Enron Officials Back In The Hot Seat

Former Enron chief executive Jeffrey Skilling, whose testimony has been challenged by lawmakers, faces questioning before a skeptical Congress again Tuesday — this time along with other Enron officials whose versions of events conflict with his.

Sherron Watkins, the vice president who warned former chairman Kenneth Lay in August of potentially serious accounting problems, is testifying at the same time as Skilling — who has stated he knew few details of questionable transactions involving partnerships used to hide more than $1 billion in debt.

Lawmakers want to bring together Skilling, Watkins and Jeffrey McMahon, Enron's current president and chief operating officer to put the same questions to each of them and compare their answers at a hearing of the Senate Commerce Committee.

The three are sharing the same witness table but it was clear Monday that Skilling and Watkins view events through different prisms.

Bruce Hiler, Skilling's lawyer, said, "We specifically requested Mr. Skilling be on the same panel with Sherron Watkins. He is looking forward to what will be Mr. Skilling's first specific conversation with Ms. Watkins about these matters."

Retorted Watkins' attorney, Philip Hilder: "Mr. Skilling ought to know that this is a congressional hearing, not a conversation with Sherron Watkins, and he needs to answer the questions and have the conversation with the congressional committee."

All three testified, separately and under oath, this month before a House investigative panel. Other top Enron executives, including Lay, have invoked their Fifth Amendment right against potential self-incrimination and refused to testify.

Lay told Enron employees at a meeting Oct. 23 that the partnerships were a mistake but he did not blame chief financial officer Andrew Fastow, who ran them, a videotape made public Monday by Rep. Henry Waxman, D-Calif., shows. The company had recently disclosed a third-quarter loss of more than $600 million and federal regulators had opened an inquiry into its accounting.

"I and the board are also sure that Andy has operated in the most ethical and appropriate manner possible," Lay is seen saying on the tape. The next day, Fastow was fired.

Asked by employees about the $30 million or so Fastow made running the partnerships, Lay asked rhetorically whether Fastow and his partners would get to keep the money or find another place for it. "What he does with that money is his own business," Lay said.

"We are determined to understand what happened at the Enron Corp.," said Sen. Byron Dorgan, D-N.D., whose Commerce subcommittee on consumer affairs is investigating the energy-trading company's collapse and bankruptcy, the biggest in U.S. history. "We're trying to search for the truth here," Dorgan said in a telephone interview. "I think it will be helpful ... to compare responses" of the three witnesses.

Watkins told the House panel on Feb. 14 that she believed Skilling and Fastow — alog with Enron's auditing firm, Arthur Andersen LLP, and its outside legal advisers — "did dupe Ken Lay and the board."

She called Skilling "a very intense, hands-on manager" and said she "would find it hard to believe that he was not fully aware" that the partnerships run by Fastow were largely financed by Enron stock, contrary to normal accounting practices.

A week earlier, before the same subcommittee, Skilling testified that he was assured by others at Enron that the transactions "were correct."

According to McMahon's Feb. 7 testimony, he was transferred out of his job as treasurer shortly after he complained to Skilling about the partnerships in a meeting on March 16, 2000.

Skilling has said he couldn't recall details of key conversations that subordinates, including McMahon, testified they had with him concerning Enron's finances.

In related news Monday, Congressional investigators have obtained a videotape in which vigorously defends the company's accounting methods and embraces partnership deals now linked to the energy giant's collapse.

In a letter to Skilling Monday about the tape of an Oct. 3, 2000, employee meeting, Waxman said it raised questions about the executive's recent testimony to lawmakers in which he said he knew of nothing wrong with Enron's finances when he resigned on Aug. 14, 2001, citing personal reasons.

A spokeswoman for Skilling said the Securities and Exchange Commission had approved of the accounting method discussed on the tape. "Merely repeating unfounded allegations about the supposed application of these principles is unfair and unhelpful," said Judy Leon.

In a partial transcript of the tape obtained by Waxman, Skilling responds to an Enron employee's concern about a Wall Street Journal article.

The Sept. 20, 2000, story discussed Enron's use of the mark-to-market accounting method, that allows the booking of long-term contracts as current income. The article also said Enron would have had a second quarter loss if not for $747 million in unrealized gains from risk management activities.

"It is just totally, totally without merit," Skilling says of the article, adding that Enron's accounting is conservative and the company provides more data in its annual report than anyone, in any transaction-based industry.

"So we're in a strong position from an accounting basis," Skilling concludes.

Waxman said Skilling either somehow missed the relevant information raised by the newspaper report or "intentionally misled Enron's thousands of employees with false statements."

During the same employee meeting, Skilling tells employees the company will be bringing in partners to help Enron leverage its capital in its new Enron Net Works division, according to the transcript.

"We're going to move quickly and we're going to do it in a way that minimizes the impact on Enron's balance sheet," Skilling says.

In Feb. 7 testimony to the House Energy and Commerce Committee, Skilling said e was not aware of any inappropriate financing arrangements designed to conceal liabilities, or overstate earnings.

Waxman's letter reminded Skilling that many of the problems leading to Enron's collapse involved partnerships designed to move debt off its balance sheet.

"I don't want to reach any conclusions about your statements without additional information from you," Waxman said.

Enron's rapid collapse, which led to the biggest U.S. bankruptcy filing ever on Dec. 2, is the subject of probes by 10 congressional committees, the U.S. Justice Department and the SEC.