Under intense questioning from an unfriendly House subcommittee Thursday, Enron Corp.’s former CEO Jeffrey Skilling denied knowing that the controversial off-the-book partnerships that led to the company’s collapse were intended to hide debt and boost earnings.

While at Houston-based Enron, “I was not aware of any financial arrangements designed to conceal liabilities or inflate profitability,” he proclaimed, referring to the company’s routine use of what are called special purpose entities (SPEs). The SPE partnerships, he said, are “commonplace in corporate America.”

Further, in response to repeated questions from House subcommittee members, Skilling said that when he left the company on Aug. 14, 2001, “I absolutely and unequivocally thought the company was in good shape.”

But many insist that Enron grossly misused and distorted the SPEs — some of which were named LJM, Jedi and Chewco — to hide its debt, boost earnings and line the pockets of its executives over the years, and that this led to the company’s collapse and descent into bankruptcy in December.

When pressed by subcommittee Chairman James Greenwood (R-PA) as to how he couldn’t have known about the details of the partnerships, Skilling replied that Enron “was an enormous corporation,” and that he relied upon the advice of employees that were experts in their fields. He noted that he was CEO when LJM1 and LJM2 were created, but not when Jedi and Chewco were formed.

With respect to the LJM partnerships, “I believed at that time there were adequate controls in place to manage [the] conflict of interest” inherent in ex-CFO Andrew Fastow’s dual roles as manager and investor in the transactions, and that “the controls were being complied with,” he told the House Energy and Commerce Committee’s oversight and investigations subcommittee hearing.

This was directly at odds with what Enron senior attorney Jordan Mintz and President and COO Jeffrey McMahon said of Fastow. They characterized him as a loose cannon within Enron, who had the carte blanche blessing of Skilling. Those who dared to criticize Fastow were either ignored, transferred to other departments or fired.

When he resigned as Enron’s CEO, Skilling said he believed the energy trading company was in good shape financially. “I fervently believed that Enron would continue to be successful in the future,” he said, adding that he wasn’t aware of any “imminent financial peril.” Enron’s financial statements “as far as I knew accurately reflected the financial condition of the company.”

Rep. Edward J. Markey (D-MA), noting that on the same day Skilling resigned, Enron employee-turned-whistleblower Sherron Watkins wrote a letter to former Chairman Ken Lay outlining the financial problems, “saying she thought Skilling would rather abandon ship now than resign in shame two years later. This woman, down deep in the company, knows all these problems, everything that’s going on; and you’re sitting here and saying that as the CEO, you just decided to resign on that day and didn’t know about those problems. It’s hard to believe, Mr. Skilling, given your reputation for competence and hands-on knowledge, and the fact there is plenty of evidence that other people throughout the company knew that there was a big problem, not just one big problem, but multiple problems,” Markey said.

Greenwood pointed out that both Skilling and McMahon had sworn to tell the truth at the start of their testimony before the committee. “I can believe him, or I can believe you, but there’s no way in hell I can believe both” in their accounts of a March 16, 2001 meeting between the two men. McMahon recalled he complained about Fastow during the meeting with Skilling, saying he wore two hats and that McMahon was forced to negotiate with Fastow on Enron matters — that Fastow was acting as if he were McMahon’s boss. Skilling said he only recalled talking about McMahon’s compensation.

Skilling said he continues to believe 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.” At the time of the Enron’s collapse, “the company was solvent, the company was highly profitable enough, but apparently not liquid enough.”

He further disputed claims that he dumped his stock when he left Enron. Skilling said he had 1.1 million shares when he became CEO in January 2001, and that he left the company with 940,000 shares. He continues to insist he resigned from Enron for personal reasons, not because he saw the writing on the wall.

“I was immensely proud of what we accomplished” at Enron, he said. “We believed that we were changing an industry, creating jobs, helping to resuscitate an ailing energy industry.” But after thousands of employees have lost their jobs, investors have lost their money, and “my best friend” former Enron Vice Chairman J. Clifford Baxter has taken his life, “it all looks very different.

“As I sit here today, I am devastated by and apologetic about what Enron has come to represent,” he told House lawmakers during the day-long hearing.

“I know that no words can make things right, too many people have been hurt,” Skilling said, adding that he came before the House panel Thursday because he felt employees and shareholders had a right to know what happened. “I have done all I can to help this investigation.”

Questioned whether he knew why Baxter had taken his life, Skilling said, “I don’t think there was anyone who knew Cliff toward the end, who didn’t realize he was heartbroken by what had happened to his reputation, to my reputation, to the reputation of the board of directors and that of Ken Lay. Our reputations were ruined by what happened to the company and the treatment of what happened by the press. He believed we were creating a great company, doing good things. Seeing a lifetime of work denigrated, as it was in the press, was very painful to Cliff.”

Skilling said he talked to Baxter for three hours about a week and a half before he died. He summed up Baxter’s mood as “very angry. He told me, ‘It’s like this: it’s a beautiful day in Houston, Texas. You’re in your front yard with a hose…watering your lawn. The neighbors are out talking to one another, and all of a sudden the guy next door bursts out of his front door, walks up to you and says, so everyone can hear — I hear you’re a child molester. Then he walks back inside his house and closes the door. They’re calling us child molesters and that will never wash off,'” Skilling recalled Baxter saying.

Skilling is the most senior Enron executive to testify before Congress so far. All other top officials — including Lay; Fastow; former Enron officer Michael Kopper; Richard A. Causey, chief accounting and information officer; and Richard Buy, chief risk officer — have invoked their rights under the Fifth Amendment to avoid self-incrimination. With the exception of Lay, all were trotted before the subcommittee Thursday, but they were immediately dismissed once it became clear that they intended to plead the Fifth to every question.

Both Mintz and McMahon, who were treated as friendly witnesses by the subcommittee, gave accounts that directly conflicted with Skilling’s version. When asked if it was at all possible that Skilling was kept in the dark about the details of the partnerships, Mintz said, “I don’t think that’s the case,” and added that Skilling certainly had to be aware of the “majority of them.” He declined to speculate, however, about “what Mr. Lay knew.” Lay has claimed he was “betrayed” by his officers.

But McMahon noted that Skilling did not act independently of Lay. “Frequently they worked together.”

Mintz hired a New York law firm to review the Enron partnerships in the spring of 2001, citing his concerns about the LJM transaction and Fastow’s role in it. “I wanted to get my arms around what was going on,” he told the subcommittee, adding that he hired an outside law firm because he wanted “somebody who had no linkage to the company.” Copies of the law firm’s report have been turned over to Enron, the Securities and Exchange Commission, the Federal Bureau of Investigation and House investigators, Mintz said.

He tried to bring his concerns about some of the partnerships to the attention of Skilling, Mintz said, but was told “Jeff was very fond of Andy, so don’t go there.” Nevertheless he sent a memo to Skilling, he said, but never got an answer. “I just dropped it” after that.

McMahon was more successful — he said he had a face-to-face with Skilling in March 2001 about Fastow’s conflict of interest in the LJM partnership. McMahon, who at the time was company treasurer, said he told Skilling that the LJM situation was “untenable for myself and my group.” Skilling’s “parting words to me was that he understood [my] concerns.”

McMahon said he “naively” believed at the time that things would get better in the company. Instead, McMahon — at the strong urging of Skilling — was quickly reassigned, he said.

Mintz also said he voiced his concerns about the partnerships to Causey and Buy. The two men still are employed by Enron, but they may not be for long. The company’s board of directors is expected to meet next week to decide their future with Enron.

©Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.