Enron Update: Second Witness Takes the Stand Kenneth Rice, the second witness in the trial against former Enron executives Jeffrey Skilling and Kenneth Lay, will again take the witness stand on Wednesday. Madeleine Brand talks to Fortune magazine's Peter Elkind, co-author of Enron: The Smartest Guys in the Room, about what Rice witnessed as chief of Enron's broadband unit.

Enron Update: Second Witness Takes the Stand

Enron Update: Second Witness Takes the Stand

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Kenneth Rice, the second witness in the trial against former Enron executives Jeffrey Skilling and Kenneth Lay, will again take the witness stand on Wednesday. Madeleine Brand talks to Fortune magazine's Peter Elkind, co-author of Enron: The Smartest Guys in the Room, about what Rice witnessed as chief of Enron's broadband unit.

MADELEINE BRAND, host:

Today, in Houston, we'll hear more from the second witness in the trial of former Enron executives Jeffrey Skilling and Kenneth Lay. The new witness, Kenneth Rice, led its failed broadband venture, and served as a key lieutenant to Skilling. Now, Rice is one of 16 former Enron executives who have pleaded guilty, and are testifying for the prosecution.

Here with us to discuss the Enron trial is Peter Elkind. He's covering the trial for Fortune magazine. He's also the co-author of the book, Enron: The Smartest Guys in the Room. And Peter Elkind, welcome to DAY TO DAY.

Mr. PETER ELKIND (Journalist, Author): Good to be with you.

BRAND: So, tell us about Rice's testimony. What has he said so far?

Mr. ELKIND: Yesterday, the government led him to a quick account of the rise and fall of the Enron broadband business. And specifically, he testified in great detail that the business was falling apart, and that Jeffrey Skilling, nontheless, was telling the world and investors that things were going well.

BRAND: And this is part of the key accusation against Skilling, is that he, the government alleges that he misled investors?

Mr. ELKIND: The government's theme for the case says it's not about accounting, it's about lies and deception. And this is the government burrowing into one of the two new units at Enron, which they're saying were part of the deception.

BRAND: Is he testifying, in effect, that he had conversations with Skilling, where Skilling explicitly told him to misrepresent the broadband venture and pump up the stock?

Mr. ELKIND: Absolutely. He went on in great detail about a number of conversations with Skilling where the sorry state of the broadband business was explicitly discussed, and Skilling pressed him to stick to impossible earnings targets, even after cut-backs were being made. He has testified that Skilling lied about that. And Skilling did indeed keep on telling the world that the broadband business was going well.

BRAND: And this is a business that never did well, right?

Mr. ELKIND: This is a business, certainly my, in the government's view, never did well, and by all accounts never did well. It actually met its earnings targets quarter after quarter, but it did it by all sorts of gimmickry.

BRAND: And so, what are Skillings' lawyers likely to argue to counter that?

Mr. ELKIND: They're going after Rice in great detail. And Rice was never a very detail-oriented man. So, they're trying to shake him with his inability, well, the help will be his inability to recall specific facts. They're also going after him personally, asking questions about whether other executives had thought he had checked out of the broadband business, out of the CEO responsibilities months before he actually left the company.

BRAND: And, so far, how is the government's case looking? This is the second government witness.

Mr. ELKIND: Well, it's really early. But, I mean, I think the point is getting across that there were lots of issues at Enron. And you're seeing in very sharp relief the different views about this company.

On the one hand, the government's saying that there's a massive deception about what was really happening. Lay and Skilling are arguing that there was absolutely nothing wrong at Enron, despite it falling to bankruptcy in December, 2001.

BRAND: That it was essentially a crisis in the market, not a crisis in the company.

Mr. ELKIND: Right. Well, they're not just trying to say Lay and Skilling are innocent, because they didn't know bad things were going on. They're arguing that nothing bad happened to Enron, except with a couple of people that were lining their own pockets.

BRAND: And are they saying that Kenneth Rice was one of those people?

Mr. ELKIND: There's no question Ken Rice made a lot of money, and he made some of it illegally. He testified yesterday that he had private lunch with Skilling, and Skilling, in, I think it was August 1st, that Skilling, to his shock, announced that he was going to be leaving as CEO in two weeks.

Rice then testified that he's, and by the way, he testified that Skilling was talking about buying a boat so big that he could put cars on it, and maybe a helipad. But then Rice was asked what he did after he got this information. He said he went back to his office, and he sold his Enron stock, which was obviously insider trading.

BRAND: Peter Elkind is covering the Enron trial for Fortune magazine. Thank you.

Mr. ELKIND: Good to be with you.

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