Feb. 7, 2002 -- One-time Enron CEO Jeffrey Skilling today repeatedly denied having a central role in the firm's financial operations, even as he was accused of having a key role in them by a fellow executive at a congressional hearing.
"I was not aware of any financial arrangements designed to conceal liabilities or inflate profitability," Skilling told the House Energy and Commerce Committee's investigative subcommittee. When he stepped down as CEO last August, said Skilling, he "did not believe the company was in an imminent financial peril."
"I am devastated by and apologetic about what Enron has come to represent," added the executive, who became CEO in February 2001 after having been the company's president.
The implication of Skilling's testimony was to direct responsibility for management of Enron's ruinous private partnerships squarely onto the shoulders of the firm's former chief financial officer, Andrew Fastow.
But that wasn't the picture painted in testimony earlier in the hearing by Jeffrey McMahon, Enron's one-time treasurer who became the chief financial officer when the company began its spiral into bankruptcy last fall.
According to McMahon, Skilling was well aware of the controversial investment partnerships though which Enron hid debt and losses from shareholders — although he acknowledged that Kenneth Lay, who served as CEO before and after Skilling, may not have been.
"Certainly Mr. Skilling knew the structure of the organization," said McMahon. "I don't know if Mr. Lay knew."
Repeated Denials From Skilling
But Skilling repeatedly said he could not recall details of meetings cited in the committee's research, did not know details about the partnerships Fastow ran and did not even know about some of the partnerships his colleagues used to enrich themselves.
Much of the time was spent disputing Skilling's recollection of a meeting between him and McMahon in 2000. McMahon said he complained to Skilling about the conflict of interest inherent in having Fastow run the partnerships while serving as chief financial officer.
By contrast, Skilling claimed McMahon said he was worried about Fastow's possible influence in limiting McMahon's year-end bonus. McMahon was transferred to another department shortly after the meeting.
Skilling also said he did not recall being assigned to watch over the partnerships at a meeting of Enron's board, claiming the power went out during the meeting, which caused a distraction.
Committee members showed significant frustration with Skilling's assertions about that meeting, and well as his claims that he knew little about Enron's partnerships — a complicated web of literally thousands of investment vehicles though which the firm hid its debt and losses to make it look as if it were in fine financial health.
Rep. Ed Markey, D-Mass., told Skilling he was engaging in a "Hogan's Heroes defense," in which the former CEO was, in effect, saying, "I see nothing, I know nothing."
Earlier in the session, an Enron lawyer, Jordan Mintz, told committee members precisely how Skilling kept his fingerprints off the partnership deals. Mintz said he had asked Skilling to sign papers authorizing them, but was rebuffed by Skilling and other senior officers.
"I did mention it to Mr. Buy and Mr. Causey," said Mintz. "They said, 'You tried.'"
Fastow Takes the Fifth
Prior to Skilling's testimony, Fastow, the first witness to appear before the panel, invoked his Fifth Amendment right against self-incrimination. Fastow managed some of the secret partnerships, making $30 million in the process.
Also taking the Fifth this morning: Michael Kopper, an Enron executive who helped manage the partnerships and earned $10 million from them; Richard Causey, Enron's chief accounting officer; and Richard Buy, the firm's risk officer.
An internal report, authored by three members of Enron's board of directors and released last weekend, criticizes many of today's witnesses — including Skilling, Fastow and Kopper — for their actions at the firm, which in December declared the biggest bankruptcy in U.S. history.
McMahon also said Fastow "was very involved" in the crucial partnership named Chewco, adding, "He listened to our recommendations and understood" the terms of a deal to shut it down.
McMahon said he first raised conflict-of-interest questions about the partnerships in early 2000. In August 2001, he talked to Enron whistle-blower Sherron Watkins about a letter Watkins was in the process of drafting and sending to Lay.
"I called Mr. Lay and explained to him that although I was unaware of whether the facts in her letter had merit or not, I did validate that Ms. Watkins was a reputable source and employee," said McMahon.
Later, McMahon said, Fastow "at a high decibel level … accused me of being the ghostwriter of that letter."
Accounting End Run
Last fall, Enron abruptly declared it was worth $1.2 billion less than it had previously stated, with the bulk of the difference consisting of debts and losses that Enron had attributed to Chewco. Accounting rules say such partnerships do not have to be included in a company's financial reports if outside firms own at least 3 percent of them.
According to testimony today from Thomas Bauer, a partner at Enron's former accounting firm, Arthur Andersen, Enron made an end run around the rules by telling the auditor an outside firm owned 3 percent of Chewco while setting up a secret side deal to control the entire partnership.
Seven congressional committees have been holding hearings this week about issues of corporate governance, accounting standards, retirement plan reforms, and the Bush administration's many connections to the Houston-based company.
The Department of Justice has an ongoing criminal investigation into the matter, trying to determine if company managers intentionally deceived shareholders. The Securities and Exchange Commission and Labor Department are also conducting inquiries.