In some of the most explosive testimony in the nine-week-old fraud and conspiracy trial of Enron Corp. founder Kenneth Lay and ex-CEO Jeffrey Skilling, former treasurer Ben Glisan Jr. last week told jurors Lay and Skilling lied on several occasions to investors and analysts about the true financial condition of the company. In one instance, Glisan recounted how Lay asked him to determine Enron's total 3Q2001 losses by first determining what amount would lower the company's credit rating.
Glisan, who will continue to be cross-examined on Monday when court reconvenes, affirmed earlier testimony by other prosecution witnesses, including ex-CFO Andrew Fastow. A lot of the direct testimony by Glisan is taken from his handwritten notes, which he made during meetings with Enron executives in 2000 and 2001. While Fastow also made notes of meetings and telephone conversations, Glisan made daily entries in notebooks, which were shown to jurors on overhead projection screens.
Glisan is the only former Enron executive to go directly to jail after pleading guilty in 2003 to one count of criminal conspiracy (see NGI, Sept. 15, 2003). Clearly and calmly, Glisan recounted how Enron's financial fortunes began to crumble after Skilling resigned in mid-August 2001. He recalled a meeting with Lay to discuss the third quarter of 2001. According to Glisan, Lay asked him to determine Enron's quarterly losses for the period by finding how high the losses could be before a credit rating downgrade was triggered. Maintaining a high credit rating was important to Enron because it was borrowing millions to run its energy trading operations.
Lay's request was "backwards," Glisan, 40, testified. "What should occur is we should take the charges that we needed to take and then deal with the consequences."
However, following the meeting, Glisan went back to his office and discussed the problem with a co-worker. He then called some credit analysts in New York and "carefully" asked about how much of a writedown Enron could take in the quarter and still maintain its "BBB+" credit rating. Glisan said he was "delicately probing" analysts about the trigger numbers because he wanted to avoid letting any of them know more losses existed than Enron planned to report.
Obtaining the trigger figures from the analysts was difficult. "You can't ask, 'How much can we charge without losing our credit rating?'" Glisan said of the discussions.
After his conversations, Glisan determined Enron could report up to $1 billion in losses -- an amount he did not think would "shock" the company's financial integrity. The losses were grouped to Enron's poorly performing Enron Broadband Services unit, the Azurix water unit and the Raptor special purpose entity (SPE) run by Fastow and Glisan. However, Enron had more losses in the quarter, and Glisan told jurors Lay wanted him to find a way to report even higher losses but still maintain the credit rating.
"They asked me to go get more," Glisan recalled, "to allow the room to take a loss that was larger than a billion dollars." But, "there was no way to do that...anything more than a billion dollars...we would lose our credit rating."
Glisan also affirmed earlier testimony by two former accountants for Arthur Andersen LLP, Enron's outside auditors. In public statements, Lay said in 2001 Enron was planning to invest up to $1 billion to grow its Azurix water unit, but the former accountants testified last week there was no proof of the planned investment. Glisan testified Lay had no intention of increasing funds to the money-losing business because in late 2001, Enron had no money to invest in it.
"In October 2001 the balance sheet was full," Glisan said.
Glisan recalled a meeting after Skilling resigned of top Enron executives in The Woodlands, a suburb outside of Houston. The discussion, referred to in earlier testimony by several witnesses including Fastow, concerned Enron's dour financial picture. John Lavorato, one of Enron North America's top executives, "made the comment that he was glad he didn't have a gun or he would shoot himself," Glisan told jurors.
At the meeting, Glisan said Lay encouraged Enron's financial team to continue to use complex financial structures to hide Enron's debt because "they were imperative for us to hit our numbers." Glisan also said when Lay reviewed Enron's growing financial problems in August 2001, his former boss said, "We're staring at a bankruptcy."
Just weeks later, however, in September 2001, Lay said at an all-employee meeting Enron's stock price was "incredibly cheap," and he encouraged employees to "talk up the stock and talk positively about Enron to your family and friends." Lay said, "There have been all kinds of reckless and unfounded rumors about Enron and the financial condition of Enron."
The comments were lies, Glisan told jurors. "As outlined in a number of ways, the balance sheet wasn't strong."
Glisan also explained the complicated Raptor SPE, which allowed Enron to hedge against some of its poorly earning investments -- and circumvent required accounting rules. With the Raptor transaction, there was a put in place, in which Enron had to pay its Talon partnership $41 million to buy Enron stock at a future date. The put was in place so that it could pay Fastow's LJM SPE for its $30 million investment plus profit. Without LJM's involvement, which was supposedly an independent entity, the hedging couldn't take place in Raptor.
Glisan explained the deal to Skilling, and "Mr. Skilling clearly indicated that he understood it and that he liked it," Glisan told the jury. "Mr. Skilling noted that this was not a deal that he would recommend except that it allowed him to circumvent the accounting rules." Glisan said there was no business reason to conduct this type of transaction, and it did not involve any transfer of risk, which is required under U.S. accounting rules. "I did not believe this deal would withstand accounting scrutiny from the [Securities and Exchange Commission] SEC," Glisan said.
With Skilling's blessing, Glisan presented it to the Enron board's finance committee, which included Lay.
"Mr. Lay giggled" when Glisan explained the deal. "He giggled?" prosecutor Kathryn Ruemmler asked. "He giggled," Glisan said. "In what way?" "In delight," Glisan responded. Lay and the finance committee approved the transaction.
Prosecutor Kathryn Ruemmler played two short audio clips during Glisan's testimony, one of Skilling on a conference call on Aug. 14, 2001, shortly after he had resigned. Skilling told analysts on the call that Enron was "in great shape." Another audio clip is of Lay on a conference call in October 2001. Lay told analysts on that call that Enron was in "the best shape" it had ever been in.
"Mr. Skilling said the company was in great shape," said Ruemmler. "Was it?" "No, it was not." She said, "Mr. Lay said the company was in great shape. Was it?" Glisan answered, "No, it was not."
Under intense cross-examination Thursday, Skilling lawyer Daniel Petrocelli tried to tear down Glisan's testimony. Glisan admitted he had no notes or e-mails to support his testimony that Skilling committed fraud at the company. And Glisan admitted he had never heard Skilling utter the words that he was breaking the law by circumventing the accounting rules. However, Glisan told the jury, "the conversations were quite memorable."
In rapid-fire questioning that at times was returned with rapid-fire "yes" or "no" answers, Petrocelli at one point asked, "Did you lie all day" Wednesday when discussing the fraud at Enron? "Absolutely not," Glisan said. "Are you testifying to get special treatment at prison...to get out of prison early?" "It's not fun," Glisan answered. "I would never wish this on anyone. I would very much like to be with my family."
Admitting he hoped the testimony would "result in some betterment of my situation," Glisan said if he perjured himself, he would remain in prison longer. If he testifies truthfully, he is scheduled to be released from prison in September.
When Lay lawyer Bruce Collins took over questioning, he focused first not on the financial deals Glisan claims Lay approved. Rather, Collins asked about a statement Glisan made Wednesday about Lay giggling/
"I've gotten to know Mr. Lay pretty well," Collins said. "He does chuckle. He doesn't giggle." Glisan smiling, said, "I would concede 'chuckle' as opposed to 'giggle.'" Collins claimed Lay was chuckling about a joke made by another member of Enron's finance committee, not at the Raptor deal. But Glisan stood firm. "He was very proud of the structure," Glisan said of Lay.
In a sign the defense team could be concerned about Glisan's testimony, Lay lawyer Mike Ramsey held an impromptu news conference at the end of the day Tuesday outside the courtroom. Ramsey called Glisan a "performing monkey." Of Glisan's testimony, he said, "What you're seeing up here is a scripted ventriloquist act."
Following Glisan's testimony Wednesday, Lay appeared visibly annoyed. Outside of the courthouse in Houston, he said, "I've never heard so many lies in one day in my whole life. And you can quote me on that!" His wife Linda added, "Unbelievable."
There are six more witnesses scheduled to testify for the prosecution, but Glisan is expected to be the last major government witness in the case. To view the government's trial exhibits, click here. Lay has a separate website, and his trial exhibits and other information are available here.
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