One Year Later, Possible Charges Hang Over a Former Enron Chief
HOUSTON -- As Jeffrey Skilling Wednesday reaches the first anniversary of his surprise resignation as Enron Corp.'s chief executive, he faces the possibility of another memorable event soon: a criminal indictment for alleged crimes at the collapsed energy trader.
Federal prosecutors are pressing ahead with their criminal investigation of Mr. Skilling and other top Enron officials, in recent weeks bringing in several lower-level executives to testify before a Houston grand jury. Mr. Skilling, a subject of the probe, potentially could face securities-fraud and perjury charges, lawyers familiar with the matter said. Mr. Skilling declined to be interviewed but in congressional testimony has vehemently denied any wrongdoing.
It was Mr. Skilling's resignation after only six months as chief executive that set off a chain of events leading to Enron's bankruptcy-law filing in December and a subsequent meltdown in the entire energy-trading sector that he helped create. Mr. Skilling, 48 years old, was the driving force behind the transformation of a large but little-known natural-gas pipeline company into an energy-trading behemoth and one of the most lionized corporations of the past decade.
"He was the key in transforming the company," said Samuel Bodily, a professor at the University of Virginia's Darden business school, Charlottesville, who co-authored a recent study of Enron.
Indeed, after growing up in Aurora, Ill., and earning degrees at Southern Methodist University and Harvard Business School, Mr. Skilling caught the eye of Enron Chairman Kenneth Lay while a McKinsey & Co. partner. In 1990, he went to work at Enron, and helped create an extremely profitable natural-gas trading and finance unit. Over the next decade, he built that unit into a multibillion-dollar juggernaut that traded everything from electricity to space on the information superhighway.
Early on, Mr. Skilling formed a team of aggressive young executives -- known to some as the "billionaire boys" -- who followed him up the corporate ladder.
Among Mr. Skilling's coterie was Andrew Fastow, who as chief financial officer and head of some outside partnerships would later play a key role in Enron's demise. This group saw themselves more in the mold of Wall Street bankers than oil-patch players. Enron enlisted Bankers Trust to hone its risk-management and trading skills.
Like investment bankers, Mr. Skilling and his colleagues favored tying compensation to the success of particular deals, including individual ownership stakes in some of them.
At the same time, Mr. Skilling grew easily frustrated with Enron's veteran gas and pipeline executives, who he felt "just didn't get it" when it came to the company's new direction. He helped set up a performance-review system that helped push out many people who had worked for Enron when it was simply a pipeline company.
After being named Enron president and chief operating officer in early 1997 he elevated several of his lieutenants to top company positions. His physical appearance changed too. Once pudgy, balding and bespectacled, Mr. Skilling underwent laser eye surgery, lost weight and started sprouting neat rows of hair. One summer, he even participated in an intensive Navy Seal-style training program with his son Jeff Jr.
Mr. Skilling also began dating fellow Enron executive Rebecca Carter, who was later named to the high-ranking position of corporate secretary, working closely with the board. Mr. Skilling's spokeswoman says the board gave its blessing to the budding office relationship and that he did nothing to influence her selection as corporate secretary. The two were married earlier this year.
While Enron and Mr. Skilling were widely lauded as a major business success story in the late 1990s, problems were brewing inside the company. A string of investments in everything from a power-plant complex in India to a high-speed telecommunications network turned sour. To mask those problems, Enron set up a complex network of private partnerships and off-balance-sheet entities that helped keep billions of dollars of debt and losses off its books. Three of these partnerships were run and partly owned by Enron executives, including Mr. Fastow.
From 1999 to early 2001, Enron, with the largely hidden help of these partnerships, posted ever-higher earnings and enjoyed a rapidly rising stock price, which at various times topped $80 a share. Mr. Skilling trumpeted the results as proof of the soundness of his business vision. Even coming under attack by top California government officials starting in late 2000 for allegedly manipulating the state's electricity market seemingly did little to slow Enron's momentum.
During this time, Mr. Skilling was getting ever-more prominent and wealthy. He was paid $6.4 million in salary and bonus in 2000 and $6.7 million in 2001. In 2000, he realized $62.4 million by exercising 1.19 million Enron options. In February 2001, Mr. Skilling ascended to the chief-executive job at Enron.
When he resigned last August, Mr. Skilling said his decision was motivated by purely "personal" reasons, including a desire to spend more time with his three children.
But his sudden departure sparked inquiries about the largely unnoticed partnerships run by Mr. Fastow and the role they played in propping up Enron's finances. Within weeks, stories in The Wall Street Journal about the partnerships helped lead to a collapse in investor confidence and credit lines. In November, the company acknowledged that it had wrongly accounted for some of these partnerships and retroactively slashed its earnings for the prior four years by nearly $600 million, or 20%.
On Dec. 2, Enron sought bankruptcy-law protection. Later that month, Enron's longtime accountant Arthur Andersen LLP told Congress that illegal acts might have occurred in connection with at least one of the partnerships, known as Chewco.
While Mr. Lay, Mr. Fastow and other former top executives declined to testify at congressional hearings about Enron's collapse, Mr. Skilling almost eagerly took up that challenge. On Feb. 7, he strode confidently into a packed hearing room for a House subcommittee meeting and took his seat under the glare of television cameras. "I am here today because I think Enron's employees, shareholders and the public at large have the right to know what happened," he said. However, he proceeded to say that he knew very little about some of the most-suspect transactions that took place on his watch. "While I was at Enron, I was not aware of any financing arrangements designed to conceal liabilities or inflate profitability," Mr. Skilling said.
Other Enron executives said Mr. Skilling was a very detailed-oriented manager. Burke Willis, a former director of Enron's investor-relations group, recalled how Mr. Skilling asked him to make a chart for an analyst presentation that would depict the company's earnings from trading as smooth. Mr. Willis created one chart, but Mr. Skilling was dissatisfied with it. He felt the chart showed too much volatility and told Mr. Willis to redo it. The chart went through several iterations. "We got to this point where the chart was not at all volatile," said Mr. Willis, but it also "wasn't a standard chart." Finally, though, he said, Mr. Skilling was satisfied.
Mr. Skilling's attorney, Bruce Hiler, declined to comment about the incident.
In mid-1999, Enron's research director, Vince Kaminski, who headed a group doing sophisticated risk analysis, complained loudly about one of the partnership deals, saying it wasn't in Enron's financial interest.
Shortly after, Dr. Kaminski said, his group was reassigned and he was told by Mr. Skilling that they had been acting more like "cops" than people trying to get deals done.
Jeffrey McMahon, Enron's former treasurer, told Congress earlier this year that he had raised objections to Mr. Skilling in March 2000 about the conflicts of interest involved in Mr. Fastow's partnership set-up.
Instead of addressing the conflict problem, Mr. Skilling helped arrange to move Mr. McMahon to another job outside the finance department. Similarly, Enron counsel Jordan Mintz has said he tried to arrange meetings with Mr. Skilling on three occasions in 2001 to discuss his concerns about the partnerships but had no luck.
Mr. Skilling has said he wasn't aware Mr. Mintz wanted to meet with him. He has also said that Mr. McMahon only voiced minor concerns about the Fastow partnerships and was instead more concerned about how the arrangements might negatively affect his own compensation. Mr. Skilling said he assured him there would be no negative impact.
Mr. Hiler declined to comment about Dr. Kaminski's statements. But, he added, "a lot of fantasy about Enron is being passed off as fact."
Perhaps the most substantive disagreement between Mr. Skilling and his former colleagues involved the so-called Raptor entities.
These off-balance-sheet creations were set up to help Enron hedge the value of its assets. However, by early 2001, Enron faced a potential half-billion-dollar first-quarter charge because of problems at the Raptors. The company quietly executed a restructuring that delayed the day of reckoning by six months.
Mr. Skilling told a Senate committee that he had only a passing knowledge of the restructuring. "I asked if the accountants had signed off on it, if it looked okay, and I was told that it was and went along with it," he said.
But a report earlier this year by a special committee of Enron's board said that some Enron employees had told investigators that Mr. Skilling was "intensely interested" in the Raptor restructuring and made it "one of the company's highest priorities." |
