Enron chief says he was unaware

Former CEO testifies company was sound, he had no warning

2 others contradict Skilling

Lawmakers express disbelief over CEO's lack of knowledge

February 08, 2002|By Marego Athans | Marego Athans,SUN NATIONAL STAFF

WASHINGTON - Enron's former chief executive told incredulous congressmen yesterday that he thought the company was in good financial shape when he resigned Aug. 14 and was shocked to watch it unravel into bankruptcy over the next few months.

Jeffrey K. Skilling, once proclaimed as a corporate visionary, told a House Energy and Commerce subcommittee that he was unaware of details of the off-the-books partnerships that masked debts of at least $1 billion and inflated profits, leading to the collapse of the giant energy trader, once the nation's seventh-largest corporation.

"I believe the company's financial statements were an accurate reflection of its financial condition," said Skilling, who said at least 19 times that he did not recall key events leading to the company's demise.

He said, for example, that he did not remember Enron's former chief financial officer, Andrew Fastow, telling a board of directors meeting in Palm Beach, Fla., that Skilling would sign off on the partnerships, which earned Fastow $30 million.

"I was in and out of the meeting," Skilling asserted. "I don't recall if I was there specifically at the time Andy" made the comments. Skilling said the meeting had taken place during a power outage and that "the room was dark."

Fastow, who also appeared before the committee yesterday, was one of four senior Enron officials to invoke the Fifth Amendment right against self-incrimination and refuse to answer questions. Two other Enron executives did testify, and contradicted Skilling's disclaimers.

Jeffrey McMahon, the company's chief operating officer, and Jordan Mintz, a senior lawyer, said they had both tried in vain to warn Skilling about potential conflicts of interest in dealings between Enron and partnerships.

"I said there were several conflicts that I thought he [Skilling] needed to be aware of that were going on" McMahon said, discussing LJM, one of the larger partnerships in which Fastow was involved. "The Enron employees were negotiating against LJM representatives, and yet they all reported to Mr. Fastow. I saw that as a major conflict."

Skilling disputed McMahon's account.

"I can believe [McMahon] and I can believe you, but I can't believe both of you," said Rep. James C. Greenwood, a Pennsylvania Republican who chaired the hearing. "He [McMahon] essentially said to you, `We've got a cesspool, and we've got to clean it up.' ... This is the cesspool that brought the company down."

Skilling speculated instead that the company's demise was the result of a "run on the bank" and liquidity problems - not the unorthodox accounting and lack of oversight cited by an extensive board-commissioned report released last weekend.

Disclosures of Enron's massive debt last fall sent the company's stock plummeting and led to the firm's bankruptcy filing Dec. 2.

"I am devastated and apologetic," about what happened to the company, Skilling said in opening remarks, noting that thousands of people lost jobs, countless investors lost money - many of them in pension funds - and his best friend, former Enron executive Cliff Baxter, committed suicide in the wake of the company's failure.

After the hearing, Rep. Diana DeGette, a Colorado Democrat, said she believes the Justice Department, which is conducting a criminal investigation of Enron's demise, will carefully examine Skilling's testimony, which was given under oath. She questioned his claim that he had been "oblivious" of high-level self-dealing and said that this assertion seemed to be evidence of malfeasance.

Skilling was the highest-ranking Enron official to testify before Congress. Former Enron CEO Kenneth L. Lay, who backed out of his testimony this week, has been subpoenaed to appear before House and Senate committees next week, but is expected to invoke his Fifth Amendment right against self-incrimination.

Fastow, who created and ran the off-the-books partnerships, some with Star Wars-related names like Jedi and Chewco Investments, stood mute before the committee yesterday as its members lambasted Enron executives as "economic terrorists," "business cowboys" and "corporate thieves," accusing them of cashing in on millions of dollars of stock options while lower-ranking Enron employees saw their retirement savings disappear.

Also remaining silent yesterday were former executive Michael Kopper, whose off-the-books deal turned a $125,000 investment into $10.5 million in less than three years, and two current Enron executives, Richard Buy and Richard Causey, both believed to be familiar with the partnerships.

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