Former Enron Corp. treasurer Ben Glisan Jr. said Tuesday Enron’s financial problems continued to mount after ex-CEO Jeffrey Skilling resigned in August 2001, and “a number of subsidiaries were struggling, and other parts of the business were taking enormous risk.” Testifying in the trial of Skilling and Enron founder Kenneth Lay, Glisan said both were aware of the true shape of the company, but both lied to analysts in the months preceding its bankruptcy.
Glisan pleaded guilty in September 2003 to one count of criminal conspiracy in connection with Enron-related crimes, but he refused to cooperate in the investigation (see Daily GPI, Sept. 11, 2003). His guilty plea is related to Enron’s special purpose entity Raptor, which is part of ex-CFO Andrew Fastow’s LJM partnerships. Glisan was released from prison to testify and is being allowed to stay in his Houston-area home during his court appearance.
Prior to questioning, Glisan said he would invoke his Fifth Amendment right to not incriminate himself further. “It’s just a dance,” he was heard telling Prosecutor Kathy Ruemmler. A few minutes later, she asked Glisan if he had committed crimes at Enron. “I decline to answer that question based on my Fifth Amendment rights,” he replied. Ruemmler then gave Glisan an agreement from U.S. District Judge Sim Lake, which granted him full immunity to testify.
Ruemmler then played two short audio clips, 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.”
Earlier in the day, energy analyst Ron Barone, who oversaw a team for Standard and Poor’s (S&P) that once rated Enron, said he was “very surprised” in early October 2001 by the company’s 3Q2001 accounting adjustment of $1.2 billion. The amount was significant, he said, because of the “sheer dollar amount and that it hadn’t been disclosed to us previously.”
Barone, who has worked with S&P on company credit ratings for more than 12 years, presented a timeline of how Enron’s ratings by S&P began to fall in 2001 and recounted a meeting on Oct. 4, 2001 by him, two other analysts and Enron’s assistant treasurer in New York City. At that meeting, Barone and the other analysts were warned about the huge writedown, which would be publicly announced later that month (see Daily GPI, Oct. 17, 2001).
“We were very surprised to hear about this $1.2 billion accounting adjustment,” Barone told jurors.
Barone testified that a few days later, on Oct. 12, 2001, Lay requested a private phone call with him to discuss Enron’s S&P credit rating — then at “BBB+”.
“Mr. Lay informed me that he was aware of our concerns over their deteriorating financial position…and that he would take the necessary steps to shore up the balance sheet and ‘right the ship’…that was his term, not mine,” Barone said. “He said that they would sell assets, that would include the pipeline assets. Whatever they deemed necessary.”
The offer to sell Enron’s prized natural gas pipelines was “a big step” for the company to consider, Barone remembered. Lay also assured the analyst there would be “no additional writedowns coming and that accountants had scrubbed the books.”
In cross-examination, Lay lawyer Bruce Collins questioned Barone about the “run on the bank” theory, which the defense maintains was partly the reason Enron collapsed. Although it had a high S&P rating at the beginning of October 2001, Collins noted Enron’s rating quickly fell in the next few weeks, and by Nov. 30, 2001, it had been downgraded to “CC”, or junk, and placed on “CreditWatch Negative” because of a heavy debt load.
Collins questioned Barone about S&P’s access to Enron’s financial information and noted the agency affirmed Enron’s ratings even after its dismal 3Q2001 earnings report. S&P did not cut Enron’s rating to “BBB” until Nov. 1, 2001. After that date, Collins described Enron’s “credit cliff,” off of which it fell once the downgrades began. Click on this link to review S&P’s ratings chronology for Enron in its final weeks of operation.
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