US: Enron Prosecutor Questions Skilling's Story

A prosecutor tried to poke holes in the testimony of Jeffrey K. Skilling, the former Enron chief executive, today by boring in on stock sales he made in the months after he left the company and before the energy company declared bankruptcy.

In his first day cross-examining Mr. Skilling, Sean M. Berkowitz, the prosecutor, accused Mr. Skilling of selling shares because he knew the company was under an accounting investigation and faced grave problems.

Mr. Skilling, who is charged with conspiracy, fraud and insider trading, steadfastly denied the accusations, saying that he sold stock in September 2001 because he was worried about the economy after the terrorist attacks and meant to diversify his stock holdings, which were concentrated in Enron stock.

"Sir, Sept. 11 was not the only reason that you sold Enron shares on Sept. 17, was it?" Mr. Berkowitz asked.

"The only reason I sold the 500,000 shares on Sept. 17, the only reason, was Sept. 11," Mr. Skilling responded, his voice cracking slightly.

The cross-examination of Mr. Skilling, who is a co-defendant with Kenneth L. Lay, the former Enron chairman and chief executive, could be a critical turning point in the trial, which is now in its 12th week. Mr. Lay faces fraud and conspiracy charges and is expected to take the stand later in the trial.

Mr. Berkowitz asked Mr. Skilling about a meeting he had with Mr. Lay on Aug. 22, about a week after Mr. Skilling left the company. Later that afternoon, according to Mr. Lay's calendar, he was scheduled to meet with Sherron S. Watkins, a former Enron vice president who had written a letter warning that Mr. Skilling's abrupt departure would raise concerns about accounting improprieties and saying she was nervous that the company "would implode in a wave of accounting scandals."

"Don't you think if he was doing a careful investigation and was meeting with her he would asked you about the letter?" Mr. Berkowitz said.

Mr. Skilling said he did not recall the meeting taking place in August â€" he thought it happened in early September â€" and said Mr. Lay did not bring up the letter and the two focused on the company's future growth plans. "I remember the meeting being upbeat," Mr. Skilling said.

To undercut his credibility, Mr. Berkowitz asked Mr. Skilling in detail about his investment in a small company, Photofete, run by a former girlfriend. Mr. Skilling said he recalled investing $60,000 in the firm, which allowed customers to share photos online, and that the company had a small contract with Enron.

Mr. Berkowitz then displayed a series of checks and wire transfers from Mr. Skilling to Photofete totaling $180,000 and showed that about three-fourths of its sales came from Enron. Mr. Skilling acknowledged not disclosing his investment and the Photofete dealings with Enron to the Enron board of directors, though he said he might have mentioned them in passing to Mr. Lay.

"Sir, would you agree with me that this is a conflict of interest according to the code of conduct?" Mr. Berkowitz asked, referring to the company's internal policies.

"It may be," Mr. Skilling responded.

In the long exchange over stock trades this morning, Mr. Berkowitz focused extensively on a call Mr. Skilling placed to his broker on Sept. 6 to sell 200,000 shares, less than a month after he left the company. The trade was never completed because Mr. Skilling needed to send a letter to the broker from Enron stating that he was no longer an executive and was not restricted from selling his shares.

Mr. Skilling has said before that he did not recall that specific trade, and Mr. Berkowitz sought to highlight those past remarks to raise doubt about Mr. Skilling's motivations for selling stock. Mr. Skilling has struggled in the trial to explain why he wanted to sell Enron stock before Sept. 11 if he did not think there were serious problems at the company.

"It's your testimony that you don't have a specific recollection of the Sept. 6 trade and you have gone back and tried to piece it together with evidence?" Mr. Berkowitz asked.

"Yes," Mr. Skilling said.

Mr. Berkowitz built up to that exchange after earlier using questions to try to demonstrate that Mr. Skilling had spent the last four and a half years preparing and "tailoring" his testimony with all the available notes, documents and other evidence being used in the case.

"I have nothing to hide, Mr. Berkowitz, so I don't think it's a question of tailoring your testimony," Mr. Skilling said. "I will respond to your questions to the best of my ability."

At one point, Mr. Berkowitz asked Mr. Skilling about his use of a jury consultant, Reiko Hasuike, to sharpen his testimony and come across as more persuasive to jurors. Mr. Berkowitz displayed Ms. Hasuike's Web site to show jurors the kinds of services she specializes in.

Mr. Skilling conceded that he had corrected pieces of testimony after consulting with his lawyer, Daniel Petrocelli, during breaks. He said Ms. Hasuike helped him simplify his answers. "I tend to get technical," he said.

In a series of questions about Enron's underperforming international assets, which the company was trying to sell in 2000 and 2001, Mr. Berkowitz tried to demonstrate that Mr. Skilling was not completely forthright about the health of the company.

Mr. Skilling said that he has acknowledged that the company's powers plants and other assets in developing countries were not profitable but that he advised against selling them because they would fetch better prices later. He said other American companies faced similar challenges in deciding when to sell assets and started offering an analogy using General Motors.

Mr. Berkowitz cut him off. "Lets not talk about General Motors," he said. "Enron went bankrupt three months after this."

Mr. Skilling, getting red-faced, replied testily: "For reasons in my view totally unrelated to this."

As he spoke and flipped through large binders of evidence, Mr. Skilling would periodically put on and take off reading glasses. He held his composure, usually responding to Mr. Berkowitz's questions with short answers.

Before the proceedings began this morning, Mr. Petrocelli wished Mr. Berkowitz well in front of a group of reporters standing in the hallway of the courtroom.

"Hey Sean, lawyer to lawyer, have a good day," Mr. Petrocelli said.

"Thanks, Dan," Mr. Berkowitz responded.

Earlier in the trial, prosecutors built their case against Mr. Skilling and Mr. Lay with the testimony of a parade of former Enron executives who testified that the top officers knew of, authorized and encouraged the use of improper accounting and financial transactions to artificially boost the earnings the company reported to investors.

Lawyers defending Mr. Skilling and Mr. Lay have tried to undercut the credibility of those witnesses and have argued that their clients did not commit any crimes at Enron, and that wrongdoing was confined to certain illicit transactions involving a cadre of former finance executives led by the former chief financial officer Andrew S. Fastow.

AMP Section Name:Corruption
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  • 107 Energy
  • 186 Financial Services, Insurance and Banking
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