Just a few days after a company vice president sent then-Enron Corp. Chairman Kenneth Lay a memo warning about possible accounting fraud, Lay and ex-CEO Jeffrey Skilling had a meeting. But the discussion, which came a week after Skilling had resigned as CEO, wasn’t to discuss the memo, Skilling claimed on Monday. In fact, he said he didn’t know about the memo until several months later.

Skilling, in his first day of intense cross-examination by Enron Task Force director Sean Berkowitz, admitted he and Lay met on the morning of Aug. 22, 2001. That afternoon, Lay was scheduled to meet with Sherron Watkins, then a vice president at the company, about a memo she sent him on Aug. 15, 2001. The memo cited Skilling’s resignation as one reason to worry about the company’s future.

Berkowitz showed Skilling an Enron calendar, which indicated he met with Lay on Aug. 22, 2001. Skilling, who was still a consultant for the company, said he wanted to talk with Lay about future strategies involving the price of natural gas wells.

“Isn’t it a fact that Mr. Lay called you on or around Aug. 15 or 16 [2001]? That he had received a note about accounting irregularities and that he wanted to talk to you?” Berkowitz asked.

“No.”

“It’s your testimony that Mr. Lay did not raise that with you?”

“No.”

“Did you know that Mr. Lay was meeting four hours later [on Aug. 22] with Sherron Watkins at 1:00 [p.m.]?”

“No, I didn’t.”

If the situation were reversed, Berkowitz asked, “if you were in that seat, don’t you think you would have said, ‘hey, Ken,’ and outlined the allegations? He didn’t say, ‘Look, I’ve got this letter here, and I’ve got a meeting in a few hours, and I understand the price at the wellhead is interesting to you, Mr. Skilling, but what about this memo?'”

“No, I’m sorry, Mr. Berkowitz. What we addressed was strategy,” Skilling replied. “I didn’t hear about it, the note, until it was published in the newspapers that following January [2002],” Skilling said. He said he thought the meeting with Lay had been in early September 2001. “I remember the meeting being upbeat.”

Berkowitz poked at Skilling the entire day, and during one lengthy exchange, he questioned Skilling’s motives about trying to sell 200,000 shares of Enron stock on Sept. 6, 2001.

The Sept. 6 trade was not completed, but Skilling said he could not recall the specific trade. He only remembered the completed trade on Sept. 17 for 500,000 shares.

“It’s your testimony that you don’t have a specific recollection of Sept. 6 trade, and you have gone back and tried to piece it together with evidence?” Berkowitz asked.

“Yes,” Skilling said.

“You were aware of this internal investigation…you were aware there were write-downs coming, you were aware there was a lot of bad news coming,” Berkowitz said. The prosecutor claimed Skilling “wanted to use the Sept. 11 tragedy” as a reason for the stock sale.

“Mr. Berkowitz, I had no knowledge of accounting improprieties, no knowledge of potential write-offs,” Skilling replied. “After Sept. 11th, I was very concerned about the company.”

Berkowitz asked later, “Is it fair that the most important thing the jury has to rely on is your word? At the end of the day, Mr. Skilling, it’s your word, your interpretation of things, your knowledge that’s an issue?”

“I think it’s really a question of figuring out what makes sense,” Skilling answered. “And I hope the jury looks at this and tries to figure out what makes sense.”

Berkowitz used that answer to rhetorically ask Skilling about whether it made sense that he couldn’t remember attempting to sell 200,000 shares of Enron stock on Sept. 6, 2001.

Skilling, who occasionally smirked and chuckled during his answers, saw his humor backfire at one point.

Questioning Skilling about Enron’s international assets, the prosecutor noted that corporate regulations in developing countries were different than U.S. regulations.

“Unless you’re in California,” Skilling said smiling.

“Do you think that’s funny?” Berkowitz said.

“Um,” Skilling said.

“You’re smiling,” Berkowitz said. “Do you think that’s funny?”

“I think the regulatory environment in California was not at all dissimilar from the regulatory environment in Brazil,” Skilling said.

“You’ve previously made fun of what happened in California, didn’t you?” Berkowitz said. “You’ve publicly made jokes about what happened out there, didn’t you?”

“A joke, yes,” Skilling said. When California was having rolling blackouts in the winter of 2000-2001, Skilling joked during a webcast with financial analysts, “What’s the difference between the Titanic and California? When the Titanic went down, at least the lights were still on.”

“Do you regret telling that joke now?” Berkowitz asked.

“Um,” Skilling said. “You know the situation behind that…”

Interrupting him, Berkowitz shot back, “Do you regret making that joke about what was happening in California?”

“Yes, now I do,” Skilling said.

Berkowitz later questioned Skilling about whether he told investors that Enron wouldn’t be able to sell its international assets for the value they were carrying on the company’s books. In its case, the government contended that Skilling valued Enron’s power plants in India and South America at $5.5 billion, but he told the investing public the assets were worth $10 billion.

Reviewing a transcript of a 1Q2001 earnings conference call on April 17, 2001, Berkowitz told Skilling, “Nowhere in that call do you tell the public [that] if you sold the assets immediately you would be losing billions of dollars, correct?”

After looking through the transcript and not finding the answer, Skilling replied, “There are lots of things you don’t tell everyone.”

“This is one of the things you did not tell people, correct?”

“My specific valuation of the assets, I did not tell shareholders,” Skilling replied. “I told the board of directors.”

Turning to conflict-of-interest issues, Berkowitz questioned Skilling about investments he made in 2000 and 2001 in a company called Photofete, which was a startup by former Enron photographer Jennifer Binder. Skilling told the jury the investment was small, about $50,000, and he admitted he did not disclose the investment to the board of directors. Skilling said that at the time he invested in the company, he did not think Photofete had a contract with Enron.

Berkowitz then produced checks showing Skilling invested $180,000 over two years with Photofete. He also showed the jury documents that indicated Photofete’s contract with Enron was worth about $450,000, which was about 70% of the company’s revenue.

Berkowitz asked Skilling if he knew Enron’s contracts with Photofete were that large.

“I may have. I just don’t remember,” Skilling answered.

Asked if he had disclosed the investments to the board or if he had told the board that he dated Binder in 1998 and 1999, Skilling answered, “It didn’t occur to me.”

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