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KWAME HOLMAN: Today’s hearing featured accuser and accused and their lawyers at the same witness table of the Senate Commerce Committee.
Sherron Watkins is the Enron official who has testified she tried to get superiors to stop improper partnership deals that ultimately tumbled the giant energy firm into bankruptcy.
And Jeffrey Skilling, Enron’s former chief executive who got such warnings, but is accused by Watkins of failing to act.
Repeating testimony she gave a House Committee two weeks ago, Watkins said by last summer the suspect partnerships amounted to a $700 million unreported loss for Enron, and she brought that to the man above Skilling, CEO Kenneth Lay.
SHERRON WATKINS, vice president, Enron: I urged Mr. Lay to find out who lost that money.
If he discovered that the loss would be borne by Enron shareholders via an issuance of stock in the future, then I thought we had a very large problem on our hands. I gave Mr. Lay my opinion that it is never appropriate for a company to use its stock to affect the income statement.
At the conclusion of the meeting, Mr. Lay assured me that he would look into my concerns. I fully expected Mr. Lay to conduct a thorough investigation into my concerns. I was disappointed that such was not the case.
I was incredibly frustrated with Mr. Lay’s actions, or lack thereof. I believe that Enron had a brief window to salvage itself this past fall, and we missed that opportunity because of Mr. Lay’s failure to recognize or accept that the company had manipulated its financial statements.
KWAME HOLMAN: Jeffrey Skilling also was cautioned about the partnerships before he resigned as Enron’s chief executive last summer.
But during House testimony earlier this month, he said he believed the internal transactions were legitimate because Enron’s board and accountants approved them and that Enron was financially sound when he left.
But several House members said they didn’t believe him.
Today, in an opening statement, Skilling anticipated a similar reception from Senators.
JEFFREY SKILLING, Former CEO, Enron: If the focus of this hearing is a game of dueling accountants, I will state right now that I am not an accountant, and probably have little to add to that debate between experts.
I know that you will be asking questions about who did what at Enron, but I hope in addition to those technical issues you will also ask about how a company as strong as Enron can be bankrupted by what I call a run on the bank.
I have some thoughts that I think a number of you have asked for that might be helpful and are important to the financial system.
But before we start, there are a few things I think this record should reflect.
I will not respond to all the outrageous things said about me in this process, because some have been so silly that they merit no response. First, I have not lied to the Congress or anyone else about my recollection of events while I was at Enron.
Second, I never duped Ken Lay. I heard Ms. Watkins testify to her opinion. I have no idea what the basis is for that opinion. And now, finally, a few observations about this congressional process to which I and others have been subjected. What has happened thus far, primarily in the House, should be cause for concern of every American.
The entire management and board of Enron has been labeled everything from “hucksters” to “criminals,” with a complete disregard for the facts and evidence assembled. These untruths shatter lives, and they do nothing to advance the public understanding of what happened at Enron. The framers of the Bill of Rights are watching.
My dilemma, like that of other innocents called before these committees, is whether to take refuge in constitutional protections to avoid your questions or stand on the constitutional presumption of innocence to proclaim the truth.
Common decency suggests that I be treated as innocent until proven otherwise. Common sense suggests that accusations made now before the facts are in are likely to be wrong.
Unfortunately, neither common decency nor common sense will carry the day in this politicized process. Mr. Chairman, unlike so many others so much less fortunate than me, I am not a victim here. But also, unlike others, I am not one of the perpetrators either. What I know I am prepared to tell.
What I do not know, I do not know either because it was kept from me, or it never happened at all, like so many of these supposed facts thrown around since my hearings before the House Subcommittee.
SEN. BYRON DORGAN, (D-ND): Mr. Skilling, thank you very much. First, let me say that decency and common sense will prevail here. This also is a search for the truth, as I’ve indicated previously. And the truth has proved to be rather elusive with respect to what happened inside the corporation.
KWAME HOLMAN: North Dakota Democrat Byron Dorgan served as committee chairman today. An early questioner was John McCain of Arizona.
The Commerce Committee’s top Republican asked about the partnership deals that precipitated Enron’s fall. The structures, dubbed “Raptors,” were designed to insulate the company from losses.
SEN. JOHN McCAIN, (R-Ariz.): Mrs. Watkins, you’ve described Mr. Skilling as an intense, hands-on manager, and testified before the House Energy and Commerce Committee that he was aware of the raptor transactions.
Is it possible, in your view, that Mr. Skilling wasn’t aware of the accounting improprieties of the partnerships that led to the collapse of Enron?
SHERRON WATKINS: In my opinion, Mr. Skilling was aware of the problems. It was… the “Raptors” had to be restructured in the first quarter of 2001, his first quarter as CEO.
The Powers Report highlights that several people recollect that Mr. Skilling was putting this as one of his highest priorities and had various individual meetings with people to see about that restructuring.
I’m certain that Mr. Skilling is right when he says he’s not an expert on accounting matters, however, he did always look to the market as a checkpoint, rationale, to determine what we were doing.
SEN. JOHN McCAIN: Mr. Skilling, I’d be glad to give you an opportunity to respond to that statement of Ms. Watkins.
JEFFREY SKILLING: As I’ve said, I was familiar with the “Raptor” transaction as it was approved by the board of directors, and understood in the terms that that was presented to the board of directors how that transaction operated.
I believed, based on the representations of our accountants, that this was an entirely appropriate structure. And I think there’s a representation in the minutes very clearly to that effect.
When Ms. Watkins talks about a restructuring, or the fact that, you know, what I knew or didn’t know, my only recollection of the restructuring of the “Raptors” is that I was told that they were restructuring the “Raptors.” I asked if the accountants had signed off on it, if it looked okay, and I was told that it was, and went along with it.
SEN. JOHN McCAIN: Was it your responsibility to know?
JEFFREY SKILLING: Sorry?
SEN. JOHN McCAIN: Was it your responsibility to know?
JEFFREY SKILLING: As I said, Senator, I am not an accountant. These are highly, highly… I think if you will look in the October minutes at the structure of “Raptor,” this is… this is a complex, complex structure.
And it took, I think, quite some time for Arthur Andersen… as I recall, this was even taken to Arthur Andersen’s technical group in Chicago because it was so technical, and they signed off and said that they thought this was the appropriate accounting treatment.
KWAME HOLMAN: The Arthur Andersen accounting firm was Enron’s longtime auditor.
KWAME HOLMAN: Georgia Democrat Max Cleland had a simple question Sherron Watkins.
SEN. MAX W. CLELAND, (D-GA): Ms. Watkins, you’ve seen this from the inside. You had guts enough to write a memo.
You described the Enron leadership culture there has arrogant and intimidating, that you had enough courage to fight through that. What is your understanding of what went wrong at Enron?
SHERRON WATKINS: I think Mr. Skilling is correct that what killed the company was a run on the bank.
I don’t know that it was from bankers. I think it was actually from our trade creditors — the people that we owed money under gas contracts and power contracts — that closed out the contracts and requested their cash. They were uncertain about our future. They had a legal right to close those contracts and so they did.
SEN. MAX W. CLELAND: One of the problems that I saw initially with the Enron leadership was as I said at the first hearing here — that in combat officers eat last but in this mortal combat of economic competition it seemed that the Enron officers ate first.
This whole culture of intimidation or arrogance, covert operations, off the books, this whole sense of not leadership but ‘bossism,’ do you think that got Enron in trouble?
SHERRON WATKINS: Yes, I do, because I think it led good people astray in the fact that they did not question structures that they were not comfortable with.
KWAME HOLMAN: Several Enron executives reportedly made millions on the sale of their Enron stock before the stock price crashed.
Chairman Dorgan asked Skilling about his stock sales reported to be worth $66 million.
SEN. BYRON DORGAN: Do you consider $66 million a great deal of money?
JEFFREY SKILLING: Yes, it is, sir.
SEN. BYRON DORGAN: Do you still have most of that?
JEFFREY SKILLING: Yes, I do.
SEN. BYRON DORGAN: And how do you feel about that and the employees, one of which wrote me recently– had $330,000 in his 401(k) account, his entire life savings, worked many years for your company; lives in the state of North Dakota.
That $330,000 is now worth $1,700. You still have most of your $66 million. That family has lost their life savings.
JEFFREY SKILLING: I feel terrible that people that held the stock held the stock at the beginning of this year.
SEN. BYRON DORGAN: Have you donated any of that money to the employees’ fund?
JEFFREY SKILLING: I can’t do anything at this point.
I think at this point I have 36 separate plaintiffs’ lawsuits against me. It’s my expectation I will probably spend the next five to ten years of my life battling those lawsuits. I don’t know if I’ll have anything at the end of that.
KWAME HOLMAN: In the end, Chairman Dorgan promised more hearings and described some of what he heard today as hard to believe.