First Prosecution Witness Takes Stand in Enron Trial

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Opening statements began this week in the trial of Enron executives Kenneth Lay and Jeffrey Skilling, and the first prosecution witness, former Enron investor relations chief Mark Koenig, took the stand. Madeleine Brand talks to New York Times correspondent Kurt Eichenwald, reporting on the trial in Houston.

ALEX CHADWICK, host:

From the studios of NPR West, this is DAY TO DAY. My names Alex Chadwick, and I'm addicted to oil.

MADELEINE BRAND, host:

Hi, Alex. I'm Madeleine Brand. I'm addicted to oil, too. Well, we all are, as the President noted the other night, which is why we'll spend the first part of the program today on oil and energy stories, including a new hybrid Toyota and Russian pipeline politics.

CHADWICK: We'll begin with the Enron trial. In Houston, the Justice Department is making its case that former top executives Kenneth Lay and Jeffrey Skilling misled the investing public about Enron's declining financial health before the company fell into bankruptcy a little more than four years ago.

BRAND: Federal prosecutors and the defense team sketched out very different accounts of the companies collapse in opening statements this week, and yesterday, the first prosecution witness, another former Enron executive, took the stand.

Joining us is Kurt Eichenwald. He's author of the book Conspiracy of Fools. It's an account of the collapse of Enron and the scandal that followed. He's in Texas, where he's following the trial of Ken Lay and Jeffrey Skilling, and Kurt, welcome back to the show.

Mr. KURT EICHENWALD (Author): Thanks for having me.

BRAND: So tell us about this first witness. What did he say?

Mr. EICHENWALD: This was Mark Koenig, who while he is not a particularly well-known witness for those of us who are sort of deeply involved in the case, he was the former head of investor relations.

In fairly fast testimony, he depicted a series of events, which the government is portraying as having been efforts by Enron to manipulate its reported earnings to investors.

BRAND: And was he able to link Ken Lay and Jeff Skilling?

Mr. EICHENWALD: Not yet, but the truth is that the way a criminal case works in kind of the way a house is built. First you've got to lay the foundation. You've got to put in the plumbing, and a lot of what the prosecution is doing here is just taking a very, very simple instance where Koenig says earnings were 30 cents a share and Enron reported 31, similar instances like that, and trying to say, look, this is the way this company worked. This is the attitude of this company. And Skilling was there. Lay knew about it. And trying to sort of lay the foundation that this is a company that was deceptive.

BRAND: And in their opening statements, prosecutors said that this is a case about lies and choices. It seems like they're trying to avoid getting into all the arcane accounting details that could, maybe, confuse the jury and make them think, well, if I can't understand it, then how could the top executives of the company.

Mr. EICHENWALD: You know, I think it's actually more complicated than that, because I have always thought that if the government goes down the path of the accounting rules, that they lose. A lot of the things that Enron did that seem really outrageous are allowed under the accounting rules, and it gets down to the nature of how bad our accounting rules are.

But what isn't allowed is you can't step forward and use those accounting rules to manipulate your reported income and then turn around and say, well, that reflects economic reality. And so, what the prosecution is doing is saying, forget the accounting rules. When these guys talked about their company, they lied about how it was doing. They lied about the actual economics, rather than what the rules allowed them to do.

The defense is taking the opposite stand. No, no, no, this is about accounting. Let's look at the accounting. Let's explore the accounting, and we will show you why their statements are true when you weigh them against the accounting rules. So it's funny because it's probably the opposite of what people thought would be happening four years ago when this started.

BRAND: And also, I understand, the defense is planning to argue that, look, if bad things didn't happen, well, we didn't know about it, and it wasn't our fault.

Mr. EICHENWALD: Pretty much, I mean, the main argument they're making is that everything that they did was legal. Every statement they made was truthful. And then you get down to the level of things that happened that are clearly crimes, when there are secret agreements or people funneling money into their personal bank accounts, and those are some of the witnesses who are testifying against them. And their position is, we didn't know about that. They were committing crimes. They weren't telling us about it.

BRAND: Kurt Eichenwald is the author of Conspiracy of Fools. It's a book about the collapse of Enron and the scandal that followed, and Kurt Eichenwald, we will undoubtedly be checking back with you over the next few months. Thank you very much.

Mr. EICHENWALD: Thanks for having me.

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