Former Enron Corp. CEO Jeffrey Skilling, appearing somewhat humbled but still confident, declared Monday the 28 criminal charges against him “are wrong.” Speaking to a packed courtroom with his family in the front row, he told jurors, “I am innocent of those charges, and I will fight those charges until the day I die.”
Skilling’s long-awaited testimony in the fraud and conspiracy trial of himself and co-defendant and Enron founder Kenneth Lay got under way at mid-morning on Monday. The former wunderkind of the energy world at first appeared stiff and nervous when he took the stand, but as his lawyer, Daniel Petrocelli, questioned him, Skilling began to loosen up, directing his answers toward the 12 jurors.
“How are you?” Petrocelli asked.
“A little nervous,” Skilling answered.
“Why are you nervous?”
“I guess in some ways, my life is on the line, so I’m somewhat nervous.” But, he declared, “I am absolutely innocent.”
Asked why he didn’t make a deal with the government like many of the former Enron executives who have testified for the prosecution, Skilling replied, “I would say that the vast majority that testified here are in fact not guilty. It’s not in my nature not to fight something like this. The charges against me are wrong… I will fight those charges until the day I die.”
Skilling said he had been proud to work for Enron. “We were making the world better, in my opinion. That company was a fine company.” He said “amazing people” had worked at the company, and he thought they were “changing the world.”
Skilling, 52, said, “That company meant a lot to me personally… I had seen it grow, I had seen it change. I was immensely proud of that company.”
Petrocelli asked him if he had gotten “rich” working for Enron.
“Yes,” Skilling replied. “I made a lot of money while I was at Enron.”
“If you loved it, why did you leave?” Petrocelli asked, focusing on Skilling’s resignation in August 2001.
“The effort that goes into creating a company like that, the time that you spend…and I guess partly my personality — I was immersed in Enron, some people would say, I was obsessed with Enron…,” said Skilling. “I was emotionally tired. I put so much of my life into it. Every day was emotionally intense. I had not spent the time that I should have spent with my family.” He said, “For a number of reasons in the year 2000 and 2001, I concluded that balance [between business and family] was totally out of whack, and it had to change.”
After taking a long vacation to Africa with his brother after which he “didn’t want to come back,” Skilling talked to Lay about quitting. “I hate this job,” he recalled telling Lay. He also said he drafted a resignation letter in April 2001, just four months after being promoted to CEO. Lay talked him out of quitting at that time, but on July 13, 2001, he again told Lay he was going to resign.
“I told him I believed I was no longer part of the solution, I was part of the problem,” Skilling told the jury. He recalled that Enron’s stock price was falling, and there were problems in California following the state’s energy crisis in the winter of 2000 and 2001. “I felt that in some ways I had become a lightning rod for that controversy. The short sellers were all over the stock.” Investors appeared to be having trouble understanding the Enron “story,” he said. “In some ways I had lost credibility with the Street. The infamous ‘asshole’ quote was being used as a sign of arrogance. It wasn’t meant that way.”
During a conference call to discuss 1Q2001 earnings, Skilling got into an argument with Richard Grubman, then managing director of Highfields Capital Management (see Daily GPI, April 18, 2001). Grubman had pressed Skilling about balance sheet data for Enron.
“You’re the only financial institution that can’t produce a balance sheet or a cash flow statement with their earnings,” Grubman said on the call. “Well, thank you very much, we appreciate it, asshole,” Skilling responded.
That comment and job burnout signaled to Skilling that “I was ready to go. My head wasn’t in it anymore.”
Another life altering event occurred on a trip to England in early 2001 following an accident at an Enron facility that killed three workers and injured several others. “I was changed,” Skilling testified. He visited one of the injured victims in the hospital and also met with the victims’ families. “It said to me that life is short.”
Petrocelli then moved on to questions about Enron’s stability when Skilling resigned. Asked if he thought Enron would collapse, Skilling replied, “Not in my wildest dreams. It’s almost inconceivable now what has happened.”
“Would you have left if you thought the company was going to experience what later transpired?” Petrocelli asked.
“No,” Skilling replied.
Skilling talked about each of Enron’s business units. With the exception of Enron Broadband Services (EBS), which he called “a mess,” the company was in great shape, he said. The EBS unit, he said, had problems related to the telecommunications market at the time.
Petrocelli took Skilling back to the time he resigned in August 2001 with the company’s stock price and investor confidence falling. In a series of questions, Petrocelli asked Skilling if he had ever destroyed any evidence or tried to hide evidence after he left Enron and as he saw it collapse. Skilling answered a firm “no” to each question.
In October 2001, Skilling recalled sitting in his car with his brother in Fredericksburg, TX. They listened to Enron’s 3Q2001 conference call, which was run by Lay, who had resumed the CEO role. The company sounded like it was in good shape, Skilling said.
“I was thrilled,” Skilling recalled. The operating numbers appeared to be “strong,” and the $1.2 billion write down in shareholder equity did not concern him. “These are noncash charges,” he said of the write down. “My brother and I ‘high-fived’ each other. I just thought [Enron] was doing great.”
However, within days, The Wall Street Journal printed allegations about then-CFO Andrew Fastow’s dubious LJM special purpose entities. Another article followed in Fortune magazine. But Skilling blamed the press for printing “bad information.”
About the Journal piece, Skilling said, “I had never read an article that was that incorrect and that one-sided… Here the company had just had an outstanding quarter, and [the Journal was] talking about LJM… It was a very negative article. It was insinuating that there was some sort of bad motive or bad intent related to this LJM transaction. I thought they were totally out of line. We’d had one of these before…It was my view that it was planted by short sellers.”
Skilling recalled he called Lay and “pleaded” with him to “open the kimono” on Enron’s finances to allow the media to see how the company performed.
“Ken was in agreement that he thought this was organized, and that we needed to get out ahead of it,” Skilling recalled. “My diagnosis was that this needed to be stopped.” He also spoke with Fastow about how to deal with the media. “I encouraged Mr. Fastow not to avoid them, to get our…Enron’s story out.”
As Enron’s investors continued to pull out their money, and as the company spiraled toward bankruptcy, Skilling recalled phoning Lay in late October 2001 and offering to come back to work.
“Ken said, ‘That’s interesting,'” Skilling recalled. Lay then asked, “What do you think?” Skilling said he told Lay if he came back, “I think that would show support…that by my coming back would send a strong signal to the marketplace that I didn’t think there was anything wrong.”
“You didn’t think anything was wrong?” Petrocelli asked.
“Did I think anything was wrong? No.”
Skilling said Lay told him he would think about his offer and talk with the board of directors.
The following day, then-Enron president Greg Whalley telephoned Skilling, and they met. Skilling said he attempted to convince Whalley that a team of executives (including Skilling) needed to go to New York and meet with Wall Street analysts to convince them Enron would be all right.
“I said, ‘We need to get on a plane to New York and start the discussions,'” Skilling recalled. “He said he would recommend to Ken that we do this, and I said, ‘Hurry.'” Smiling, Skilling recalled he told Whalley to “call aviation, and tell them to warm up the jet.” But no one called him back. “I didn’t hear anything that evening. Actually I stayed by the phone all night.”
The following day, Whalley called him, Skilling told the jury. Whalley, he said, told him the board was concerned that bringing him back “was just going to be one more weird thing related to Enron.” Skilling said he respected the decision. “I wasn’t there. I wasn’t in the building. I had a lot of confidence in Ken.”
By late October 2001, Skilling said he knew Enron was having liquidity problems. After reading the company planned to tap $3 billion from its bank lines, Skilling said, “This was the first indication that the company was having a liquidity problem.” He said, “”I think it’s probably fair to say that all I was doing at that time was going to pieces.”
The day he read about the liquidity problems, Skilling said, “I started drinking. My fiance and I went out to dinner and had some wine and stuff, and I just started drinking…I cried. I did not really recover the rest of the weekend.” The following week, he “had trouble” getting out of bed, and a friend suggested he see a psychiatrist. “I think I got the psychiatrist before I got the lawyer,” he said.
Skilling said he planned to liquidate all of his personal assets, worth about $70 million, to help Enron. He and some other former executives, including Lou Pai and Cliff Baxter, who later committed suicide, also committed to putting in millions of dollars. However, Baxter backed out and said he couldn’t do it. Enron’s inevitable bankruptcy “was inconceivable,” he recalled. He said he wanted to “die” and said he felt responsible for the collapse.
“If you had it to do over again, would you have left?” Petrocelli asked.
“No,” Skilling replied. “I will regret always that I left Enron.”
Asked why he would testify before Congress and not take the Fifth Amendment as Lay did, Skilling said he wanted to stop a “witch hunt… I felt that someone had to go out and explain what had happened.” He said he “committed to myself that I would do everything that I could in hopes that people would keep an open mind.”
In one of the lighter moments of testimony, Skilling described the day in February 2004 when he surrendered to the FBI and was processed at the district courthouse in Houston. Once he was outside the courthouse, Skilling said he was told to stand and wait there. A few moments later, several men in shackles walked by, including former Enron treasurer Ben Glisan. Glisan later pleaded guilty and is serving five years on a federal conspiracy charge.
Skilling said the two former Enron executives greeted each other as they walked to an elevator.
“I turned to him, and I said, ‘How’s it going, Ben?'” Skilling said,. “‘Not so good,’ he said.'” Skilling said Glisan then asked Skilling, “‘How’s it going with you?'”
“Not so good, either,” Skilling replied.
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