Skilling was the star witness at an eight-hour congressional hearing during which four former and current Enron officers invoked their 5th Amendment right against self-incrimination. He said he was unaware that former Chief Financial Officer Andrew Fastow and others had participated in the partnerships, netting millions of dollars.
Skilling’s testimony before a subcommittee of the House Energy and Commerce Committee contradicted that of other Enron officials. They said Skilling had been warned about the partnerships and had failed to carry out an assignment from the company’s board of directors to make sure the partnerships were being run properly.
The current president and chief operating officer of Enron, Jeffrsey McMahon, testified that he told Skilling on March 16, 2000, about his concerns regarding Fastow’s conflict of interest in running the partnerships.
“[Skilling’s] parting words were that he understood my concerns and would remedy the situation,” McMahon said. But he said nothing was done, and McMahon, who had been Enron’s treasurer, was reassigned to another job.
In his opening statement, Skilling said he was “devastated by and apologetic” about what had happened at Enron and what the company has come to represent.
But he said he took no responsibility for its collapse, saying Enron was profitable when he left. Instead, he said, the company went into bankruptcy because it ran into cash-flow problems and a “classic run on the bank” climate developed.
Earlier in the day, Fastow and the three others exercised their 5th Amendment right not to testify. But Skilling said he wanted to tell his story.
Republicans and Democrats on the House panel said his account strained credulity.
“Mr. Skilling, a massive earthquake struck Enron right after your departure,” said Rep. James Greenwood (R-Pa.), the subcommittee chairman. “People in far inferior positions to you could see cracks in the walls, feel the tremors, feel the windows rattling. And you want us to believe that you sat there in your office and had no clue that this place was about to collapse?”
Skilling replied: “On the date that I left the company, I had every reason to believe it was financially stable.”
Rep. Bart Stupak (D-Mich.) added: “Earlier witnesses put it that you were intense, hands on. From what I’ve heard from your testimony today, you don’t know what was going on.”
Congressional investigators and a special Enron investigative committee appointed by the board have said the firm used off-the-books partnerships to conceal debt on Enron’s balance sheets and inflate profits, hiding the energy giant’s true financial condition.
Investigations under way
The Justice Department has opened a criminal investigation of Enron’s failure, and the Securities and Exchange Commission and Labor Department also are probing the company.
Several committees on Capitol Hill are investigating the company’s collapse.
When the company filed for bankruptcy Dec. 2, many Enron employees and retirees lost their savings tied up in company stock. But many company executives had cashed out their own holdings before Enron went into its plunge.
The panel grilled Skilling on whether he knew about Fastow’s activities with the so-called LJM partnerships. A special committee appointed by Enron’s board of directors concluded the partnerships were propped up by Enron’s own stock and lacked sufficient outside investment.
Fastow earned $30 million in investments from the partnerships that he supervised while serving as Enron’s chief financial officer.
The partnerships eventually forced Enron to restate its earnings last year and slash the value of its equity, causing its stock value to plummet.
Skilling did not concede until near the hearing’s end that he had been warned about Fastow by his friend, Cliff Baxter, a former Enron executive who committed suicide on Jan. 25.
“He said he and Andy had a very strained relationship,” said Skilling. “He said, `I don’t think you should do anything for Andy Fastow.'”
Skilling was emotional when speaking about his old friend, saying that a week and a half before his death, Baxter came to his home and said he was very angry about a plaintiffs’ suit filed on shareholders’ behalf.
Fastow declined to testify, citing the 5th Amendment, as did Michael Kopper, a former managing director of Enron Global Finance who also managed one of the partnerships and earned $10 million from minimal investments in the entity. Others who declined to testify were Richard Buy, the company’s chief risk officer; and Richard Causey, Enron’s chief accounting officer.
Herbert Winokur Jr., an Enron board member and chairman of its finance committee, and Robert Jaedicke, chairman of the audit and compliance committee, said the board had charged Skilling, Buy and Causey to monitor the partnerships.
But Skilling disagreed with this description of his role, saying Buy and Causey were responsible for exercising the board’s oversight of the partnerships and Fastow’s and Kopper’s activities.
He said he didn’t remember Fastow saying at an October 2000 board meeting in Florida–where the power kept going on and off because of a storm–that he, Skilling, would approve all the partnerships. “I was in and out of the meeting,” Skilling said, although the board’s minutes reflect Fastow’s statement.
Winokur and Jaedicke told the panel that the Enron board put mechanisms into place to keep tabs on the partnerships after excusing Fastow from conflict-of-interest rules. The mechanisms failed, they said, the board was kept in the dark and Skilling did not discharge his duties.
Enron attorney Jordan Mintz testified that shortly after he joined Enron in 2000, he wrote memorandums raising concerns about side deals by Fastow and others involved in the partnerships.
He said Causey and Buy told him he should not try to approach Skilling about his concerns. “Both . . . shared with me that Jeff was very fond of Andy–don’t go there,” Mintz said.
Enron “dysfunctional”
Mintz said he was deeply concerned about the partnerships and whether the company was adequately monitoring them, and about Fastow’s and Kopper’s activities. At one point, he called Enron a “dysfunctional” company. He said he tried to no avail to get Skilling to sign approval sheets for one partnership arrangement.
Skilling said he didn’t receive the approval sheets from Mintz nor did he recall seeing them.
Thomas Bauer, an Andersen auditor, said Enron had misled him about the true financial condition of another partnership–called Chewco–when he was auditing the firm. Barclays Bank had agreed to put up $111.4 million in equity into the special entity, he said.
But Bauer said it wasn’t until November that Andersen discovered a side agreement between Barclays and Chewco in which Barclays insisted on a deposit of $6.58 million into a reserve account, in effect diluting the equity it had originally promised. Had he known this, he said, he would never have approved the deal.
