Didn't correct boss, ex-Enron CEO says

HOUSTON -- Former Enron Corp. Chief Executive Jeffrey Skillingmisled employees and Wall Street about a flailing business unit'sstrength in early 2001, but the unit's former CEO said Wednesday henever corrected his boss.

"No, I didn't want to talk about that," Kenneth Rice told Skillinglawyer Mark Holscher in his second day testifying in the fraud andconspiracy trial of Skilling, his former boss and friend, and Enronfounder Kenneth Lay.

"You never once told Jeff Skilling you were uncomfortable with anystatement he made to analysts about (Enron Broadband Services), isthat right?"

"Yes," said Rice, who is among 16 ex-Enron executives who havepleaded guilty to crimes stemming from the government's investigationof the energy company's swift tumble into bankruptcy proceedings inDecember 2001.

But under additional questioning by Holscher that suggestedSkilling may not have knowingly deceived anyone, Rice acknowledgedthere was reason for long-term optimism at his beleaguered broadbandunit.

Possible deals were in the pipeline, including a letter of intentwith Microsoft; acquisitions were discussed, including Enron buying apiece of AT&T; and new top-level people were hired to beef up theoperation, Rice said.

He discussed the Microsoft agreement with Skilling the same day asa March 2001 analysts' conference call, Rice said. It also was"possible," he said in response to a question, that he referred to afuture in Internet-bandwidth trading as a "Fort Knox opportunity,"though he hedged and said, "I don't think I told him that."

Skilling smiled and cocked his head, as though he didn't believeRice's answer.

"You're standing outside Fort Knox with billions of dollarsinside," Rice said further. "The only problem is how are you going toget it out."

Holscher also sought to portray Rice, who was to continue on thestand today, as an out-of-touch manager who didn't know how manypeople worked for him.

Rice, once a top trader who ran Enron's money-losing broadbandventure, testified that Skilling told him to characterize layoffs atthe unit in early 2001 as "redeployment" so that employees wouldbelieve they would keep their jobs and Wall Street analysts whoinfluenced the company's stock would remain bullish on the weakeningventure.

For example, in March 2001 Skilling told analysts the broadbandunit had "strong growth as far as people, budgets, the whole thing,"at a time when Rice said workers were being laid off, the unit burnedthrough $100 million per quarter, and efforts to stream video contenton a fledgling network or trade Internet bandwidth were faltering.

But Rice acknowledged Wednesday he never followed up on whetheranyone was actually laid off. He also was unaware of documents notingthat some broadband workers were transferred to Enron's retail energyunit, another highly touted venture that never made a profit.

When Holscher asked if he knew how many people worked at EBS, Ricereplied: "Twelve (hundred) to 1,500."

"You're CEO. You don't know?" Holscher asked incredulously.

"I don't know the exact number," said Rice. "I'm saying I don'tknow the number of employees."

Holscher also accused Rice, 47, of "checking out" of Enronbeginning in 2001 to pursue his passion for race cars, an assertionRice denied.

"I raced cars sometimes on weekends," he said.

But Holscher pointed out that people above and below Rice at Enronwere critical of his work, that he wasn't a hands-on manager, andthat underlings urged Skilling to fire him.

"I don't know that," Rice said, but added: "A number of employeestold me the wheels had fallen off EBS, and they were disappointed howI was handling it."

Rice pleaded guilty to securities fraud in July 2004. The defenseteams have suggested most of those who pleaded guilty to crimes didso because of prosecutorial pressure and fear of lengthy prisonterms.

Rice acknowledged Wednesday that before his plea, he faced trialon 42 criminal charges as well as possible government seizure ofmillions of dollars in cash and property, including two sports cars,a Colorado vacation home and his Houston home.

"Were you angry about pressure from the government?" Holscherasked.

"I was angry about what was happening to me," Rice said.

Contributing: Michael Graczyk