February 8, 2002
Testimony of Enron Executives Is Contradictory
By STEPHEN LABATON and RICHARD A. OPPEL Jr.
ASHINGTON, Feb. 7 — Lawmakers heard sharply conflicting testimony today from Enron (news/quote)'s former chief executive, Jeffrey K. Skilling, who portrayed himself as ignorant of the company's questionable practices, and other executives who said Mr. Skilling received numerous and specific warnings that Enron's off-the-books partnerships were improper.

Mr. Skilling's testimony, met by hostile questioning and harsh skepticism from lawmakers, followed a parade of current and former Enron executives who invoked their Fifth Amendment rights against compelled self-incrimination rather than explain the partnerships at the center of the company's collapse in December.

The refusal to testify by Andrew S. Fastow, Enron's former chief financial officer, and three other executives opened a hearing before the oversight subcommittee of the House Energy and Commerce Committee that provided a rich tableau of the far-reaching consequences of Enron's collapse.

The room was packed with angry former employees in search of answers, battalions of newly retained criminal defense lawyers with their white-collar clients, scores of reporters and photographers and an aggressive panel of Republican and Democratic lawmakers.

Democrats and Republicans alike said they found Mr. Skilling's testimony hard to believe, and they confronted him in one of the most pointed and memorable exchanges since eight top tobacco executives were questioned in April 1994.

Mr. Skilling said, for instance, that he had no recollection of a meeting described by two directors who said that Mr. Fastow told the company's board that Mr. Skilling would approve the partnership deals. He also disputed the accounts of others who said they had warned him about the propriety of the partnerships.

"On the day I left, on Aug. 14, I believed the company was in strong financial condition," Mr. Skilling said. "I wasn't there when it came unstuck."

"This was a very large corporation," he said at another point. "It would be impossible" to know everything going on.

No one on the committee seemed to believe the testimony.

"You are employing the Sergeant Schultz defense of `I see nothing, I hear nothing,' " said Representative Edward J. Markey, Democrat of Massachusetts, referring to a character in the 1960's television series "Hogan's Heroes."

Representative Clifford B. Stearns, Republican of Florida, recited conflicting evidence and testimony and then glared at Mr. Skilling as he said, "You are practicing plausible deniability."

Representative Bart Stupak, Democrat of Michigan, said: "Earlier witnesses put it that you were intense, hands on. From what I've heard from your testimony today, you don't know what was going on."

Mr. Fastow ultimately made $30 million from the partnerships, which investigators say were used to conceal debt and unprofitable investments from Enron's shareholders. He has emerged as a major figure in investigations by the Justice Department and Securities and Exchange Commission. They are examining whether executives committed fraud or engaged in illegal insider-trading when they sold millions of shares of stock as the company crumbled.

Jeffrey McMahon, Enron's new president, and Jordan Mintz, a senior Enron lawyer, described a corporate climate in which anyone who tried to challenge Mr. Fastow's deal-making faced the prospect of being reassigned or losing a bonus.

Mr. McMahon described several occasions in which, while serving as Enron's treasurer, he challenged the partnerships only to incur sharp criticism from his boss, Mr. Fastow.

In one episode, Mr. McMahon said that after he warned executives at Merrill Lynch (news/quote) that it would be a conflict of interest for them to invest in Mr. Fastow's partnerships, Mr. Fastow confronted him.

"He told me that I was jeopardizing the LJM2 fund-raising exercise," Mr. McMahon said, referring to one of the partnerships.

In another incident, Mr. McMahon testified that he had warned Mr. Skilling as early as March 2000 that one partnership involved self-dealing and conflicts of interest and needed to be changed.

According to talking points he prepared for the March meeting, Mr. McMahon was concerned that "Mr. Fastow wears two hats."

"I find myself negotiating with Andy on Enron matters and am pressured to do a deal that I do not believe is in the best interests of the shareholders," he wrote in the talking points.

At the March meeting, Mr. McMahon said, he told Mr. Skilling that the "situation had gotten to basically a point that was just untenable." He said Mr. Skilling replied that he "understood my concerns and he would remedy the situation."

Two weeks after the meeting, Mr. McMahon said, Mr. Fastow summoned him into his office.

"He indicated that he was unsure at this point in time whether we could continue to work together because he said that `you should assume everything you say to Mr. Skilling gets to me,' " Mr. McMahon recalled.

A short time later, Mr. McMahon was replaced as treasurer by Ben F. Glisan Jr. According to an investigation by Enron's board, Mr. Glisan put $5,800 in one of the partnerships organized by Mr. Fastow and two months later was given $1 million.

"The message was, Go get another job because you can't work with us, you're messing our deals," said Representative Billy Tauzin, the Louisiana Republican who heads the Energy and Commerce Committee.

Mr. Skilling recalled the March 2000 meeting differently. He said Mr. McMahon was primarily concerned about whether his compensation would be affected by the tension with Mr. Fastow.

Mr. Mintz said that when he raised questions about the partnerships last year, Richard B. Buy, the chief risk officer and Richard A. Causey, the chief accounting officer, warned him that Mr. Skilling would be unlikely to challenge Mr. Fastow's deals.

"Both Ricks shared with me that Jeff was very fond of Andy, don't go there," Mr. Mintz said.

Mr. Buy and Mr. Causey refused to answer the questions of the lawmakers, citing their Fifth Amendment rights. The fourth witness to refuse to testify was Michael J. Kopper, who worked closely with Mr. Fastow and drew at least $10 million from the partnerships. All four men invoked their Fifth Amendment rights in response to questions by Representative James C. Greenwood, the Pennsylvania Republican who heads the subcommittee.

Two company directors who did testify, Robert K. Jaedicke, and Herbert S. Winokur Jr., said they had been told that Mr. Skilling reviewed the transactions of some partnerships.

Mr. Skilling, the chief executive for six months until last August, repeatedly denied that. He and two board members maintained that they were unaware of the details of the partnership deals.

Mr. Skilling described a board meeting in October 2000 in Palm Beach, Fla. Minutes of the meeting show that Mr. Fastow said Mr. Skilling approved partnership deals. Mr. Skilling said he had no recollection of the comments and had been distracted because the power had gone out.

"The room was dark, quite frankly, and people were walking in and out of the meeting," Mr. Skilling said.

"You never heard Mr. Fastow say that you would approve all these transactions?" Mr. Tauzin asked.

Mr. Skilling said, "I don't recall."

Mr. Tauzin persisted, saying, "You just don't recall?"

Mr. Skilling said, "I do not recall."

Mr. Skilling said that he thought Mr. Fastow would earn only as much as $5 million over five years from his dealings with the partnerships and that he had no knowledge of the actual amount Mr. Fastow ultimately made.

In this, Mr. Skilling's account drew support from testimony by Mr. Mintz, who said Mr. Fastow told him "if Jeff ever knew how much he made" from one of the larger transactions, "he'd have no choice but to shut down LJM."

Mr. Tauzin also suggested that Congressional investigators might soon begin examining the role of some Wall Street firms in Enron's rise. He said he found it interesting that some firms, notably Merrill Lynch and First Union, were given underwriting business from Enron in exchange for investing in some of the partnerships.


In one of the hearing's poignant moments, Mr. Skilling said he had spent three hours with J. Clifford Baxter a few days before he died. Mr. Baxter, a former Enron vice chairman, died three weeks ago. The authorities say he committed suicide.

In an opening statement, Mr. Skilling described Mr. Baxter as his best friend.

Pressed gingerly by Representative Stearns to describe what they discussed in their final meeting, Mr. Skilling paused and then slowly went on. He said Mr. Baxter was depressed about the lawsuits he and Enron faced from investors and the press accounts that Mr. Skilling said were only "one-third" accurate.

"He was angry at the plaintiffs' lawyers who were coming after him," Mr. Skilling said. "He said: `Jeff, the thing that really gets me is it's like this. It's a beautiful day in Houston, Texas. You've got a hose. You're out watering your lawn. All your neighbors are outside talking. And suddenly the guy that lives next to you crashes out the door and he says, "I hear you're a child molester." And then he turns back to his house and walks inside.' "

"He said, `They're calling us child molesters,' " Mr. Skilling said. "He said, `That will never wash off.' "

But some lawmakers skeptical of that account asked Mr. Skilling about other comments attributed to Mr. Baxter long before he died — when he had questioned the partnerships.

And Mr. Mintz offered a different account of Mr. Baxter's troubles. Mr. Mintz said he had lunch with Mr. Baxter about a month before Mr. Baxter resigned from Enron last May.

"He expressed bewilderment about why the board was allowing this to happen and why they were allowing Andy to do it," Mr. Mintz said.



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