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Feb. 8, 2002, 2:24PM

Skilling denies wrongdoing; four others silent at Enron inquiry

Copyright 2002 Houston Chronicle Washington Bureau

WASHINGTON -- Former Enron Corp. CEO Jeff Skilling told disbelieving lawmakers Thursday he left the company six months ago fully confident it was in great financial shape.


Former Enron CEO Jeff Skilling

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Enron's collapse
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Understanding Enron's partnerships

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Vice president's memo warning of problems at Enron
Enron workers sound off
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History of Enron
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The players
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"I cannot for the life of me see how we could go from where the company was then to bankruptcy in such a short time," Skilling said.

Four other top Enron executives under subpoena by the House Energy and Commerce Committee refused to testify, appearing only briefly at an often contentious eight-hour hearing by the subcommittee on oversight and investigations.

Skilling insisted he was unaware that a complicated web of outside partnerships created at Enron was designed to shield debt and inflate profits.

"When I left on Aug. 14, I believed the financial reports accurately reflected the condition of the company," Skilling said.

The partnerships at the heart of the investigation were created by former Chief Financial Officer Andrew Fastow, a one-time Skilling protégé who made millions of dollars through the transactions.

Fastow and Michael Kopper, former managing director of Enron Global Finance, Chief Accounting Officer Richard Causey and Chief Risk Officer Richard Buy refused to answer questions, citing their Fifth Amendment protection against self-incrimination.

"I would like to answer the committee's questions, but 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 said.

Before being dismissed, the four sat in the front rows of a jammed congressional hearing room while lawmakers completed more than an hour of opening statements.

Several committee members took the executives to task in the harshest of terms, describing the "corporate thievery" and "avarice" of "biblical proportion" that led to the company's collapse.

"In the dark nights of your own souls, think of those around this country and particularly in Texas, who lost their life savings and everything else as a result of your actions," Rep. Peter Deutsch, D-Fla., told the silent executives.

While the others looked downcast or stared straight ahead, Fastow sat with a slight, tense smile before exiting the hearing.

Hours of often terse and dramatic testimony failed to produce a witness who took a portion of responsibility for the financial devastation of Enron.

Skilling, questioned repeatedly about the company's huge losses, internal alarms from executives and numerous other warning signs, testified he had no indication when he left that the company was in peril.

"You can say today that everybody agrees there was a problem," Skilling said. "I challenge that."

Less than four months after Skilling left Enron for undisclosed personal reasons, the company on Dec. 2 filed the largest bankruptcy in corporate history.

Skilling told lawmakers he believed Enron was profitable but suffered a "liquidity problem."

Skilling said he was unaware the partnerships created and run by Fastow were designed to conceal Enron's massive losses.

"I absolutely, unequivocally thought the company was in good shape," Skilling said.

Jeff McMahon, president and chief operating officer at Enron, told the subcommittee that when he was a finance officer, he raised several issues about Fastow's activities to Skilling in a March 2001 meeting.

McMahon's handwritten talking points for the meeting outline his concerns that Fastow's conflicts in serving both Enron and the outside partnerships created an "untenable situation."

Fastow is estimated to have collected at least $30 million on investments of a few thousand dollars through the creation and management of outside partnerships.

McMahon told lawmakers he feared Fastow was not operating in the best interests of Enron and its shareholders, and that he told Skilling he would not compromise his own integrity by going along.

Soon after, McMahon said, he was yelled at by Fastow and subsequently transferred from his job in Enron finance to another position in industrial products.

His replacement in the finance position, McMahon told the committee, began investing in Fastow's partnerships and collecting high-yield returns.

McMahon's account was dismissed a few hours later in the same hearing by Skilling, who told lawmakers he recalled the meeting, but said it was for a different purpose.

"Mr. McMahon was concerned that his conflict with Andy would hurt his compensation," Skilling said.

Moving McMahon out of his position in finance had "absolutely no connection" to the issues he raised about Fastow, Skilling said. He described the move as a "huge promotion."

Rep. James Greenwood, R-Pa., chairman of the subcommittee, told Skilling that he could either believe him or McMahon, but not both.

"He poured out his soul to you, he essentially said, "We have a cesspool here, boss,' " Greenwood said. "And your recollection is that he came to you about a compensation matter."

Skilling, who made reference in his opening statement to the suicide of his "best friend," former Enron executive Cliff Baxter, told lawmakers Baxter was distraught in the weeks before his death.

"I don't think there is anyone who knew Cliff and spent time with Cliff toward the end who didn't realize he was heartbroken about what happened," Skilling said.

Baxter, who resigned from Enron last year, died of a self-inflicted gunshot wound in January. The death has been ruled a suicide.

Skilling said Baxter believed in Enron and was hurt by depictions of the company in the media.

"To have a lifetime of work denigrated as it was in the press was devastating to Cliff," Skilling said.

In hushed tones, Skilling told lawmakers that Baxter felt Enron executives were being reviled like "child molesters."

He was interrupted by Rep. Cliff Stearns, R-Fla., who reminded Skilling that Baxter also reportedly raised an issue with him about the propriety of Fastow's outside partnerships.

That claim was made in the now-famous Aug. 15 memo by former Enron executive Sherron Watkins to then-Chairman Ken Lay.

In her memo, Watkins told Lay that Baxter had serious concerns about Fastow's arrangements and raised them with several people, including Skilling.

Skilling disputed the claim, saying Baxter had a "strained" relationship with Fastow, but didn't know enough about the partnerships to raise an issue about their propriety.

Skilling also denied claims made earlier in the hearing by Jordan Mintz, in-house counsel for Enron, who said he was unable to get Skilling to sign the necessary approval sheets for the outside partnerships.

Mintz testified that he was so concerned about the propriety of the arrangements that he hired an outside law firm to review the transactions.

Repeated efforts to meet with Skilling and obtain his signature on the approval sheets were unsuccessful, Mintz said.

Congressional investigators contend that Skilling avoided signing the forms because he did not want to be held liable for any impropriety in the partnership transactions.

Skilling told lawmakers he did not recall efforts by Mintz to set up meetings or obtain his signature and said he also believed his consent was not required on the approval forms.

Lawmakers said they were largely unpersuaded by Skilling's claims of ignorance about Enron's finances, given the repeated warning signs of trouble.

Rep. Edward Markey, D-Mass., said Skilling was relying on a "Hogan's Heroes defense," in which Sgt. Schultz repeatedly claims, "I know nothing."

Greenwood said hearings into the company's collapse point to a widespread failure of management.

"It is increasingly clear that this collapse was not brought about by the isolated acts of rogue employees," Greenwood said. "From senior managers to corporate directors to outside counsel and accountants, almost no one who had the power to sound the alarm, correct the situation or prevent this debacle did so."

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