ENRON ON THE HILL
February 7, 2002

Enron executives testify before Congress for the first time since the energy giant's collapse.

 

Online Specials: Enron: After the Collapse Energy Deregulation Feb. 6, 2002: Sec. of the Treasury Paul O'Neill talks about the economy and the Enron collapse. Feb. 3, 2002: Assessing the Powers report and its impact on the Enron investigation. Feb. 1, 2002: Experts discuss pension reforms and ways to safeguard 401(k) plans.. Jan. 23, 2002: Members from the House Energy and Commerce Committee discuss the Enron investigation. Jan. 22, 2002: Paul Solman demystifies Enron's accounting alchemy. Jan. 18, 2002: Questions and answers about employee retirement accounts following the financial collapse of Enron. Jan. 17, 2002: Three experts assess the potential impact of the SEC changes. Jan. 10, 2002: Experts discuss the Justice Department's investigation of Enron. Dec. 12, 2001: A look at how former Enron employees are coping with Enron's collapse. Nov. 29, 2001: Energy market experts talk about the sudden downfall of Enron Corp.   Enron Corporation The White House The U.S. Labor Department The Securities and Exchange Commission The Treasury Department The Federal Energy Regulatory Commission The U.S. House of Representatives The U.S. Senate	KWAME HOLMAN: It was one of the most highly anticipated hearings yet in Congress' two-month examination of the collapse of Enron. The House Energy Committee's investigative branch would be the first to hear from men who held major positions of responsibility at the energy trading giant as it tumbled into bankruptcy. But first, each member was allowed an opening statement, and most used the time to condemn the men sitting at the witness table for what's already on the record: A long pattern of unscrupulous deal-making inside Enron that ultimately crippled the company and wiped out the pensions of thousands of employees. REP. PETER DEUTSCH: I will tell you on a personal basis as I look at this, is that I hope you, in the dark night of your own souls, think about some of the people who, in fact, throughout the country, but particularly in the area of Texas, who literally lost their entire life savings, and whose lives effectively in many ways destroyed because of your actions. REP. JOHN DINGELL: Enron's executive suite seemed to be the personal sandbox of a group of golden boys who had been clever enough to structure financial vehicles that would take debt and losing assets off the books and turn them miraculously into income. REP. JIM GREENWOOD: Sadly, it is increasingly clear that this collapse was not brought about by the isolated acts of rogue employees. A disaster of this magnitude requires the complicity of far more than a few bad apples. From senior managers to corporate directors to outside counsel and accountants, almost no one who had the power to sound the alarm, correct the situation or prevent this debacle did so. REP. BOBBY RUSH: I ask you: Was it worth it? Was the selling of your morals worth it? Was the selling of your souls worth it?
	Invoking the Fifth Ammendment
	KWAME HOLMAN: It was clear such words largely were aimed at 40- year-old Andrew Fastow. Until last fall, he was Enron's chief financial officer, and according to a new Enron board report, the architect of hundreds of illicit partnerships that hid massive losses from Enron's balance sheets even as he and others profited from them. But most in the packed committee room expected that Fastow and other key Enron figures would invoke their Fifth Amendment rights and refuse to testify. Earlier this week, former Enron CEO Kenneth Lay backed out of a hearing. The chairman of the investigative committee, Pennsylvania Republican Jim Greenwood, nevertheless made the attempt. ANDREW FASTOW: Mr. Chairman, I would like to answer the committee's questions but on the advice of my counsel, I respectfully decline to answer the question, based on the protection afforded me under the constitution of the United States. KWAME HOLMAN: Next came 37-year- old Michael Kopper, who managed suspect partnerships devised by Fastow. He left Enron last year, after reportedly turning an investment of $125,000 into more than $10 million in personal profit. MICHAEL KOPPER: Mr. Chairman, I respectfully decline to answer the question based on my right under the Fifth Amendment to the United States Constitution not to be a witness against myself. KWAME HOLMAN: In succession, other senior Enron officials Richard Causey and Richard Buy did the same. Finally committee members were left with Jordan Mintz, an in-house lawyer at Enron. He detailed conversations in which he raised red flags about the growing number of improperly leveraged partnerships. JORDAN MINTZ: I was concerned that the process and the procedures that had been put in place by the board weren't being adhered to at the level that I thought would substantiate arm's-length dealing and fairness. KWAME HOLMAN: Enron official Jeffrey McMahon said he also questioned the structure of the partnerships. He said he told then-CEO Jeffrey Skilling about a partnership known as LJM, which put Andrew Fastow in the dual role of representing both the LJM Partnership and Enron itself. JEFFREY McMAHON: I said there were several conflicts that I thought he needed to be aware of that were going on because of this. Enron employees were negotiating against LJM representatives, and yet they all reported to Mr. Fastow. I saw that as a major conflict. His parting words to me were that he understood all my concerns and he would remedy the situation.
	Jeffrey Skilling testifies
	KWAME HOLMAN: McMahon said shortly after that meeting, Skilling offered a him a job elsewhere in the company. In midafternoon, Jeffrey Skilling himself testified. He repeatedly told the panel he was unaware of financial improprieties. And he blamed the company's meltdown on a lack of confidence by investors. JEFFREY SKILLING: Contrary to the refrain in the press, while I was at Enron, I was not aware of any financing arrangements designed to conceal liabilities or inflate profitability. The off-balance sheet entities or SPE's that have gotten so much attention are common place in corporate America and if properly established, they can effectively shift risk from a company's shareholders to others who have a different risk-reward preference. As a result, the financial statements issued by Enron, as far as I knew, accurately reflected the financial condition of the company. Second, it is my belief that Enron's failure was due to a classic run on the bank, a liquidity crisis spurred by a lack of confidence in the company. I left Enron on August 14, 2001, for personal reasons. At the time I left the company, I fervently believed that Enron would continue to be successful in the future. I did not believe the company was in any imminent financial peril. Second, similarly, I did not dump any stock in Enron because I knew or even suspected that the company was in financial trouble. REP. JIM GREENWOOD: Mr. Skilling, a massive earthquake struck Enron right after your departure, and people in far inferior positions to you could see 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 didn't, and had no clue that this place was about to collapse. JEFFREY SKILLING: On the day I left, on August 14, 2001, I believed the company was in strong financial condition. REP. BART STUPAK: The earlier panel, one of the witnesses there, described you as being intense, hands-on, not a control freak, but an intense hands on, that you really knew every part of this operation from 1997, you were chief operating officer, until you became the CEO. So you were either one or two in the company are for the last four years. And from what I've heard from your testimony today, you don't know what went on, everything was fine when you left. JEFFREY SKILLING: Congressman, Enron Corporation was an enormous corporation. Could I have known everything going on everywhere in the company? I had to rely on the best people. We hired the best people. We had excellent, excellent outside accountants and law firms. KWAME HOLMAN: Florida Republican Cliff Stearns asked Skilling about his meeting with Jeffrey McMahon, the Enron executive who was concerned about the conflicts created by the LJM partnerships. REP. CLIFF STEARNS: Did he talk to you about LJM and the financing structure or any of the partnerships? JEFFREY SKILLING: My recollection of the meeting is Jeff came in and had some concerns about his compensation related to LJM. REP. CLIFF STEARNS: He never talked about any conflict of interest in any of these partnerships? He never mentioned anything like that to you? JEFFREY SKILLING: What his concern was, as far as compensation was concerned, is Jeff felt that he was being put in an awkward position in having to negotiate with Andy and that that might -- this is my recollection-- that it might impact his compensation package. REP. CLIFF STEARNS: He never mentioned to you that, "I'm concerned, what's the best interest of the shareholders here?" JEFFREY SKILLING: I don't recall that. I recall this being an issue of compensation. KWAME HOLMAN: By late afternoon, Chairman Greenwood said he was left with a dilemma. REP. JIM GREENWOOD: Mr. Skilling, here's the problem I have at the end of this day: You came in here and you and I stood up and we raised our right hands and you swore to tell the truth. And before you did that, Mr. McMahon came in here and he and I raised our right hands and he swore to tell the truth. And when all is said and done, I can believe him or I can believe you. But there's no way in hell I can believe both of you. He came to you and said, "Boss, this place stinks, it's wrong, it's not right for the shareholders, it's an untenable position that conflicts the integrity of anybody who sits in this seat." JEFFREY SKILLING: I don't recall. GREENWOOD: You said to him, "I'll get you another job." JEFFREY SKILLING: I don't recall that he said anything about this being bad for the shareholders. He was concerned that it could become bad for shareholders if he did not have my support for him sticking up for Enron in those discussions, and I gave him my unequivocal support. KWAME HOLMAN: Next week, members of this committee and one in the Senate hope to hear from Enron's former chairman and chief executive, Kenneth Lay.