As government investigators look for the roots of Enron's demise, the Enron chief executive who quit just months before the company collapsed broke his silence on Friday to deny any responsibility or wrongdoing.
Jeffrey K. Skilling, who resigned as chief executive in August after a decade at the company, said in an interview that he had been stunned by Enron's subsequent descent and by revelations that his former chief financial officer and right-hand man made more than US$30 million from dealings with investment partnerships related to the company.
Skilling said that he had never invested in such partnerships and disputed assertions by people close to Enron that he had been counseled against entering into them. But he said that the partnerships, now the subject of government investigations, were the idea of the former chief financial officer, Andrew S. Fastow.
PHOTO: NY TIMES
While shareholders and employees who suffered big losses have filed suits against Enron, Skilling sold some of his holdings shortly before the collapse. Skilling disclosed that he sold about 500,000 shares of Enron stock on Sept. 17 -- when the US stock markets reopened after the terrorist attacks. Based on trading that day, the sale would have brought about US$15 million. That was his only sale of Enron stock after his resignation, he said. Earlier in the year, Security and Exchange Commission filings show, he took in US$15.6 million by selling 240,000 shares. Regulatory filings indicate that he still owns more than 600,000 shares, and many options.
"We're all trying to figure out what happened," Skilling said. "This was a tragedy. I had no idea the company was in anything but excellent shape."
In October, he offered to return to Enron to help the company weather its growing crisis, he said. While the chairman, Kenneth L. Lay, liked the idea, Skilling said, it was rejected because of concerns that "the press might not understand it and it would add to the confusion." Soon after, Enron became the biggest corporate bankruptcy ever.
Based on a conversation with a senior Enron executive after he quit, Skilling said that the company lost out on the opportunity to obtain US$3.5 billion to US$4 billion in financing when it was most needed because of provisions unusual in such contracts.
Skilling, a former consultant at McKinsey & Co, joined Enron in 1990 and helped transform it into the largest energy-trading company in the world. Until recently, Enron dominated the sale and marketing of natural gas, electricity and other commodities. It became a focal point in the California energy crisis, and its close ties to the Bush administration led to criticism that it had helped shape the administration's energy policy.
But the company began to unravel in October as it disclosed losses and reductions in equity partly because of dealings with investment partnerships involving Fastow.
The SEC soon began a formal investigation, and last month Enron said it had overstated almost US$600 million in profits over the last five years. A rival Houston energy trader, Dynegy Inc, agreed on Nov. 9 to rescue Enron but called off the merger later that month. Enron collapsed in the face of looming debt payments and the refusal of many energy-trading customers to continue to do business with it.
Skilling, who has spent two days giving sworn testimony to the SEC, said he never exercised his Fifth Amendment right against self-incrimination before investigators. He also said he did not believe he would face sanction by the SEC or criminal charges. "I didn't do anything wrong," he said.
"In the last two months, I've gone through everything in my mind that was done while I was there that could have been related to this, and given the information available at the time, I think we made the right decisions," he said.
He added, "After much soul-searching, given the information at the time, I would not have done anything different."
An Enron spokeswoman, Karen Denne, declined to comment on what Skilling had to say. "I can't comment on what Jeff did or did not know. That's a question for Jeff to answer," she said. Lawyers for Fastow could not be reached for comment.
Skilling said that four things brought Enron down -- none of which could have individually ruptured the company: Admissions of serious accounting errors, investor concerns about "suggestions of self-dealing," a "total loss of confidence by the financial sector in Enron," and what Skilling described as clauses unusual in routine financing arrangements that cut off access to loan facilities in the event of a "material adverse" change at Enron.
The result, he said, "was a classic run on the bank."
Skilling said he could not say exactly what the clause was that hurt Enron's ability to borrow more money, but that based on a conversation he had with Greg Whalley, who was named Enron's president and chief operating officer after Skilling resigned, the clause was an "unexpected" find in a routine financial document.
The comments from Whalley occurred in late October, he said, in a discussion about the possibility of Skilling returning to the company. "Greg seemed to think this was a pretty good idea," he said.
Enron officials have said the partnerships involving Fastow were a means to allow the company to hedge its exposure to some of its investments. Skilling said he did not have details about the partnerships, but he said the deals with Fastow were partly set up "to save Enron money." Fastow's group might be willing to give Enron a better price -- or better terms -- because it was more familiar with the assets being traded, he said.
The familiarity "reduced some of the uncertainty," he said.
But he said he was stunned when he read a regulatory filing by Enron on Nov. 8 that said Fastow had made more than US$30 million off the deals. He said he was also surprised to learn that at least several other Enron executives had been investors in the partnerships. "I, along with a lot of people, were surprised when the 8-K was released," he said.
An Enron filing with the SEC last month reported that transactions with the Fastow partnerships added US$517.9 million to Enron's pretax profits last year. The same filing said the company's restated after-tax net income for the year was US$847 million, but did not give a pretax figure. Applying a normal tax rate to that figure would imply pretax income of about US$1.3 billion, indicating that the Fastow partnerships provided about 40 percent of the company's profits.
However, Skilling said on Friday that the Fastow partnerships had a very small impact on Enron's profits last year. "I would guess it's de minimus," he said.
A special committee of Enron directors is now reviewing the partnership transactions, and in the Nov. 8 filing the company said it was reviewing whether controls ordered by the board were properly carried out.
"I think that's the question," Skilling said. "I don't know."
In late October, Fastow was ousted, and Enron named Jeff McMahon to replace him as chief financial officer. At the time, people close to Enron suggested that when McMahon was treasurer, he had told Skilling, then the chief operating officer, that he thought the partnerships involving Fastow presented a conflict of interest. After the discussion, McMahon switched jobs at the company.
In the interview on Friday, Skilling said the only objection raised by McMahon was a fear that he might get a smaller bonus because he was representing Enron on one side of the table in negotiations against people on the other side representing Fastow's partnerships. Fastow was higher in the organization at the time.
Skilling said that he reassured McMahon, who never raised broader concerns about the partnerships. He also said no one else ever came to him with such concerns.
According to a regulatory filing, the company's board required every transaction with the Fastow partnerships to be reviewed and approved by the office of the chairman -- which Skilling said included him, the chief accounting officer and the chief risk officer. On Friday, Skilling could not say whether those approvals took place for every deal.
He also said that to his knowledge, no directors or public officials of Enron invested in or did business with any of the partnerships, and he said the structure of the initial Fastow partnerships were approved by the board.
Later, the reviews were "tightened and made better," he said, but "I'm sure they didn't know details of all the transactions."
Enron's longtime auditor, Arthur Andersen, has stated that Enron may have engaged in "possibly illegal acts" and misled it by withholding crucial information about a special-purpose entity called Chewco. Skilling said he did not know the details of those transactions and said he "would have expected Arthur Andersen to be very involved" in the partnerships.
One financing arrangement that undermined Enron was a provision that required US$3.9 billion in debts not on the balance sheet to be paid if the stock price dropped below certain levels and Enron lost its investment-grade credit rating. Skilling said, "I did not know about that."
According to bankruptcy court documents, another special-purpose entity called Sequoia Financial Assets agreed at the beginning of each month to buy Enron's receivables and then to buy commercial paper from Enron with those proceeds as they came in. When Enron's credit rating was downgraded to junk status, Sequoia stopped the deals, depriving Enron of hundreds of millions of dollars in financing.
Explaining his resignation in August, Skilling said that the balance between his work and his personal life had become "increasingly untenable."
"I was ready to go," he said.
Skilling said that neither he nor his lawyers had been contacted by the Justice Department. Told that several US attorneys have indicated interest in Enron's collapse, Skilling replied: "I would think they should be. I mean, it's a big company."
Asked to elaborate on what he meant, he said: "I take that back."
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