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All is well at Enron, investors were told

Tapes played at their trial show how Kenneth Lay and Jeffrey Skilling tried to ease concerns about the company.

HOUSTON - Nine months before Enron Corp. flamed out in bankruptcy, some investors were questioning the strength of its businesses, despite public assurances from company founder Kenneth Lay and former chief executive Jeffrey Skilling that all was well, jurors in their fraud and conspiracy trial learned Wednesday.

Those questions and a stock price that dropped to less than $60 per share from its high of $90 in August 2000 prompted Skilling to hold a conference call in March 2001 to reassure Wall Street that Enron was healthy.

"I have no idea why the stock is down," Skilling told analysts who influenced the stock price. The audiotape was played during former Enron investor-relations chief Mark Koenig's fifth day on the witness stand.

Prosecutors have played clips of videos and audiotapes to bolster allegations that Skilling and Lay repeatedly lied about Enron's financial health and hid bad news to inflate company stock. But the defense teams wanted to play them in full to ensure that jurors heard the comments in context. U.S. District Judge Sim Lake acquiesced, on the condition that they be played only once in their entirety during the trial, which is expected to last months.

The defendants counter that there was no fraud at Enron and that its implosion stemmed from negative publicity that triggered a loss of market confidence.

Koenig pleaded guilty in August 2004 to aiding and abetting securities fraud for lying to investors about Enron's finances. He is among 16 ex-executives who have pleaded guilty to crimes and are cooperating with prosecutors.

Days before the March 2001 conference call, Enron announced that a 20-year video-on-demand partnership with Blockbuster Inc. was dead, a year after the company announced the deal with much fanfare as a venture that could bring in billions. Questions were generated by that about-face and other issues, such as the meltdown of the telecom industry just as Enron was pushing its plan to trade bandwidth.

"Mr. Skilling was very up to speed on what investor concerns were," Koenig testified.

Skilling told analysts on the call that Blockbuster hadn't gotten the movies to provide video-on-demand, so Enron was "out getting the content ourselves." And he had this to say about the bandwidth trading efforts: "This business is absolutely developing. It is ahead of plan." Such optimism is common from CEOs on analyst calls. The question for jurors is whether Skilling knew his optimism was false.

Investigations revealed later that neither video-on-demand nor bandwidth trading got off the ground.

On the day of the call, Enron stock opened at $55.09 and closed up $4.31, at $59.40.

Earlier Wednesday jurors got a taste of the self-congratulatory culture that permeated the company months before it filed for Chapter 11 bankruptcy protection in December 2001.

Lay and Skilling occasionally headlined employee meetings during the company's halcyon days that mixed rundowns of business operations with pep rallies.

Jurors watched a videotape of the first such meeting Skilling led in February 2001 after he succeeded founder Lay as chief executive. During the nearly hourlong video, Lay and Skilling unveiled Enron's vision to be the world's leading company, as they basked in applause from employees.

About nine months later, what was once the nation's seventh-largest company collapsed amid revelations of billions of dollars in hidden debt and inflated profits.

Skilling faces 31 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces seven counts of fraud and conspiracy. Both face decades in prison if convicted. Both sold millions of dollars in stock before Enron went bankrupt, but only Skilling faces allegations of improper stock sales.

[Last modified February 9, 2006, 01:29:11]