Lay, Skilling may be next on feds' hit list

The fact that the Justice Department is investigating Enron Broadband Services indicates that prosecutors are now focusing on Ken Lay, Jeff Skilling and possibly other top executives, according to observers.

Investigators are clearly looking into whether executives misled investors about the financial well-being of the company and its future prospects, said Jacob Frankel, a former Securities and Exchange Commission lawyer now in private practice.

At issue is the "quality of the disclosure made by executives into whether they disseminated false or misleading financial information or failed to provide information to investors," Frankel said.

Sources familiar with the investigation say there's particular interest in a Jan. 20, 2000, meeting with analysts, where the future of Enron Broadband, or EBS, was enthusiastically promoted by Skilling and others. Enron's stock price jumped 30 percent that day, starting a yearlong rise to its all-time high of about $90 per share.

EBS never turned a profit or lived up to its hype, but rather turned out to be a multibillion-dollar drain on the company. Executives continued to sing its praises as late as January 2001, though the business was crumbling.

EBS is only one part of the multifaceted investigation, which includes such areas as improper power trades to boost prices in California and a 1999 energy trading deal with Merrill Lynch that helped Enron earn a $60 million profit.

But the new focus on EBS and other businesses also indicates that Skilling and Lay cannot be clearly linked to the complex partnerships that former Enron executive Michael Kopper admitted he created with former Chief Financial Officer Andy Fastow to siphon money into their own pockets, said Robert Mintz, a New Jersey-based attorney and former federal prosecutor.

Prosecutors will most likely find it easier to show that Lay or Skilling misrepresented the finances of the company than to prove they knew of the intricate accounting involved in the partnerships, Mintz said.

"Prosecutors must feel fairly certain they have their case against Fastow secured and are moving on to the bigger fish," said Mintz. "They're just trying to fit the missing pieces of the puzzle together."