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Enron Testimony Clashes
By:
Craig Whitlock and Susan Schmidt
Enron Corp.'s former chief executive told a skeptical House subcommittee yesterday that he was unaware of financial problems at the company when he left four months before it collapsed, a position contradicted by two senior Enron executives who testified they repeatedly warned him about conflicts of interest that enriched some insiders. "I did not believe the company was in any financial peril," said Jeffrey K. Skilling, who testified under oath after Andrew S. Fastow, the company's onetime chief financial officer, and three other senior executives cited their Fifth Amendment protection against self-incrimination in refusing to answer questions. Skilling, who resigned unexpectedly last Aug. 14, said he was unaware that Fastow and other Enron officials collected more than $40 million from off-the-books partnerships whose failure last fall led to the company's collapse. Jeffrey McMahon, a former Enron treasurer, and Jordan Mintz, a senior attorney, testified that they had tried to tell Skilling their concerns that the partnerships benefited Fastow and others, not Enron. Skilling firmly denied knowing about any wrongdoing or efforts to conceal Enron's losses from investors. "I was not aware of any financing arrangements designed to conceal liabilities or inflate profitability," he said in his opening statement to the House panel. "The financial statements issued by Enron, as far as I knew, accurately reflected the financial condition of the company." But Skilling frequently responded, under questioning, that he could not recall being present at crucial meetings or events that lawmakers said foreshadowed Enron's demise. Rep. James C. Greenwood (R-Pa.), chairman of the House Energy and Commerce subcommittee on oversight and investigations, was unconvinced by Skilling's portrayal. "A massive earthquake struck Enron right after your departure," Greenwood said. "People in far inferior positions to you could see the cracks in the walls, feel the tremors, feel the windows rattling. And you want us to believe that you sat there in your office and had no clue that this place was about to collapse?" The most dramatic moment during Skilling's three-hour appearance with two Enron directors came when he described a long visit at his home by his "best friend," J. Clifford Baxter, Enron's former vice chairman, a week before Baxter committed suicidelast month. He said Baxter was heartbroken and upset that his reputation had been ruined by the bad publicity over the company's collapse. Asked whether Baxter had expressed concern to him about the partnerships, Skilling said Baxter had raised the issue early last year. "He and Andy had a very strained personal relationship," Skilling said of his friend and Fastow. "He said, 'I don't think you should be doing anything for Andy Fastow.' " He added that Baxter let it be known around the company that he thought the partnerships were troubling. Skilling said he asked Baxter what he objected to, and Baxter said, "I think it looks bad to have a related-party transaction." Skilling is the most prominent former Enron executive to answer questions from Congress, which is investigating the reasons behind the company's demise. Skilling repeatedly said he was in the dark about any improprieties, but also rankled lawmakers with his inability to recall his specific role in the off-the-books partnerships that are at the heart of the financial scandal. For instance, he testified that he did not remember attending a meeting two years ago in which Enron's board of directors discussed the formation of one of the partnerships. But when Greenwood brandished a copy of the meeting's minutes, which confirmed Skilling's presence, the former CEO hedged his answer, saying, "I could have been there for a portion of the meeting. Was I there for the entire meeting? I don't know." Similarly, he suggested he may have not been present during another key meeting, when Fastow described how Skilling was required to personally approve one of the now-suspect partnerships. Although Enron minutes indicate that he was present, Skilling said there was a power failure that day and that it "was dark, and people were walking in and out of the room all the time." Subcommittee members expressed doubts about Skilling's testimony, with several saying they did not believe his assertions that he was unaware of any looming problems at the company before he resigned. Some sought to portray him as an unfeeling robber baron whose ill-fated leadership of Enron drained the pockets of millions of ordinary investors and company employees. The Harvard Business School graduate tried to shrug off the attacks, but acknowledged that he and other Enron executives have taken a public battering from almost-daily disclosures of insider favoritism and corporate malfeasance. "We're all under a tremendous amount of pressure and a tremendous amount of tension," he said after stumbling in response to a question. He said he also had spent two days testifying in front of the Securities and Exchange Commission. In testimony before Skilling's appearance, Enron lawyer Mintz said he wrote memos to executives outlining his qualms about the partnerships, calling them "sweetheart deals." But he said another Enron executive; Richard Buy -- who took the Fifth Amendment yesterday -- advised him not to push Skilling on the matter and, Mintz said, told him "not to stick my neck out." "I was very frustrated and disappointed," Mintz said. "I was concerned that they were trying to sell investors inside information." Mintz also testified that he tried last May to get Skilling to sign documents approving transactions between Fastow's partnerships and Enron. But Skilling wouldn't meet with Mintz, so he dropped the effort. Skilling said he didn't recall ever seeing the memo. McMahon, who is now Enron's president, told lawmakers that he met personally with Skilling in the spring of 2000 to complain that some of the firm's partnerships were riddled with conflicts of interest. He said two Enron executives in particular; Fastow and Michael Kopper -- who also refused to testify yesterday -- had financial stakes in the deals that compromised their allegiance to the company. According to notes that he prepared for his meeting with Skilling, McMahon wrote that the partnerships were "untenable" and that "I was pressured to do a deal that is not in the best interests of shareholders." Yesterday, McMahon said Skilling listened intently and gave the impression that he would fix the problem. "I felt he understood my concerns and would remedy the situation," McMahon said. Instead, three days after the meeting, McMahon was notified that he was being transferred to a new job at Enron. Skilling never did anything to rearrange the partnerships. Skilling, however, told a very different story about his meeting with McMahon. In his testimony, he said McMahon had come to him to complain about his pay package, not about conflicts of interest. Defense lawyers said Skilling was walking a fine line by cooperating with investigators. The experts said they strongly advise clients against testifying before Congress if they face the twin threat of criminal probes and shareholder lawsuits. Even innocent witnesses can easily get caught in misstatements and wind up facing perjury charges, lawyers said. "Two inconsistent statements under oath qualify as perjury, and the government doesn't have to prove which is true," said Gerald Goldstein, a San Antonio defense lawyer. "You're really opening yourself up." Neal Sonnett, a past president of the National Association of Criminal Defense Lawyers, said some clients want to testify anyway. "It could be the desire to avoid the stigma [of evoking the Fifth Amendment], or perhaps to get his side of the story out." Sonnett, who watched portions of yesterday's hearing, said Skilling generally acquitted himself well, keeping a relatively even temper in the face of harsh questions and repeated interruptions. FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. 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