Making a Skilling

Anyone who thinks Enron executives can't be all bad didn't see them before Congress Thursday.

By Jake Tapper
Published February 9, 2002 12:20AM (EST)

There was swagger and acid. There were "not to the best of my recollection"s and pleadings of the Fifth. Finger-pointing and pointed questions and congressional demagoguery, and an emotional moment in the late afternoon, when a former Enron vice chair who committed suicide at the end of January was discussed.

Members of Congress, loaded for Enron bear for weeks -- with even itchier trigger fingers after the Monday pull-out of ex-CEO Ken Lay -- finally took their shots Thursday, as former executives from the tattered company testified before the House Energy and Commerce Committee's investigative arm.

The only thing missing was a shred of responsibility for the shell partnerships that one securities analyst testified were a "blatant conflict of interest that would never have passed the smell test had it been discovered." And there still seems to be no Houstonian seemingly man enough to accept blame for a Fortune 10 company imploding to become the single largest bankruptcy declaration in United States history.

Is it something in the water? (We know other powerful Texans who seem to fill up with righteous arrogance when put on the defensive.) Whatever it is, it suggests that few, if any, of these officials ever seem able to put ethical considerations above legal concerns. Which in itself probably helps explain how we got into this fine mess.

Eager for a sound bite on the TV news, members of Congress likened the Enron rogues' gallery to cowboys, the Corleones, "architects of Enron's house of cards" -- one even called them "economic terrorists." The company was called "a cesspool," "a cancer," and "a disaster almost Biblical in scope."

Amid that baiting and grandstanding, the Enron execs most targeted by the committee members, and the press, didn't take the bait. Four invoked their Fifth Amendment right against self-incrimination, led by former chief financial officer Andrew Fastow who -- with $30 million from the sketchy partnerships in his pocket -- came sporting the same insufferably smug puss he's surely worn since his kegger days at Tufts. He whistles when he makes S's - declining to speak "at the advissssshhh of counsel" -- like Gopher from Winnie the Pooh.

Also invoking their right to avoid telling the truth because it might make them look bad was Fastow's deputy, the dandyish Michael Kopper, former managing director of Enron Global Finance, who reportedly made $10 million from the shell partnerships. Plus the two Dicks who were supposed to be minding the ethical store: Richard Buy, Enron's chief risk officer, and Richard Causey, chief accounting officer.

While on a break during the hearing, Rep. Ed Markey, D-Mass., could be heard telling a staffer that all of his colleagues -- who were coming and going throughout the eight-plus hour affair -- were "saying to their staffers, 'Let me know when Skilling's there!'" And indeed, Jeff Skilling, the former chief executive of Enron who resigned last summer, was the star of the show. A possibly guilty party, Skilling had informed the committee that he would be there -- and he would answer questions.

Say what you will about Skilling, he doesn't want for self-confidence. With an aggressive swagger, looking like the homelier brother of Peter Jennings, Skilling stepped right up to the microphone -- you could almost hear him thinking, "the Fifth Amendment is for pussies" -- and acted as if everyone in the world who thought there was something wrong with Enron was nuts.

"On the day I left, on August 14th, 2001, I believed the company was in strong financial condition," he said. Not only did he claim to have not known about any of the alleged improprieties surrounding Fastow's shell partnerships, but he blamed everything on a panicky public. "It's my belief that Enron's failure was due to a classic run on the bank," Skilling said, to audible gasps (at least in my corner of the cramped House hearing room). "The company was solvent and highly profitable, but apparently not liquid enough."

To be fair, Skilling was only one of many Enronians who blamed others. The doddering Robert Jaedicke, chairman of the Enron board of directors' audit committee, and Herbert Winokur Jr., chairman of the Enron board of directors' finance committee, claimed to have been ill-informed and ill-served by Enron's senior management, lawyers, and the Arthur Andersen LLP auditors. Winokur, a member of Enron's three-man investigative committee that published its internal investigation on the shell partnerships last Saturday, "respectfully disagree[d] with some parts of the report dealing with the board's performance."

Still, Jaedicke and Winokur had the benefit of being old men whose board roles were clearly something of a joke with little actual oversight. Skilling was the one who had day-to-day responsibility for the company and, apparently, not a lick of remorse.

Rep. Jim Greenwood, R-Pa., the chairman of the oversight committee, expressed incredulity that when committee staffers interviewed Skilling in December, Skilling said that when he left Enron "the company was in the best shape it ever was."

"I would like for you to explain that statement in light of the fact that Enron has, subsequent to your departure, declared bankruptcy, fired its auditor, discovered massive insider dealing by the CFO and other employees, fired its CFO, treasurer and one of its general counsel, seen Ken Lay's resignation as president and CEO, ... laid off over 4,500 employees and has since reneged on its promise to pay them a severance, is under investigation by both houses of Congress, the Department of Justice and the SEC, had to restate its earnings from 1997 to 2000 in the amount of $586 million and had to announce an equity write-down of $1.2 billion, not to mention likely additional earnings adjustments in excess of a billion dollars, that indicates that Enron was not even profitable while you were at the helm as CEO."

Amid titters at Skilling's odd brazenness in the face of such damning evidence, the low-key Greenwood -- who can get nasty when he wants to -- asked, "Enron's condition today seems nothing like being in 'good shape.' How do you explain this?"

Skilling stuck to the script. "All I can say is on August 14th, the date that I left the company, I believed that the company's financial statements were an accurate reflection of its financial condition." With good news in a number of ventures, Skilling said he "believed that we had made progress on a number of different dimensions that put the company in a good position for the future."

Except for the moment when he nearly cried while discussing his "best friend" Baxter's suicide, Skilling seemed nothing short of delusional. Actually, he seemed delusional when it came to Baxter, too, blaming his suicide on the media. Delicately, if relentlessly asked by Rep. Cliff Stearns, R-Fla., to shed some light on why Baxter would shoot himself, Skilling was understandably terse.

"Cliff's family has gone through a lot," he said. "I don't know if it's my job or my role to describe some of the things Cliff talked with me about."

He looked down at his hands, grabbed a pen and gripped it tightly. "I don't think there's anyone who knew Cliff and spent time with Cliff toward the end ... that didn't realize he was heartbroken about what had happened" to Enron.

His eyes welled. "Carol, if you're out there, I hope you're OK with this," he said to Baxter's widow via C-SPAN. His voice choked up as he described how Baxter came to "my house a week before" -- long pause -- "he took his life."

"We spent an hour, al-" -- another pause -- "almost three hours talking." Baxter, Skilling said, was very angry about the attorneys suing him for possibly using insider information when he sold his stock in early 2001.

"'They are calling us child molesters,'" Skilling recalled that Baxter said. "'That will never wash off.'"

It was a poignant reminder that behind the fascinating tale of 10-gallon chicanery, the Enron saga has a tragic human cost. With the exception of Baxter and his family, however, a sizable chunk of the Enron shareholders and former employees who are suffering and have been deprived of their life savings detest Skilling. And with today's testimony there seems even more reason to do so.

If you're trying to gauge Skilling's culpability, it comes down to He said-They said. At least two executives -- and perhaps Baxter as well -- claim that they tried to nip Fastow's shenanigans in the bud. But Skilling claimed to have no recollections, or different recollections, of such accounts.

At issue is whether Skilling knew that the shell partnerships were used to hide Enron's debt, and whether he was responsible for supervising the partnerships. According to the minutes of the May 1, 2000, meeting of the finance committee taken by Enron's corporate secretary (presumably Rebecca Carter, to whom Skilling is now engaged), one of the partnerships discussed in Skilling's presence, Raptor 1, "does not transfer economic risks but transfers P&L" -- profit and loss -- "volatility." This would indicate that the finance committee knew that there was something shady about the partnerships, since a true hedge partnership would transfer both risks and P&L.

Skilling responded that that meeting was confusing. "The particular meeting that you're talking about was in Palm Beach, Florida," he said, "and on the day of the meeting the power had gone out at 3 in the morning, and we were scrambling to get it fixed."

A lawyer whispered something into his ear.

"No, I'm sorry," he said. "Never mind." He laughed -- he was mixing up meetings. "That's incorrect. I take it back." He then offered his answer about these minutes: "I don't recall," he said.

Later he would use the "lights went out" excuse for an October 2000 meeting in which he specifically was identified as having supervisory responsibility for the partnerships, instead of just the Two Dicks and the audit committee, who were identified as having that responsibility the year before.

Before Skilling testified, Energy & Commerce Chairman W. J. "Billy" Tauzin, R-La., introduced at the beginning of the hearing "some good officers in the company who could smell the cancer growing." These included Jordan Mintz, the vice president and general counsel for corporate development first brought to the world's attention by Salon on Jan. 18, and company president and chief operating officer Jeff McMahon.

According to Mintz and McMahon and their contemporaneous notes and memoranda, both men were concerned about Fastow's partnerships and tried to get Skilling to get his protigi, Fastow, to cut it out. According to Skilling, he has no idea what Mintz is talking about, and McMahon's March 2000 meeting with him was hardly about ethical obligations to the shareholders but rather because McMahon wanted to make sure he got paid.

Mintz had provided the committee with approval forms he had written, trying to secure Skilling's signature on partnership transactions -- which Skilling hadn't signed. He was also concerned with language Fastow "used to attract investors that appeared to be selling investors inside information," and whether or not Fastow should have been disclosing his compensation for his work for the partnerships. Mintz reported speaking with Richard Buy and Richard Causey to discuss his reservations about the partnerships. "I wouldn't stick my neck out," Causey said, according to Mintz.

"Both [Causey and Buy] said to me that Jeff was very fond of Andy so 'don't go there,'" Mintz said. He sent memos and had his secretary call twice to schedule meetings with Skilling, calls that went unreturned. Buy and Causey "said 'You tried, and leave it at that,'" Mintz said. He appealed to his boss, senior counsel James Derrick, Jr., but in his cushy office 30 floors above him, Derrick didn't appreciate the "dysfunctionality I experienced on a regular basis" on the 20th floor, where the finance department was headquartered, Mintz said.

"I do not recall being presented with these documents," Skilling later said, when asked about Mintz's myriad attempts to get in touch with him. Deferring to the partnership supervisory rules from October 1999 -- and not the ones from a year later when the lights went out -- Skilling maintained that he didn't need to sign off on the deals, that Buy and Causey, and other controls that were established, would ensure that all was kosher.

McMahon told a similar tale, except from the trenches. He found it impossible to negotiate with Fastow -- he negotiating on behalf of Enron, Fastow on behalf of the partnerships -- since Fastow was his boss. On March 6, he even discussed his concerns with Baxter, who, according to a memo sent to Lay last August by vice president for corporate development Sherron Watkins, shared those concerns. "We had a conversation about the variety of conflicts [raised by] the LJM [partnership] matters," McMahon said. "He was aware of the conflicts as well as I was. He encouraged me to go see Mr. Skilling directly."

Then Enron's treasurer, McMahon made an appointment to see Skilling on March 16. "I had a long talk with my wife before I entered Skilling's office because I knew the potential ramifications," he said.

The committee had a copy of the notes McMahon had written in preparation for his meeting. "Untenable situation," McMahon wrote. "LJM situation where AF wears 2 hats and upside comp is so great creates a conflict. Right in the middle of. I find myself negotiating with Andy on Enron matters and am pressured to do deals that I do not believe to be in the best interests of the shareholders. My integrity forces me to continue to negotiate the way I believe is correct [however, AF is my boss). In order to continue to do this I MUST know I have support from you and there wont be any ramifications. [Believe it already has affected my comp.]"

Though Skilling was fairly unresponsive, McMahon left the meeting thinking that Skilling had "understood all my concerns and he would remedy the situation."

Skilling had a different take. "Jeff came in and had some concerns about his compensation related to LJM," he said. McMahon was just worried that Fastow would take it out on him financially, Skilling said. He told him, "Jeff, you know how compensation's determined around here" -- with the 20- to 24-member performance review committee, which Fastow sat on. "Jeff, if you negotiate hard on behalf of Enron and take a baseball bat to Andy ... 23 out of 24 on that committee will be cheering for you."

Not long afterwards, McMahon was removed as treasurer and took a different job within the company that he had already been offered and turned down. Skilling maintained that the job, which did not include a raise in pay, was a huge promotion for McMahon and unrelated to the partnership situation. McMahon was replaced as treasurer by Ben Glisan. Not long afterwards, Glisan -- as first reported -- turned an investment of approximately $6,000 in one of the partnerships into $1 million in just a few weeks.

McMahon added that Fastow found out about the meeting and told him, "You should assume everything you say to Mr. Skilling gets to me." On the day that Skilling resigned for "personal reasons," and not long before Fastow was forced out of the company, Watkins sent Lay a letter describing the partnerships as "a bit like robbing the bank in one year and trying to pay it back two years later." After that memo was sent, Fastow -- McMahon said -- "at a very high decibel level accused me of being the ghost writer of that letter."

Rep. Greenwood told Skilling that his story and McMahon's just didn't add up. "I can believe him or I can believe you. But there's no way I can believe both." Greenwood then described McMahon to Skilling as having "poured his soul out to you." It left little doubt as to whom Greenwood believed.

Jake Tapper

Jake Tapper is the senior White House correspondent for ABC News.

MORE FROM Jake Tapper

Related Topics ------------------------------------------