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.
Skilling, 48, a former McKinsey consultant who became Enron's key creative strategist, helped transform Enron from a traditional pipeline operator into the world's largest energy trader and created new markets for such commodities as electricity. Skilling pushed hard in Congress to deregulate the states' energy markets, and the company made huge profits last year in California, where it became a principal electricity supplier in a state reeling from blackouts because of insufficient supply.
He gained a reputation for micromanaging the business and described himself in testimony yesterday as a "controls freak." But, in the same breath, he portrayed himself as leader of a multinational corporation so big that he couldn't concern himself with details such as how private partnerships were structured and who was involved in them.
Skilling said he was not told that Enron employees other than Fastow were involved in the partnerships, nor that employees were negotiating for the partnerships against Enron. (In one case, a man and his fiancee were negotiating opposite sides of what was literally a sweetheart deal, one for Enron, the other for the partnership.)
However, Mintz said he sent Skilling approval sheets for one deal and repeatedly tried to discuss with him his concerns about Fastow's ownership interest in the partnerships and potential conflicts of interest. Mintz said he received no answer; Skilling testified that he never got the document.
Some members of Congress have speculated that Skilling purposefully avoided signing the documents in order to deflect responsibility for the deals.
Mintz said that Baxter, the Enron executive who recently committed suicide, told him that "he didn't understand why the board was allowing Andy to do this" by running partnerships.
Baxter also complained "mightily" to Skilling, according to a memo written by a company whistleblower, Sherron Watkins. Skilling denied that.
McMahon said that after he complained to Skilling about the partnerships in March 2000, he was transferred to a new job.
"His parting words to me were [that] he understood all my concerns and he would remedy the situation," McMahon testified.
But Skilling told the subcommittee that he didn't remember McMahon expressing concern about the Fastow partnerships. He said he recalled that the meeting was about McMahon's compensation.
Skilling told lawmakers that he had no trouble with Fastow's financial interest in the partnerships because controls were in place to mitigate any problems.
"I believed at that time there were adequate controls to manage the conflict of interest," he said, citing company protocols he had drawn up himself as well as legal opinions rendered by the company's law firm.
Enron board member Herbert Winokur testified that "a number of senior Enron employees, we now know, did not tell us the full truth. ... Mr. Skilling reported to us that he was discharging his obligations. It now appears that he did not do so."
Along with a dozen congressional committees, the Justice Department and the Securities and Exchange Commission are investigating Enron and its auditor, the Arthur Andersen accounting firm, which has acknowledged massive destruction by its employees of Enron-related documents.
"Was it worth it?" Rep. Bobby L. Rush, Democrat of Illinois, asked the Enron executives yesterday. "Was the selling of your morals worth it? Was the selling of your souls worth it?"