The woman who claimed to know too much and the man who claimed to know too little about Enron Corp.’s collapse are scheduled to testify Tuesday before a Senate committee trying to find out which one to believe.
The showdown between Enron whistleblower Sherron Watkins and former Chief Executive Jeffrey Skilling before the Senate Commerce Committee will add new drama to the business scandal, although their basic stories are not expected to change.
Their long-awaited joint appearance came as the House Energy and Commerce Committee disclosed it is preparing to send a letter to 12 investment-banking firms alleging that “some bankers were sweet-talked and others strong-armed into participating in many of Enron’s questionable off-the-books partnerships,” said committee spokesman Ken Johnson.
Losses by these partnerships, which Enron used to hide its debt and inflate its profits, ultimately drove the Texas energy trading giant into bankruptcy. Johnson said the letter would be sent to investment bankers Citigroup, Credit Suisse First Boston, Morgan Stanley Dean Witter and Wachovia, among others, asking about their roles in financing the partnerships.
In testimony before the House, Watkins and other witnesses claimed Enron’s former chief financial officer, Andrew Fastow, used his position in managing some of the partnerships to pressure some bankers into investing in them. Fastow invoked his 5th Amendment rights against testifying.
In the wake of Enron’s collapse, some of the banking firms took heavy losses. Rep. Billy Tauzin (R-La.), chairman of the House panel, said he plans an entire hearing soon on the banking role in the collapse. He plans a separate hearing on Andersen’s internal investigation of the shredding of thousands of Enron-related documents.
Tauzin also plans to send a letter to Skilling in the next few days, citing “new information” that the former Enron chief was not candid in his testimony in the House, Johnson said. He declined to be more specific.
Watkins, who remains on Enron’s payroll, warned then-Chairman Kenneth Lay just after Skilling left the firm last August that the company was about to implode in a series of accounting scandals. To a large extent, she blamed Skilling for Enron’s troubles.
Skilling told a House panel last month that he thought Enron was in no peril when he resigned and was not aware of financial problems at its partnerships that ultimately sank the company. His attorney said Watkins did not know all the facts.
Whether they will testify at the same time and sit at the same table was a matter of debate over the weekend, but apparently the dispute had been settled by Monday night. According to Senate sources, Watkins last Friday balked at a joint appearance, but a committee spokesman said both Skilling and Watkins would testify at the same time.
“Mr. Skilling specifically requested that he be on the same panel with Ms. Watkins,” said his spokeswoman, Judy Leon. “He is looking forward to what will be his first specific conversation with Ms. Watkins about these matters.”
Also scheduled to testify at the same hearing is Jeffrey McMahon, the current Enron CEO who previously testified that when he was the firm’s treasurer, he complained to Skilling about the way the firm’s partnerships were being managed.
Sen. Byron Dorgan (D-N.D.), chairman of the committee’s subcommittee on consumer affairs, said senators hope to clear up conflicts among the stories told by Watkins, Skilling and McMahon as well.
But that may be difficult with some of the key players in the firm’s collapse, including former CFO Fastow, claiming their 5th Amendment right against self-incrimination.
Skilling’s previous testimony was the subject of widespread skepticism by members of Congress, who said openly that they did not believe he was telling the truth. New information about his purported knowledge of the partnerships has also been made public since he last testified.
Rep. Henry Waxman (D-Calif.) released a transcript from an Oct. 3, 2000, videotape in which Skilling told employees the firm was going to be using partnerships “to help us leverage our capital so that we’re putting in less capital per unit of revenue and profit growth for the company.”
In that same meeting, Skilling also defended the use of an aggressive form of accounting in Enron’s trading of energy contracts after The Wall Street Journal had reported the firm would have lost money in the second quarter of 2000 if it had not used this kind of accounting.
Skilling said the newspaper was correct but added, “That’s a little bit like saying if General Motors didn’t sell any cars last quarter, they would have lost money.” Such accounting allows companies to claim on a current basis its estimated future profits on unexpired futures contracts. Leon, Skilling’s spokeswoman, said current accounting rules required such “mark-to-market” treatment on Enron’s futures contracts.
But Waxman said his statements about leveraging the company “raise questions about your actions at Enron and your testimony before the Energy and Commerce Committee on Feb. 7.”
