Enron's former CEO says he knew of nothing improper or perilous
Houston Chronicle
Feb. 7, 2002, 4:00PM
From staff and wire reports
WASHINGTON - Former Enron chief
executive officer Jeff Skilling told Congress
today that he knew of nothing improper
about the complex web of partnerships that
brought the energy trading giant down.
When he resigned his post in August, "I did
not believe the company was in any financial
peril," Skilling said in his first public
testimony about the collapse.
And the company's financial statements, "as
far as I knew, accurately reflected" Enron's
condition, Skilling told the House Commerce
oversight and investigations subcommittee.
Skilling said he had no knowledge that the
partnerships run by his long-time colleague
Andrew Fastow were designed to conceal
losses.
"It was my understanding that the purpose of
the transactions was to provide a real hedge"
-- locking in profits from technology
investments, the former CEO said.
Skilling said he didn't recall Fastow -- who
collected $30 million for running the
partnerships -- telling a board of directors
meeting that Skilling would approve all the
partnerships.
"You never heard" that statement? asked
Rep. Billy Tauzin, R-La.
"I was in and out of the meeting" and "I don't
recall if I was there specifically at the time
Andy" made the comments, said Skilling.
He said the board meeting in West Palm
Beach, Fla., took place under difficult
conditions because the electric power had
gone out and "the room was dark."
Skilling's testimony came as Fastow and
three other current and former Enron
executives exercised their Fifth Amendment
right not to testify at the House hearing.
In contrast to Skilling's testimony, Enron's
new president chief operating officer, Jeffrey
McMahon, said earlier today that he was
transferred to a new job shortly after he
complained to Skilling about the obscure
partnerships in a 30-minute meeting in
March 2000. McMahon was treasurer at the
time of the meeting.
"His parting words to me were he understood
all my concerns and he would remedy the
situation," McMahon told the subcommittee.
McMahon said Skilling called shortly after
the meeting and offered him a job elsewhere in the company.
McMahon's testimony followed refusals to testify by Andrew
Fastow, Enron's former top financial officer, and three other
company executives.
"On the advice of my counsel, I respectfully decline to answer
the questions based on the protection afforded me under the
Constitution of the United States," Fastow told members of the
House Energy and Commerce subcommittee on oversight and
investigations.
Moments later, Michael Kopper, a former Enron officer who
worked under Fastow, also invoked his Fifth Amendment
protections against self-incrimination after promising to tell
the panel the truth.
Also declining to respond to questions were Enron's chief
accounting officer, Richard Causey, and the firm's chief risk
officer, Richard Buy.
"Reluctant witnesses will not keep us from getting at the
truth," said Rep. James Greenwood, a Pennsylvania
Republican who chairs the subcommittee. "Even without the
testimony of Fastow, Kopper, Causey and Buy, we will still be
able to get some important answers today."
Before dismissing the four current and former Enron
executives, Greenwood said the company's collapse "was not
brought about by isolated acts of rogue employees. It required
the complicity of far more than a few bad apples."
"Was the selling of your morals ... of your souls, worth it?"
asked Rep. Bobby Rush, D-Ill., who said "millions of dreams" of
people who lost retirement money were ruined by the Enron
crash.
The four men, awaiting their turns to exercise their Fifth
Amendment rights against self-incriminiation, listened
passively as lawmakers took turns calling company officials
responsible for the bankruptcy, "economic terrorists,"
"business cowboys" and "corporate thieves."
Tauzin, chairman of the House Energy and Commerce
Committee, Wednesday called Enron officials deceptive,
self-dealing and said they engaged in sham transactions.
"We have found substantial evidence of illegal activity by Enron
and its management," Tauzin said. "This activity served to
deceive the public about Enron's financial condition. It
artificially pumped up Enron's stock price and allowed these
same executives to enrich themselves with sales of Enron
stock."
Also scheduled to appear during the subcommittee's hearing
were former Enron attorney Jordan Mintz, and board members
Robert Jaedicke and Herbert Winokur.
Skilling and Mintz, a lawyer who raised concerns internally
about Enron's partnership transactions, are expected to
provide the day's key testimony, said Ken Johnson, committee
spokesman.
Mintz, the firm's former lawyer, became so concerned about
the off-the-books partnerships that he tried to rein them in.
Committee investigators said Mintz questioned Buy and
Causey about how the partnerships were being handled late in
2000.
Former Chairman Ken Lay abruptly canceled his own
testimony earlier this week, after his attorney complained of a
prosecutorial atmosphere on Capitol Hill. Lay subsequently
was subpoenaed to appear before two committees next week.
A key focus of the congressional investigation of Enron is the
company's controversial use of outside partnerships to inflate
profits and shield debt.
In creating partnerships known as the Raptor entities, Enron
was doing business with related groups whose only assets were
shares of Enron, Tauzin said.
The shares were subsequently reported by Enron as earnings,
he added. "This clearly violated existing law and the most basic
norms of corporate behavior," Tauzin said.
Calls to an Enron spokesman were not returned Wednesday.
Enron on Dec. 2 filed the largest corporate bankruptcy in
history. When the company collapsed, thousands of employees
lost their jobs and their retirement savings.
Lawmakers also want to know who was responsible for Enron's
calamity -- an acrimonious pursuit that has so far focused
heavily on Fastow, Skilling and, to a lesser extent, Lay.
The internal Enron report in part cited a culture of
self-enrichment at the company that allowed top executives to
collect millions of dollars through partnerships and other
transactions.
In the report, authored by University of Texas law school dean
William Powers, Fastow is reported to have made at least $30
million in partnership transactions.
Tauzin, calling Enron's free-fall the result of "theft by insiders,"
noted the huge rates of return for modest investments in the
outside partnerships.
"In one transaction, Fastow and Kopper informed the investors
in LJM2 -- a partnership at the center of this theft -- that the
expected rate of return on the transaction was 2,503 percent,
to be realized in just eight days," Tauzin said.
The internal report said Kopper broke Enron's code of ethics
for having managed one of the partnerships without the board
of directors' approval.
"Enron employees involved in the partnerships were enriched,
in the aggregate by tens of millions of dollars they should
never have received," the report said.
In addition to Fastow's $30 million, Powers' probe found
Kopper pocketed at least $10 million.
Fastow, whose request to the committee to not appear was
rejected by Tauzin, was earlier this week dubbed "Fast Andy"
by one member of the House committee, and "the Betty
Crocker of cooked books" by another.
Causey and Buy were singled out in the internal Enron report
for failing in their responsibilities, Causey in particular for
failing to review certain transactions as instructed by the
board.
Rep. Gene Green, D-Houston, a member of the House
committee, called Enron the new "buzzword for `funny
business.' "
"They used Enron like a giant Monopoly game to enrich both
themselves and their friends at the expense of their
shareholders and employees," Green said of top company
executives.
Tauzin also took Enron's former auditors at Arthur Andersen
to task for failing to rein in Fastow's partnership deals.
Andersen executives previously appeared before the
subcommittee to answer questions about document shredding
and related matters.
"Andersen knew or should have discovered the fraudulent
nature of the Fastow transactions," Tauzin said. "We have
found that Enron's financial statements violated numerous
existing accounting rules."
Andersen CEO Joseph Berardino, who has appeared several
times to testify on Capitol Hill, has defended his company's
auditing and blamed Enron's collapse on a failed business
plan.
Last month, fired Andersen partner David Duncan was
subpoenaed by the subcommittee but refused to testify, citing
his Fifth Amendment right.
Andersen fired Duncan in January, saying he masterminded a
massive destruction of documents after learning the Securities
and Exchange Commission was probing Enron's books.
Duncan has said he was following company policy; the matter
is still under investigation both by the committee and at
Andersen.
In addition to more than 10 congressional probes,
investigations are under way by the SEC and the Labor
Department, and the Justice Department has opened a
criminal investigation.
Associated Press and Chronicle reporters Julie Mason, John C. Henry
and Laura Goldberg contributed to this story.
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