holscher.
"At times," Hannon said.
Holscher asked Hannon to read 10 statements made by Skilling in a conference call to analysts in March 2001 concerning EBS. The statements by Skilling, taken from a transcript of the call, included, "Just in general this marketplace is going through a very tough time" and "I look at this as the natural gas business in the 1980s all over again."
Skilling's lawyer also tried to use Hannon to undermine previous testimony by other ex-Enron executives. Hannon was asked about the day he was arrested and placed in a holding cell with Joe Hirko, an ex-EBS chief. Holscher described a scene in the holding cell in which Hannon apparently was outraged at being indicted.
"You told all your co-defendants that you would spend your last penny proving your innocence," Holscher said.
"I was very upset at the time...I might have said that," Hannon answered.
"Do you recall saying 'we are going to fight this'?" Holscher asked.
"No, I don't recall that," Hannon said. "I don't think that's what I said."
When former EBS CEO Ken Rice agreed to testify for the prosecution, Holscher asked Hannon, "You were furious, weren't you?"
"I was a lot of things... I was upset. I was concerned...about what [Rice] was going to say," Hannon said. "I think that's normal. I was concerned about whether it was accurate."
"You were concerned Mr. Rice would present false testimony to a jury like this one?" Holscher asked.
Visibly nervous, Hannon said, "Yes."
Asked if he tried to get his prison time reduced to a minimum, Hannon replied softly, "Like most people, I don't want to go to jail, and I don't want to go to jail for a long period of time."
Lay lawyer Bruce Collins took over cross-examination late Monday afternoon, and he too focused on Hannon's credibility. Collins is focusing only on the period between June 13, 2001, when Hannon began to oversee Enron's international assets, until Aug. 23, 2001, when Hannon quit. Hannon's brief tenure overseeing the international assets gave him little knowledge of what was going on at the company, Collins suggested.
As soon as Hannon's testimony is completed, ex-CFO Andrew Fastow is expected to take the stand. Fastow, 44, created and controlled two Enron off-the-book partnerships, LJM1 and LJM2, which prosecutors say provided the facade of financial success at Enron beginning in 1999. Approved by the board of directors, the partnerships, or special purpose entities (SPE), acted as independent companies whose sole purpose was to do business with Enron. While Fastow controlled them, the SPEs helped Enron reduce its exposure to risky investments, reduce debt from the balance sheet and create profits. In all, there were more than 20 LJM-related transactions.
In complex transactions, Fastow's SPEs bought sections of Enron's fiber optic data network when it could not be sold to outside interests, and they purchased power plant barges in Nigeria to reduce Enron's exposure to risky investments.
SPEs are not illegal. However, the prosecution contends that the structure of the LJM partnerships was illegal, and they were not properly revealed to investors. In all, Fastow earned about $30 million from his control of the SPEs, most of which he has since forfeited to the government as part of a plea agreement.
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