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Enron denies 'cookie jar' charges
Jeffrey Skilling, the former Enron chief executive, has denied that his company used a bogus cash reserve "cookie jar" to smooth out its earnings and disguise massive trading profits.
Last Modified: 13 Apr 2006 01:04 GMT
Enron was once the seventh largest American company
Jeffrey Skilling, the former Enron chief executive, has denied that his company used a bogus cash reserve "cookie jar" to smooth out its earnings and disguise massive trading profits.

Skilling's testimony at his criminal trial was an effort to counter claims by a former top executive that Enron reaped massive profits from trading power during the California power crisis in 2000 and illicitly dumped the money into a "cookie jar" account to cover possible earnings shortfalls in the future.

 

"There were no cookie jar reserves at Enron," Skilling, in his third day on the witness stand, said under questioning from Dan Petrocelli, his own lawyer.

 

Skilling, 52, and Kenneth Lay, 63, former Enron CEO and chairman, are charged with lying to analysts and investors about the financial health of the company, which collapsed in December 2001 into the then-largest-ever US bankruptcy.

 

Skilling faces 28 charges of conspiracy, fraud and insider trading at the trial, which has lasted nearly three months, and Lay faces six charges of conspiracy and fraud.

 

Skilling (L) faces 28 charges 
including fraud and insider trading

Both men have pleaded not guilty and face decades in prison if convicted.

 

Petrocelli has been methodically guiding Skilling through the criminal indictment, seeking to refute government witnesses and specific charges against the former executive who helped turn Enron from a quiet pipeline operation into the seventh largest US company.

 

Reserve account

 

Earlier in the trial, David Delainey, the former head of Enron's North American energy wholesale unit, testified that Skilling embraced him at a meeting in October 2000 after Delainey told him his unit had sharply surpassed profit targets. The extra funds were put into an $800 million reserve account, he said.

   

Skilling said he remembered being very happy with Delainey's news.

 

"I may have kissed him; I certainly hugged him, but I may have kissed him," Skilling said.

 

Lay is charged with lying about
Enron's financial health 

But he countered the claim that the company put the extra earnings into a reserve account illegally, saying the company's reserve accounts held only $363 million, and that money was designated to cover potential liabilities in the volatile California power markets.

 

Skilling said the reserve account was vetted by internal Enron accountants and Arthur Andersen, the company's outside auditor, which itself imploded because of its connections to the scandal at Enron.

 

Under US accounting rules, companies can only set aside reserves for specific purposes or liabilities and cannot create accounts that can be used as slush funds.

 

Prosecutors have also contended that Enron did not want to report sharply higher than expected profits from its wholesale unit's trading arm because analysts would begin to question the volatility of its business.

 

Broadband services

 

At the time, Enron was portraying itself to Wall Street as an energy "logistics" firm rather than as a trader in an effort to appear more stable and achieve a higher stock price.

 

Skilling also contradicted statements by Delainey that he hid losses at Enron's broadband Internet business by folding part of that unit into its wholesale unit.

 

During his testimony, Delainey had said that after he became CEO of Enron Broadband Services, the unit was hit with a $200 million liability. He said he questioned shifting that loss to the wholesale unit, but was pressed by Skilling at a March 2001 meeting into the move to protect the new business.

 

However, Skilling said transferring that charge was part of an internal restructuring designed to create efficiencies, and he never pressed Delainey at the meeting.

 

"I said 'Are you sure you want to do this' ... and he said 'yes,'" Skilling said. "He's the guy that has to live it. He's the guy running the business. 

Source:
Reuters
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