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Get Four
|  | FEBRUARY 15, 2006
By Kate Murphy No Love Lost at the Enron TrialProsecution witness Ken Rice used to be one of ex-CEO Jeffrey Skilling's best pals. That wasn't the case yesterdayValentine's Day seemed like a fitting date for Ken Rice, former CEO of Enron Broadband Services (EBS), to take the witness stand in the trial of his former Enron bosses, Ken Lay and Jeffrey Skilling. Rice's reputation for office romances at Enron has been widely reported and chronicled in great detail in several books about the scandal, and jurors certainly seemed to be in a Feb. 14 mood: Several sported red jackets, blouses, ties, and kerchiefs for the occasion. And everyone seemed to sit a little straighter in their chairs for Rice's testimony, which followed more than a week of plodding and often tedious testimony from the government's first witness, Mark Koenig, Enron's former head of investor relations. Defense attorneys riddled Koenig's questioning by the prosecution with incessant objections and insisted that jurors listen to hours of video and audio recordings lest excerpts leave out any exculpatory utterance. PLEA DEAL. Rice's appearance at the trial certainly changed the atmosphere. He had been part of Skilling's inner circle at Enron. The two took daredevil vacations together to the Australian outback, Patagonia, and Baja, Mexico. And they seemed to share an alpha-male camaraderie. When Rice testified last year in a trial against EBS co-workers, Skilling suddenly showed up one day, in what many observers saw as an attempt to rattle his former protégé. The judge quickly ejected Skilling from the courtroom. The jury in that case was unable to reach a verdict and there will be a retrial in September. Rice's continuing cooperation with the government is part of a 2004 plea agreement in which prosecutors dropped all but one of the 37 charges of conspiracy and securities fraud against him in exchange for his help with their investigations. ADDICTED TO EUPHEMISM. Rice gave jurors a lengthy tutorial on Enron execs' use of euphemisms to speak in code. For example, an "overview" in Enron-speak was the amount of money needed to meet stock analysts' expectations, Rice testified. EBS had an unreported "overview" of close to $600 million in 2001, he told the jury. Yet, that didn't include bad investments that the unit, which was created to buy and sell broadband capacity, hid by transferring them to off-the-books entities called LJM and Raptor. Skilling told an analysts' conference that EBS was a "unique and extraordinary business," and Rice provided the translation while testifying: It was really a "struggling" enterprise with "no customer demand for its service." In that same conference call, Skilling said that the company was "redeploying" 240 EBS employees to other divisions. According to Rice, "redeploying" actually meant they were "being laid off to cut costs." When Skilling told analysts that EBS had "an enormous lead over competitors," Rice said that the reality was that the unit was having a "complete meltdown." WIDE-EYED. Rice characterized Enron's use of rosy language and false accounting as being akin to taking a hit of crack cocaine. He said, "We were so addicted to quarterly earnings" that they were willing to do anything to make them. The usually dapper Ken Lay sat rumpled and slumped in his chair with a pouty lower lip during Rice's testimony. He looked at the jurors rather than at Rice. His visage during the trial increasingly vexed. Skilling, on the other hand, looked directly at his former colleague with wide eyes. Blinking his eyelashes, he looked almost naïve -- caught in the government's headlights. A SAILOR'S LIFE. Rice recounted that in August, 2001, four months before Enron declared bankruptcy, Skilling told him that he was going to resign and buy a boat to sail around the world. But Rice remembered it was "more like a ship -- it was a big boat you could put cars on and a helicopter." A few of the jurors visibly raised their eyebrows. With Rice expected to remain on the stand for at least two more days, Skilling and Lay may want to batten down the hatches.  Murphy is a contributing correspondent for BusinessWeek Online.
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