- The Washington Times - Friday, February 8, 2002

Top Enron officials yesterday wrangled over who is responsible for the questionable business deals that caused the downfall of the company.
Former Chief Executive Jeffrey Skilling, the highest ranking officer to testify before Congress, denied any knowledge of key deals arranged by his deputies that exposed the company to more than $1 billion in losses and caused the massive loss of investor confidence that led to Enron's bankruptcy in the fall.
"At the time I left the company on Aug. 14, I believed the company was in strong financial condition and its financial statements were accurate," Mr. Skilling told a special investigative session of the House Energy and Commerce Committee.
"I can't for the life of me understand how we could go from that condition to bankruptcy in such a short time," he said, suggesting that the company's disclosure of losses and overstated profits in October after he left caused a "classic run on the bank" that left the company cashless and precipitated the bankruptcy.
Mr. Skilling's assessment directly contradicted the testimony of other Enron officials who said they had warned him about serious conflicts of interest and other problems with the company's numerous off-balance-sheet transactions.
Enron President Jeff McMahon, who served as the company's treasurer under Mr. Skilling, said he told Mr. Skilling in March of his concerns about the "LJM" partnerships set up and controlled by Andrew Fastow, the company's former chief financial officer who was one of four Enron officials to invoke the Fifth Amendment right to remain silent before the committee yesterday.
Mr. McMahon said the partnership arrangements put him in an "untenable position" as treasurer trying to defend the company's interests in negotiations about LJM transactions with Mr. Fastow, who earned more than $30 million from the off-book deals. "LJM" drew its names from the initials of Mr. Fastow's wife and two daughters.
"Andy Fastow wears two hats," Mr. McMahon said in notes on the 30-minute meeting with Mr. Skilling. "My integrity forces me to negotiate the way I consider to be correct, but Andy Fastow is my boss. I must know I have your support. I believe this already has affected my compensation."
Mr. McMahon said Mr. Skilling assured him he would take care of the problem. But the next day, he said, he received a threatening call from Mr. Fastow and shortly afterward, he was transferred to a less desirable position within the company.
He has since been promoted to president and is presiding over the company's bankruptcy reorganization.
Mr. Skilling said his main recollection of the meeting was that Mr. McMahon was worried about his compensation package because of the conflict with Mr. Fastow.
"I made it absolutely clear to him he should follow his conscience and do everything he can to protect shareholders," Mr. Skilling said.
The former chief executive also took issue with a company lawyer, Jordan Mintz, who said he also raised concerns about the LJM partnerships and repeatedly sought Mr. Skilling's signature on LJM transactions under an approval process established by Enron's board of directors intended to minimize potential conflicts.
Mr. Skilling said he never saw the memos sent by Mr. Mintz. As with many of the details raised by the committee, the chief executive said he was focusing on larger issues much of the time, despite characterizations in the press that he was a "control freak" who wanted a hand in everything.
"More accurately, I was a controls freak," he said, and delegated the responsibility for safeguarding details to subordinates.
"Enron had literally thousands of partnerships" and more than $30 billion in yearly revenues, he said. "This is a very large, multinational corporation with divisions spread around the world. It would be impossible to control everything," he said, noting he had outside advisers and a staff of thousands to take care of the details.
At one point, Mr. Skilling appeared to take issue with the minutes of a board meeting that took place in Florida a year ago, which said that he had approved the Fastow deals.
At the meeting, which was interrupted by a power outage, the board discussed the "Raptor" partnerships created by Mr. Fastow to limit the company's exposure to volatile price swings in risky investments. Mr. Fastow explained that they ultimately would not protect the company from losses, as a true hedge would have done.
"My understanding is that we were creating a hedge for some highly volatile technology investments," Mr. Skilling said. "I do not recall that there was no economic-risk transfer."
Two board members who testified also said they had no recollection of the extreme risk of the transactions and said the board was not informed about many other problems with the deals.
"None of the controls we put in place seemed to work," said board member Robert K. Jaedicke.
A special investigative committee set up by the board concluded that the board had been negligent in not doing more to oversee the deals.
The Enron officials parted ways even in recalling former Enron Vice Chairman Cliff Baxter, who left the company a year ago but committed suicide last month apparently out of anguish about the scandal engulfing the company.
Mr. McMahon and Mr. Mintz said Mr. Baxter had the same concerns as they had about the bad deals the company got into under Mr. Fastow. They said he complained mightily about the problems to Mr. Skilling and other top officials.
But Mr. Skilling said Mr. Baxter was concerned only about the appearance of conflict presented by the deals.
"He said he and Andy had a very strained personal relationship and he didn't like the deals," Mr. Skilling said.
Just before his death, Mr. Baxter told Mr. Skilling he was upset about the investor and employee lawsuits targeting him and a dozen other top officials to recover stock losses.
And he was devastated that the reputation of the company and all its officers was being destroyed.
The press is "calling us child molesters," Mr. Skilling recounted Mr. Baxter saying, "and you'll never wash that off."
"He believed his reputation my reputation Ken Lay's reputation were ruined because of what happened to the company and the way it was treated by the press."


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