On the eve of former Enron Corp. Chairman Kenneth Lay’s appearance before Congress, a powerful Michigan lawmaker released a document Monday challenging former Enron Chief Executive Jeffrey Skilling’s claims of ignorance about the partnerships that sank the company.
The document released by Rep. John Dingell, ranking Democrat on a House committee investigating Enron, detailed a presentation made Oct. 26, 2000, to investors of one of the now-notorious partnerships Enron used to hide debt and boost profits. Skilling, according to the document, was among those present.
Skilling testified last week before a House subcommittee that he was “not aware of any financing arrangements designed to conceal liabilities or inflate profitability” at Enron.
At the October 2000 Palm Beach, Fla., presentation, Dingell noted, investors were told that the purpose of the partnership under discussion, called LJM, was to “accelerate projected earnings and cash flow” for Enron. To do so, the presentation said, “Enron must deconsolidate assets”–that is, take them off its books and put them into the partnerships.
Also Monday, Dingell sent a letter to Skilling demanding to know whether he had received a copy of the document and asking other pointed questions about the veracity of his testimony last week.
Dingell said that the Palm Beach presentation to LJM’s private investors–including Chicago’s Aon Corp., GE Capital, Chase Capital and Merrill Lynch–supported the conclusion of a report released last week by a special committee of Enron’s board of directors that the partnership transactions “had a significant effect on Enron’s financial statements.”
According to the presentation, the return was projected at 69 percent for those investing in LJM Investments, which also included a second related partnership, LJM2. For another partnership, Raptor III, returns were projected at 2,503 percent over three years, Dingell said.
Enron collapsed last year after it came to light that it was using the partnerships to hide its debt and inflate its profits even as the firm tried to prop up the special off-the-books entities with its own stock.
Bruce Hiler, attorney for Skilling, said in a statement that “Mr. Skilling answered these questions two months ago when he was interviewed by the committee staff. However, if Mr. Dingell has more questions, we will be happy to answer them.”
Among other things, the congressman wanted to know whether Skilling agreed with the purposes of the partnerships as outlined in the presentation. LJM’s former office manager, Amy Flores, told ABC News on Friday that she made Skilling’s reservation to attend the meeting and that he made a speech to LJM partners “to assure them Enron was behind the venture.”
Despite Skilling’s denials, some analysts who have examined Enron’s partnerships claim that he must have played a major role in orchestrating them. So far blame has largely settled on Andrew Fastow, Enron’s former chief financial officer, who was in charge of the partnerships.
Robert McCullough, a Portland, Ore.-based energy analyst who will testify before a House panel Wednesday, said Fastow’s expertise was in finance, while Skilling’s was in Enron’s trading arm and its energy investments in South America and elsewhere.
McCullough said LJM purchased a share of a natural gas project in Cuiaba, Brazil, from Enron for $11.3 million in September 1999, while Enron, in turn, booked earnings for sales to Cuiaba for natural gas.
But he said Enron used aggressive accounting techniques known as “mark-to-market,” which projected future, not current, earnings as a way to inflate its profits on the project “in spite of the fact that the plant does not have access to natural gas to this day.”
Sen. Peter Fitzgerald (R-Ill.), a member of the Senate Commerce panel, said Enron committed fraud by booking borrowings as earnings through the partnership. “It’s all smoke and mirrors,” he said.
Meanwhile, Ken Johnson, a spokesman for Rep. Billy Tauzin (R-La.), chairman of the House Energy and Commerce Committee, said the panel is sending anther letter to Skilling raising questions about discrepancies in his testimony.
Johnson said Tauzin wants Skilling to clear up why he did not sign approval papers for transactions by the partnerships even though an Enron attorney, Jordan Mintz, tried to get him to do so on three occasions. Skilling said he was unaware of Mintz’s requests.
Also, Johnson said, Skilling is being asked to give more details on a conversation he had with former Enron Treasurer Jeffrey McMahon on March 16, 2000, in which McMahon said he raised concerns about Fastow’s conflict of interest in running the partnerships. Skilling denied that was the subject of the meeting.
Rep. James Greenwood (R-Pa.), chairman of the oversight and investigations subcommittee of Tauzin’s committee, disclosed that the panel will have another hearing this week to hear from an “important” witness whose name he would not disclose.
