Enron's Skilling defended Fastow's deals - witness

The testimony by Kenneth Rice, a former member of Enron management's inner circle and friend of Skilling's for more than a decade, came in the third week of the trial against Skilling and former CEO Kenneth Lay for conspiracy and fraud at the company that was once the seventh largest in the United States.

"Mr. Skilling was very engaged in the business, he was very hands-on. Almost any transaction of any size we would bring to Mr. Skilling to get his approval," Rice said under questioning by prosecutor Sean Berkowitz.

Enron, which tumbled into bankruptcy in December 2001 in the largest collapse to date, was the first of a series of scandals that rocked Wall Street and prompted stricter disclosure laws for companies. Rice, who has pleaded guilty to securities fraud and is awaiting sentencing, led Enron's Internet broadband business, EBS, until July 2001.

Enron had hoped EBS would enable it to ride the stock market wave in the late 1990s that lifted technology and telecoms stocks to record highs.

But EBS struggled with virtually no revenue, and the division sold some of its unused fiber-optic cable to partnerships run by Enron's former chief financial officer, Andrew Fastow, in order to meet the financial targets the company had promised Wall Street.

"Without that transaction, Mr. Rice, do you believe EBS would have achieved its target for that quarter?" Berkowitz asked Rice.

"No," he replied, adding the deal generated a $55 million profit - far higher than a sale to an independent company would have yielded.

Fastow, who has also pleaded guilty to crimes and faces 10 years in prison, is expected to be a key witness at the trial. Lay and Skilling have both blamed Fastow for any crimes at the company, which they claim triggered a crisis that led to its ultimate demise.

The partnerships run by Fastow have been blamed for hiding billions of dollars in debt in deals that pumped up Enron's profits.

Rice said he complained about Fastow's partnerships to Skilling, but was rebuffed.

"He felt it was an important thing for Enron to do," Rice said.