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Prosecutor Attempts to Use Skilling’s Words Against Him
Attempting to prove a pattern of deception at Enron Corp., federal prosecutor Sean Berkowitz completed his relentless cross-examination of former CEO Jeffrey Skilling on Wednesday. But in four days of direct testimony and three days of cross-examination, Skilling maintained that he either didn’t know, didn’t remember or wasn’t involved in any of the alleged misdeeds at the company.
Time and again, Berkowitz tried to turn Skilling’s previous testimony and public statements against him. In one bit of questioning that riveted the jury, Berkowitz asked Skilling how many times he had met with co-defendant and Enron founder Kenneth Lay after resigning from Enron on Aug. 14, 2001. Skilling, who was retained as a consultant for the company, said he was “pretty sure” he met with Lay only once, on Aug. 22. However, Berkowitz produced Skilling’s handwritten calendar, which indicated that he met with Lay on Sept. 6, 2001 at 3:45 p.m.
The date is relevant because according to taped recordings, Skilling spoke with his broker on Sept. 6 in an attempt to sell 200,000 shares of Enron stock. The sale could not be completed that day; Skilling eventually sold 500,000 shares of Enron stock on Sept. 17. However, Skilling has testified that he did not remember calling his broker on Sept. 6, and he testified that he only wanted to sell stock because of the terrorist attacks on Sept. 11.
Pretrial rulings by presiding U.S. District Judge Sim Lake barred Berkowitz from asking questions about how Enron gamed California’s power markets in the winter of 2000-2001. Skilling and Lay are not charged with market manipulation. Instead, the prosecutor focused on Enron’s exposure to natural gas price swings, especially during California’s energy crisis.
The government contends that Skilling attempted to mislead investors during the winter of 2000-2001. Skilling explained that every day Enron calculated its risks using a value at risk (VaR) program, using energy prices and the value of its hedges. The computerized calculation provided the ceiling for Enron’s acceptable risk for the day and how far it could extend itself when buying and selling gas and power.
Berkowitz played a portion of a video interview Skilling conducted with Bloomberg news service and CNBC. In the interview, Skilling said, “We have worked hard to basically eliminate all commodity exposure in the company. We are indifferent to those commodity prices.”
Did the California energy crisis impact Enron’s income, Berkowitz asked. “If you were to say commodity prices had zero impact on P&L [profit and loss], would that be wrong?”
“I think we tried very hard to communicate what our risk was,” Skilling said. “I think publishing the VaR numbers were the best way to do that.” He added, “The people in that [videotaped] meeting have been following Enron Corporation for 10 years. They knew exactly about VaR.” Skilling said any sophisticated investor or analyst could understand that the company’s earnings were not affected by volatile energy prices.
Berkowitz then played a recording of an Aug. 3, 2001 call between Skilling and Alliance Capital, one of Enron’s largest institutional investors. On the call, Alliance analysts question Skilling about Enron’s earnings. They asked why the earnings were not subject to the price volatility in the marketplace.
“The underlying commodity price has zero impact on our profitability,” Skilling told Alliance. “I don’t care if prices go up or down. All I care about is whether I’m delivering product.” Pressed for further information, Skilling answered, “We made more money in California by delivering more volumes.” In explaining the call, Skilling told the jury that some of the Alliance managers at the time were “new” and “did not understand VaR.”
Skilling also was questioned about the decision in March 2001 to move the Enron Energy Services (EES) business unit into Enron North America, the profitable wholesale trading unit. Former EES chief David Delainey and others testified that Skilling called a meeting at the last minute for 10 a.m. on March 29, 2001 to discuss the EES move.
But Skilling disagreed. He testified that the meeting had been set well in advance to discuss the integration. Berkowitz then produced time-stamped, electronic calendar data from Enron, which detailed executives’ schedules. According to the data, then-chief accountant Rick Causey entered the meeting into his calendar at 9:48 a.m. on March 29, 12 minutes before it occurred. Greg Whalley, who was running Enron North America, entered the meeting into his calendar at 8:36 a.m. on March 29. It was entered into Delainey’s calendar on March 28 (no time given). And Skilling had entered the meeting into his calendar at 3:13 p.m. on March 28.
During a break in the testimony Wednesday, Skilling’s lawyer Daniel Petrocelli complained that Berkowitz had not allowed his client to fully answer the questions.
“He literally could have conducted an examination with a prop…a life-size poster,” Petrocelli said. Asked by a reporter why he had not objected to the questioning, Petrocelli answered, “I don’t need to object. Jeff can answer the questions.”
Petrocelli’s redirect of Skilling is expected to continue into Thursday.
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