Enron Corp.'s former CEO Jeff Skilling took center stage Tuesday before a congressional panel and blamed numerous parties, from Arthur Andersen to the Federal Reserve Board, for the collapse of the once powerful energy trader.
Skilling continued to point to liquidity problems for Enron's bankruptcy while claiming no knowledge of the company's alleged use of questionable partnerships to inflate profits and hide nearly $1 billion debt.
Members of the Senate Commerce, Science and Transportation Committee saved most of their attacks for Enron's former CEO, who appeared alongside employee Sherron Watkins and current Chief Operating Officer Jeff McMahon.
"Mr. Skilling, if you plan to tell this Committee that you did not understand Enron's true financial condition, then you will need to explain why," Sen. Jean Carnahan (D-Mo.) said. "Why you failed to understand things that any diligent CEO would have understood."
Sen. Peter Fitzgerald (R-Ill.) said that he was skeptical of Skilling's testimony and his claims that he was not responsible. "We have a chess game here, Mr. Skilling, and our challenge is to find a way to check every single one of the moves you made on that Enron board," Fitzgerald said.
In his last appearance before a House panel, Skilling repeatedly told investigators that he did not know that Enron's partnerships were used to hide debt. Instead, Skilling blamed a liquidity problem for the energy trader's collapse.
Skilling started his testimony Tuesday by denying that he had lied to Congress in past testimony or that he had tried to deceive former Chairman Kenneth Lay, to whom he reported.
"I have not lied to Congress about my recollection of events while at Enron," Skilling said Tuesday. "I never duped Ken Lay."
Skilling, who holds a masters in business administration from Harvard Business School, claimed he was ignorant of the rule that prohibits a company from using its own stock to generate a gain or void a loss. "I am not an accountant," he said repeatedly.
At various points, a defiant Skilling pointed to Enron's former auditors, Andersen, who approved the company's use of various transactions. "I like many other people relied on advice from Arthur Andersen," he said.
By questioning all three executives together, Congressional investigators had hoped to contrast Skilling denials with the other testimony. That goal worked only mildly as the former CEO confidently answered questions and refused to budge on claims that he did not know Enron's partnerships were used to allegedly hide huge debts.
Skilling's protestations has drawn the ire of investigators and some have even dubbed it the "Sergeant Schulz" defense, referring to the television series Hogan's Heroes where one of the characters "sees nothing and knows nothing."
But Skilling did admit that he sold $66 million in stock, from February 1999 to June 2001, shortly before he left Enron last August. Sen. Barbara Boxer (D-Calif.) showed a videotape of Skilling at an employee meeting from 1999 where Enron staffers were encouraged to invest all their 401(k) funds in company stock. Skilling, smiling and nodding on stage as the crowd cheered, appears to agree.
At the time of the 1999 employee meeting, Skilling had sold more than 500,000 shares of stock for more than $21 million, Boxer said. "The people who put their money into the 401(k) plans lost about $1 billion; the insiders gained about $1 billion," Boxer said. "That is an unfair share of the pain, suffering and loss of dreams."
Skilling said that Boxer's calculations do not take into account a stock split. He said he started 1999 with 262,000 shares and ended the year with 900,000 shares.
The embattled former CEO chastised the Senate panel for the popularity of "Material Adverse Change" clauses that are now found in business contracts. Such provisions, standard in merger agreements, allow companies to terminate a contract in the event of a change in the finance, operations or business of another company.
Last November, Dynegy Inc. walked away from a $9 billion merger with Enron, citing breach of contract and material adverse change, when Enron's debt was cut to "junk bond" status because of worries that the company might be forced into bankruptcy. The loss of investment-grade status forced about $3.9 billion in debts for Enron to come due immediately.
Enron spiraled to collapse thereafter and filed the largest bankruptcy in United States history on December 2.
"What happens now is that banks can pull their money out of a company that is threatened," Skilling told the Senate panel. "Someone walking in and claiming an accounting fraud is tantamount -- in the business world --to walking into a crowded theater and screaming 'fire.' Everyone runs for the exits."
Enron's debt problems were "modest," Skilling said. "I wasn't there. But if the company had some time and access to some liquidity I think [Enron] would've been fine," he said.
Skilling then proceeded to cast blame on the Federal Reserve Board, which he said was set up to prevent runs on a bank. MAC clauses are now customarily built into contracts and allow banks to withdraw their funding if anything undesirable happens to a borrower, Skilling said.
"If I were in charge of the world, I would mandate that federally insured deposit institutions have to strike those contract structures from lending and from their swap agreements," he said. "You may find it totally untrue but it was a run on the bank."
Skilling, apparently frustrated, said he would not respond to all the outrageous things said about him. He also maintained that while he was not a victim, he was also not a perpetrator.
The former CEO added that he should be treated as innocent until proven otherwise and warned investigators that "the framers of Bill of Rights are watching."
Watkins, who spoke first, gave a statement where she again reiterated her attempts last year to warn former Chairman Lay about the company's questionable accounting practices.
Watkins sent Lay an anonymous letter last August where she presaged Enron's downfall. Upon receiving the letter, Lay assigned law firm Vinson & Elkins to investigate Enron's use of off-the-book partnerships, which the company allegedly used to hide $1 billion in debt.
"Enron had a brief window to salvage itself [last] fall and we missed that opportunity because of Mr. Lay's failure to recognize or accept that the company had manipulated its financial statements," Watkins said.
Watkins, now the company's vice president of corporate development, told a House panel earlier this month that Skilling and former Chief Financial Officer Andrew Fastow deceived Lay and the company's board of directors about the Enron's improper use of the partnerships.
Skilling is a very hands-on manager, Watkins said in prior House testimony. She said she found it hard to believe that Skilling did not know that Enron's partnerships were financed mostly by Enron stock.
"I heard Ms. Watkins' opinion," Skilling said Tuesday. "I have no idea what the basis is for that opinion."
Enron's current COO, Jeff McMahon, again told Congressional investigators that he went to Skilling with his concerns regarding CFO Fastow's stake in the partnerships. McMahon, then a treasurer, was transferred to another position thereafter.
But McMahon tried to paint a brighter light for Enron, which sold off its trading unit to UBS. The once powerful company is now developing a restructuring plan to bring it out of bankruptcy.
"I believe the company can return from bankruptcy if it returns to its roots," McMahon said.