The latest witness in the Lay/Skilling trial testified that ex-Enron CEO Jeff Skilling told a group of top Enron executives, "They're on to us," referring to Wall Street analysts who asked questions about the company's earnings, the value of its Internet division and the stability of its trading arm. The comment came during a May 2001 meeting that former Enron Broadband Services CEO Kevin Hannon told jurors about Thursday:
He said Skilling, [ex-Enron Chairman] Ken Lay and others discussed how the analysis that valued Enron stock at $27 a share — about half what it was selling for at the time — showed "the market was starting to understand how Enron was making money."It was a monthly policy committee meeting at the Doubletree Hotel downtown, Hannon said, where Greg Whalley, a wholesale trading division executive, said of the analysis by a group called Off Wall Street that "other than criticizing us for being a trading company, it's pretty much on target."
This revelation could hurt Lay and Skilling because they were both in the room when Hannon said they had this cavalier discussion of Enron's weaknesses. But both men went on to paint rosy pictures to investors and employees during the next few months.
Hannon went on to say that analysts asked about Enron's problems with side deals the company used to hide its troubled assets. Skilling brought CFO Andrew Fastow — who is expected to testify next week — to the meeting to talk about his own side companies, the LJMs.
"He said LJM is a good deal for me," Hannon testified. "It was met by stunned silence."
Prosecutors also asked Hannon about a March 2001 meeting in which he discussed Enron Broadband Services' troubles with Skilling. Hannon said Skilling suggested he "just roll [the losses] up into wholesale," a move several witnesses have testified was done to hide the Internet division's failing finances. The defense claims the losses were moved for efficiency, not to hide losses. Hannon also said Skilling made six false statements about EBS's growth and financial health to analysts in March 2001, sometimes telling them the opposite of what Hannon had told Skilling about the company.
The other witness Thursday was John Sides, who worked for Enron for 22 years and lost his retirement savings when the company collapsed. Sides said he made investments based on Lay's promises about Enron's growth, but he agreed under cross-examination that he would have made more cautious investments based less on Enron stock. The exact amount of Sides' loss didn't come out because Judge Sim Lake ruled details about employees' losses cannot be presented in evidence, but the Chronicle reported his 401(k) dropped from about $500,000 to $4,000 when Enron imploded.
On Monday, Hannon will return to the stand, followed by Fastow.
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