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Skilling, Lay Cases Build on Plea Deals

By Carrie Johnson
Washington Post Staff Writer
Friday, September 17, 2004; Page E01

For months, corporate crime experts have warned that the government's prosecution of former Enron Corp. leaders Jeffrey K. Skilling and Kenneth L. Lay faced long odds. The Houston energy giant's complex structure and the credibility problems of the Justice Department's star witness, who allegedly stole millions from Enron, loomed as serious obstacles.

But legal experts said a recent flurry of guilty pleas by senior executives, including the former head of Enron's oft-touted high-speed Internet unit and its former investor relations chief, has advanced the conspiracy and fraud case against Enron's top executives.

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No trial date has been set, as prosecutors and attorneys for the two men spar over motions for separate trials . Two former, lower-ranking Enron executives, the first to face a jury, are scheduled to begin trial Monday in Houston over their role in an allegedly improper deal with Merrill Lynch & Co. to boost Enron earnings.

"I don't think there's any question [the recent guilty pleas] have been vital to building the case," said Daniel K. Hedges, a former U.S. attorney in Houston. "They've gotten pleas from the highest levels . . . people who worked intimately with Skilling and Lay and who worked on some of the transactions mentioned in the indictments."

The recent deals also help reinforce the government's theory that the company that reported revenue making it the nation's seventh-largest was a house of cards where executives manufactured earnings and hid severe losses.

Central to that effort, prosecutors claim, was an aggressive campaign to tout Enron's apparent success. Mark E. Koenig, who headed the company's investor relations unit from 1998 to 2002, served as the most important link between Enron managers and outside analysts who recommended the stock to investors.

Koenig pleaded guilty late last month to aiding and abetting securities fraud, telling a judge that by early 2001, he knew Enron's financial reports "intentionally concealed the true state of Enron" and in particular the success of two core businesses: Enron Broadband Services, which sent video and other data on high-speed networks, and Enron Energy Services, set up to provide energy to other large companies.

Koenig described in his plea agreement a series of conferences and telephone calls in which he misled investors to artificially boost Enron's stock price. In one such session, on Jan. 22, 2001, Koenig told analysts that a deal to sell some of the broadband unit's projected future revenue accounted for a "fairly small amount" of its quarterly revenue. In fact, the deal brought the struggling unit 84 percent of its $63 million in revenue that quarter, court papers said.

Koenig also said he and other top managers misled investors about the reason for a reorganization of two of Enron's businesses in early 2001. He told analysts the move was made to "increase efficiency," when in fact the shift allowed the company to hide hundreds of millions of dollars in losses at its retail unit by combining its finances with the vastly more successful wholesale energy division, which made large profits trading electricity, according to court papers.

That wholesale unit later came under fire for allegedly bilking West Coast energy consumers out of millions of dollars by using deceptive trading tactics. Three former Enron traders have pleaded guilty to playing a role in the price manipulation, which investigators say took place throughout the California power crisis in 2000 and 2001.

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