Enron Task Force Record Worsens

In light of Jeff Skilling’s pending plea deal, it is time to update this 2009 article, The Complete Humiliation of the Enron Task Force. Things have gotten worse for the prosecutors of the Enron Task Force and their successors in the Department of Justice since that article was published.

We now know that the Feds have managed to achieve only one conviction at trial that has held together without reversal — that of Jeff Skilling. And Skilling has already had one of his counts dismissed outright and was planning a motion for dismissal of all counts and a re-trial based on prosecutorial misconduct. I suspect that the strength of that motion is why the Feds have agreed to a deal that will reduce Skilling’s sentence by more than half.

I need to double check my numbers, but if you score this in terms of number of defendants tried, the record or trial wins is something like Enron 22, Feds 1 (if I give the Feds full credit on Skilling). If you score this in terms of counts tried, the record is even worse, something like Enron 400, Feds 18 (all Skilling).

So, this is what the Feds have achieved after spending tens of millions (at least) of taxpayer funds and, worse, after hounding innocent people for years. Now, I bet that the majority of the people reading this post are surprised by this record because it does not fit into the simplistic Enron narrative that we have been fed by most of the media.

Now, come on, Enron haters, doesn’t that record make you at least a little bit skeptical? Doesn’t it make you want to learn more about the real Enron?

Jeff Skilling Accepts Plea Deal

Jeff Skilling has accepted a plea deal that will see him released from prison in 2017; he will forfeit $40 million and will give up the right to appeal his conviction.

It’s a bitter pill to swallow that the former Enron CEO will end up serving eleven years in prison for something that is clearly not his responsibility. However, I understand Skilling’s fatigue. I know it from other Enron execs who have said they’re exhausted from fighting and simply give in. It took Jeff Skilling much longer to break.

I am relieved that there is an end in sight. Not a perfect end. Not a just end. But an end.

More to come.

Early Release For Jeff Skilling

I am hopping like a bunny with joy over the possibility of an early release from prison of Jeff Skilling!

I knew that in the wake of Jeff’s victory at the federal appeals court, he was due to be re-sentenced. I also knew that Jeff’s attorneys have been talking about requesting a new trial based on compelling evidence of misconduct by the prosecutors of the infamous Enron Task Force (ETF). I have been perplexed at what the hold up was for these actions and at the lack of information coming out of the camps of both the DOJ and Skilling legal team. Now I understand — the parties have been negotiating a deal.

We don’t yet know by how much Jeff’s sentence will be shortened by the potential deal with the DOJ. Ideally, it will be for time served so that Jeff can end the farce of his prosecution and conviction which has been marked by ubiquitous “questionable tactics” by the federal prosecutors of the ETF (the quotes are the words of prosecutor John Kroger).

My opinion is that the DOJ is terrified of the prospect of another trial or even a public re-sentencing hearing. The amount of exculpatory evidence supporting Jeff and the amount of evidence of prosecutorial misconduct has grown steadily over the years. And the initial intimidation campaign of the DOJ has lost most of its impact by now — scores of witnesses that were afraid to testify in Jeff’s behalf at his original trial would be available for a re-trial. Plus, experienced anti-prosecutor warriors like Scott Yeager and Rex Shelby of he EBS case and David Birmingham of the NatWest case, have won or completed their own cases and would now be available to testify if called by Jeff’s legal team. I predict that a re-trial would be a harrowing and embarrassing ordeal for the DOJ prosecutors.

I will update through the day.

Status of Jeff Skilling

I’ve got a few queries about the status of Jeff Skilling. This is all I know:

The Court has stayed his re-sentencing pending a new motion for appeal that Skilling’s attorneys have indicated that they will file. The attorneys have said that the appeal will focus on the government withholding exculpatory evidence related to interviews the government conducted with witnesses (perhaps Fastow). Skilling’s attorneys have repeatedly (at least 4+ times and for at least 6 months) asked for the Judge to delay the date by which this motion must be filed. The current due date for the new appeal motion is Feb. 8th.

Enron’s Unfair Trial

This letter to the editor of the Chicago Tribune is so encouraging I can barely sit still. I have perceived a change in the public’s feelings about Jeff Skilling and Dr. Lay over the last few years. Letters like this only solidify my belief that since some of the facts about Enron have been exposed, more people are noticing that Skilling and Lay were not guilty.

Phil Rosenthal’s column about the failure of Enron (Business, Dec. 4) missed out on several interesting points in law and economics.

First and foremost, Jeffrey Skilling and Ken Lay were convicted of wire fraud even though they had no personal gain from the fraud. The Supreme Court later unanimously found the “honest services” version of fraud was too vague and ruled only bribes and kickbacks are illegal.

By contrast, Andrew Fastow, then chief financial officer of Enron, established the off-book entities where much of Enron’s debt was parked. To be legal, the off-balance-sheet special purpose entities were supposed to be independent of Enron. But Fastow did not let this happen. Indeed, he siphoned off tens of millions of dollars to his personal account by virtue of being an officer of both the partnerships and Enron.

Fastow initially indicated to the FBI that the lack of independence was not reported to Skilling. Fastow later testified just the opposite. The earlier, exculpatory testimony was kept from the defense by both the prosecution and trial Judge Sim Lake.

Skilling was convicted on only one count of insider trading out of ten charges in the indictment. According to courtroom observers, the prosecution won conviction because the trading occurred after Sept. 11, 2001, and therefore it was seen as “unpatriotic.”

Perhaps the most egregious error in the Enron case was the denial of a change of venue. Passions in Houston were running high, with so many residents and their friends having been personally affected with Enron’s collapse. In the opinion of Supreme Court Justice Sonia Sotomayor, who cannot be considered a conservative, the jury pool was most likely biased.

– Paul Fisher and Jim Johnston, directors, Heartland Institute, Chicago

Those of us who know Jeff Skilling is innocent might be a minority, but eventually our view will be justified. I am certain of this.

Jeff Skilling’s New SCOTUS Petition

At SCOTUSBlog, Jeff Skilling’s new filing is the Petition Of The Day. I have not yet read the petition for certiorari but here it is.

When Is A Conspiracy Not A Conspiracy?

It is usually counter-productive for me to check out the HuffPo because I fundamentally disagree with just about every sentiment expressed in that liberal fever swamp. Today was par for the course, but Enron was mentioned. I had to chime in.

At HuffPo, a writer is screaming for more regulation and wondering why more bankers are not in prison for the 2008 financial meltdown. The reason is simple: the bankers were making home loans available to anyone regardless of whether they would be paid back – as was dictated under the Community Reinvestment Act. The people who enacted that are in congress and congress will not indict themselves.

So the writer quotes – of all people – Loren Steffy, who has made a career out of hating business and Enron in particular:

Three years ago, I asked Sam Buell, the former federal prosecutor in the government’s effort to indict Enron’s Jeff Skilling, the question of whether we’d see widespread prosecutions from the financial crisis. His prediction: Don’t count on it. As I wrote at the time:

In the current crisis, few people understood the complex debt instruments that had become common on Wall Street and therefore the firms failed to make good risk assessments. But what they were doing — such as packaging dodgy mortgages into investment pools that were supposed to minimize risk — was widely known.

“It’s not a conspiracy if everybody’s in on it,” Buell said. “In order to have a fraud conspiracy you’ve got to have some effort by one group to deceived another group.”

But what about the fact that America as whole seems deceived by what happened? Doesn’t matter, Buell argues. Just because Main Street didn’t understand what was happening doesn’t make it a fraud. Those who are stand-ins for investor interest — regulators, brokers, credit agencies — “seem to have known what was going on,” he said.

Sometimes I am actually embarrassed for Loren Steffy. I have said stupid things too, but usually I try to keep them to a minimum. Steffy, on the other hand, proudly flaunts his stupidity like a badge of honor.
That question: “what about the fact that America as a whole seems deceived by what happened?” is just embarrassingly inane.

If that were the standard, incidentally, we would not have a federal government, particularly a Department of Defense. The ignorance of the general populous does not create the legal grounds for conspiracy – not even for the much-despised Enron.

Buell is right, of course. There was no group of people inside Enron who were trying to deceive anyone else. I’ve always marveled that according to the naysayers, Enron managed to hire people from the mailroom to the C-Suite who were criminals. Oh, and they also did business with criminals: NatWest, Merrill Lynch, Vinson & Elkins, Arthur Andersen, Citigroup and McKinsey. And Ken Rice was actually involved in two conspiracies! One in Corporate and one at EBS. And Scott Yeager was so deceptive that he not only fooled everyone at EBS, he managed to fool Jeff Skilling too! And Jeff Skilling was also involved in a conspiracy!

How exactly is this supposed to work? How was Enron able to not only hire a statistically impossible number of criminals, but also just happen to find all the other criminals in its partner organizations? Only five people went to prison for the Watergate scandal (seven were indicted). And yet, eighteen went to prison for Enron – 36 were indicted. Was Enron really that much larger than Watergate? How was it that all these smaller conspiracies were taking place inside this much larger conspiracy? The EBS conspiracy is just ridiculous. Rex Shelby, Joe Hirko and Scott Yeager didn’t know each other outside of work. Rex and Scott had worked on one project before. But why would they agree to conspire illegally with Joe Hirko, who neither one knew? And why would Joe Hirko, who is known as a gentle, kind man decide to start fucking over Enron?

At Corporate, the conspiracies are just absurd. Jeff Skilling supposedly took reserves and added it to the earnings – while at the same time hiding earnings from wholesale. Why? If Enron was in trouble, there were thousands of things he could do to fix it. Such as start cutting costs. But during that time, Enron was buying new jets. If there was a problem, they could have delayed delivery. Jeff could have written a check for millions and laundered it through Andy Fastow and his SPEs, since that’s what the DOJ says happened at Southampton with Ben Glisan, Kristina Mordaunt, and the NatWest bankers. If he and Andy Fastow were already committing multiple felonies every day, what is one more? Why not just make up the loss with a personal check? Or he could have even done it openly and bought some of Enron’s art*. Yet the man who supposedly thought up all kinds of crazy scams just didn’t bother to anything wacky to fix this supposed earnings gap, other than take reserves which was possibly the sloppiest method known to mankind.

The idea that a bunch of smart guys who were already multimillionaires got together and then started conspiring to commit fraud is just laughable. It makes no sense at all. There was no fraud or conspiracy at Enron Corporation.

*There was a story in, I think, 2007 or 2008 where a company declared in its 10-K that the CEO had bought some art from the company and had paid something like $5 million for it. I wish I could find the details, but it was on footnoted.com, which has become a Morningstar company and I can no longer find it.

Let’s Remember Jeff Skilling Today

I am undecided on the question of whether Jeff Skilling made mistakes at Enron. I see him as a revolutionary thinker, a risk-taker, a market-maker, a genius who could make things happen. When I really think about it, I’m not sure what he could have done differently that would have resulted in a different outcome. He said at one point, “I wish I never heard of LJM.”

Well, what would have been different if he hadn’t ever heard of it? Enron did not collapse because of LJM. Enron collapsed because people stopped believing in the company. It was a trust-based business and like Santa Clause, you have to believe for the magic to work.

Maybe one can make the argument that if LJM had never happened, there would have been no doubt about Enron and it would still be alive today. I don’t buy that argument. There was a lot of context to that epoch – the summer of 2001 and into the winter. The tech bubble had burst and I think investors were very willing to believe that a CEO or a whole organization was dirty. It is sort of like today, for that matter. CEOs are vilified (just check out the #occupy movement).

Jeff Skilling never did anything that looked fishy to me. He didn’t leave the country (and he could have). He didn’t take anything with him from Enron. He left all kinds of money on the table.

His leadership did not bring the company down. Let us remember him today. It is a sad day. A company collapsed. Billions of dollars were lost. Two good men would die from the fall-out. Many would go to prison. But none of that was Jeff Skilling’s fault. My thoughts are with him and his family today.

Jeff Skilling Appeals To Supreme Court Again

CNBC reports:

On the eve of the tenth anniversary of Enron’s collapse, the energy giant’s former CEO, Jeff Skilling, is again asking the Supreme Court to grant him a new trial.

Skilling, who has served five years of his 24-year sentence for conspiracy, fraud and insider trading, won a preliminary victory last year when the high court ruled the key legal theory used to convict him was invalid, sending the case back to the Fifth Circuit Court of Appeals for review.

But Skilling’s hopes were dashed in April when the appeals court ruled the error was “harmless” and did not merit a new trial.

Now, in a 68-page petition filed today, Skilling’s attorneys say the appeals court decision makes a “mockery” of the Supreme Court decision, and the petition asks the high court to order a new trial.

At issue is the so-called “honest services theory,” which the Supreme Court narrowed in a series of decisions last year.

The theory, which had been widely used by prosecutors in white collar cases, said that it is a crime to withhold one’s “honest services” from an employer or shareholders.

The high court said the theory should only apply to employees who are guilty of theft, bribery or similar offenses. Because Skilling was not accused of stealing from Enron, the honest services theory could not be used to convict him.

The appeals court ruled the error was harmless, however, because the jury still could have convicted Skilling of fraud under alternative theories. Jurors in the 2006 trial were not required to specify what theory they used to reach their verdict.

In the new appeal to the Supreme Court, Skilling’s attorneys argue that under the law, it is not for the appeals court to determine whether the jury could have convicted Skilling without the discredited honest services theory. The petition says that in rejecting a new trial, the appeals court is improperly ignoring Skilling’s defense at trial.

Skilling, 58, crafted Enron’s business model. He rose to CEO in 2001, but abruptly resigned six months later — just three months before the company filed for bankruptcy in a massive accounting scandal.

He has consistently denied he committed any crimes.

Transcript of Jeff Skilling on Larry King

Interview With Jeffrey Skilling

Aired March 1, 2002 – 21:00 ET

LARRY KING, HOST: Our special guest tonight is Jeffrey Skilling, the former CEO of Enron. He joined that company in 1990, became CEO in February of 2001, resigned in August of 2001. Also, here at our studios in Washington is his attorney, Bruce Hiler. And Bruce will be here. If any questions come up that are out bounds, you’ll jump right in?

How long have you two been associated, by the way, Bruce?

BRUCE HILER, SKILLING’S ATTORNEY: Since October of last year.

KING: You were retained?

HILER: I was retained by Jeffrey in October.

KING: Jeffrey, why did you decide — oh, Jeff — you like Jeff better, right — why did you decide to testify?

JEFFREY SKILLING, FORMER CHIEF EXECUTIVE OFFICER, ENRON: Well, Larry, this whole Enron situation’s been terrible for a lot of people, and I think at some point someone had to try to help explain what happened. And I certainly respect the rights of people that take the Fifth Amendment. I mean, that’s their right and their due.

But I believe that, for my family, for people in the city of Houston, Texas, for my acquaintances and friends, and, I guess, probably, most important for the employees of Enron that have gone through such a tough time over the last couple of months that I think — I felt like I owed it to them to help resolve what happened.

KING: Was there any advice not to?

SKILLING: I’ll tell you, my friend, lawyer.

(CROSSTALK)

HILER: (UNINTELLIGIBLE) into legal advice. We obviously, you know, respect what Jeff is doing and he was forewarned. Obviously, it was a courageous thing to do because . . .

KING: Because you did leave yourself open.

HILER: Well, you know how Congress is going to react. But, you know, I’m also a firm believer in the fact that this is a new case. This is a unique case. I’ve heard the age-old adage about taking the Fifth. This is a new economy case.

KING: What did you think of the others who took the Fifth?

SKILLING: I think that’s their right under the Bill of Rights of the United States of America and I think that’s their decision, and it’s just fine.

KING: Back a little, Jeff. You joined the company in what capacity?

SKILLING: Well, actually, I had been working as a consultant to former companies of Enron, or predecessor companies of Enron and, so, I joined in 1990 to really start our wholesale merchant business.

KING: And that was your title?

SKILLING: Well, actually, in my first title, I was Chairman and Chief Executive Officer of something called Enron Finance Corp. Probably, the best description would have been Chairman, Chief Executive Officer, and only employee.

KING: Enron grew out of a couple of companies, right?

SKILLING: Yes, Enron was a result of the merger in the middle 1980′s of two pipeline companies. As the markets began to go through deregulation in the last 80′s, that business became very tough. And in the late 80′s, a decision was made to really kick off two new businesses: a wholesale merchant business, which was really to start participating in the new deregulated markets for natural gas, and an international development business that was building power plants and pipelines around the world. I was really brought in to start and manage that merchant — wholesale merchant business.

KING: Along the way in the 90′s, was there a time when you said I’d like to run this company?

SKILLING: Run Enron Corp?

KING: Yeah.

SKILLING: Well, I think my favorite job, if you — my favorite job was when I was running our wholesale merchant business.

KING: You liked that better than CEO?

SKILLING: Oh, sure. Absolutely.

KING: Why?

SKILLING: Well, I think, you know, once you move up to become Chief Executive Officer of the corporation, you spend a lot more time on things that maybe you just don’t enjoy as much as the things that — I like building businesses, Larry, and . . .

KING: But you accepted the post?

SKILLING: Yes, sir.

KING: Why did you stay so short a time?

SKILLING: Well, you know, I’d actually like to kind of turn it around on you a little bit and I think probably the question a lot of people have asked is why did I stay as long as I did?

KING: I mean, as Chairman, you only stayed — as CEO, you only stayed February until August. That was too long?

SKILLING: Well, as we built the business in the 1990′s, as I said, I enjoyed that. We were building a — what I thought was a fantastic company. We had great people. We were changing — we were changing the way the marketplace operated. We were creating a market for natural gas and electricity that had never existed before. But I will say it took a toll on me personally.

It was a very difficult 10 years of very hard work. In the fall of the year 2000, there just happened to be a decision point when they asked me to become Chief Executive Officer of the company. It was a time when, as you remember, we were starting to have some real problems in the California energy markets. We were starting to have some problems with a power plant project that we had in India, and we also began to have some problems in a broadband business that we had created. And I felt that before I could, in good conscious, leave the company, I had to make sure that we got all those things taken care of.

KING: Was it Kenneth Lay that asked you to take the job?

SKILLING: Yes, and the board of directors.

KING: All right, why the decision to leave?

SKILLING: Well, I think at that point, the next six months was tough. I mean, it was very tough.

KING: Did you see bad things coming?

SKILLING: No, absolutely not.

KING: Did not?

SKILLING: Absolutely not. In fact, let me — let me absolutely clear on this. When I left — I left on August 14 of the year 2001 — I believe the company was in — was in great shape. I believe that the financial records, which have created so much controversy in the company, subsequently, were an accurate reflection of my understanding of the financial condition of the company.

KING: You left with a clear conscience.

SKILLING: Not only…

KING: You didn’t see anything? SKILLING: Not only that, Larry, I’d go even farther than that. I think we had made some tremendous progress in the six months before I left.

KING: Then why did you leave?

SKILLING: I was tired.

KING: Just tired?

SKILLING: Well, you know, for anyone that has started a business, and — you know, we started a heck of a business. And this business, as I said, I was chairman, chief executive officer, and only employee of Enron Financial when I came. We built that into a wholesale business that became, really, one of the largest companies in the United States. We had success in building new markets, opening markets for competition, and that takes a personal toll.

I think most people probably would have described me as a — as a workaholic and I think — I think that’s probably fair.

KING: Well, workaholics like to work.

SKILLING: Workaholics like to work, but it does take a toll, and I believe in — from a personal standpoint — my own personal life, there were a lot of things that I had neglected, and . . .

KING: Family?

SKILLING: My family, my community, things that I personally wanted to do that I hadn’t done yet.

KING: Did Mr. Lay and the others try to talk you out of it?

SKILLING: Yes, but I think — I think at that point, I think Ken knew that I was — I was convinced that it was the right thing for me and the right thing for my family.

KING: Are you saying, Jeff, then, when this whole thing broke, you were as shocked as everyone else?

SKILLING: Larry, I spent probably most of my professional life helping to build Enron Corporation. I don’t think there was anyone that was as shocked by the — by the collapse of the company as I was.

KING: And now, in retrospect, can you say: ah, I should have known it then? Or, I should have seen this coming? Or, should of, would of, could of? Retrospect, what could I do different?

SKILLING: Well, you know — and I’ve said before — you know, I’ve gone back and, as I’m sure you would do, as anyone would do, I’ve gone back through the last five years with the company and I’ve thought about all of the decisions we made — some related to some of these issues that have come up subsequently — and I believe that, given the information that we had at the time and the data that we had at the time, I think we made the right decisions. KING: Did you have wrong data?

SKILLING: I think, looking back on things, I think we’ve — given what we had at the time, we made the right decisions. Are the things that now, in retrospect, with what I’ve seen happen to my company, would I have done some things differently? I think — I think we all would do — we would do a number of things differently.

KING: Wall Street analysts said yesterday — the other day, that they were led astray by Enron executives who promoted it up and they promoted it up while they knew it was going bad. Were you one of those they were referring to?

SKILLING: Well, I don’t know what the analysts said yesterday. I think — I think — it was my understanding most of them said they were as surprised as I was with what happened to the company.

KING: But they said they were given elevated positions by executives at a company.

SKILLING: I don’t — I don’t think there’s any doubt that all of us in the company felt very good about the company.

KING: So when you issued optimism on the company, it was honest optimism?

SKILLING: Honest optimism, Larry.

KING: We’ll be right back with Jeffrey Skilling. His attorney Bruce Hiler is with us. You’re watching LARRY KING LIVE. Don’t go away.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Do you swear that the testimony you are about to give is the truth, the whole truth and nothing but the truth?

SKILLING: I do.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: 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, why you failed to understand things that any diligent CEO would have understood.

(END VIDEO CLIP)

KING: We’re back with Jeff Skilling. His attorney, Bruce Hiler, is also with us.

Was it difficult the other day to sit next to Sherron Watkins who was saying things damaging about you?

SKILLING: Well, no. You know, I think we’re all trying to get the answers. I mean, there’s some missing pieces of this puzzle and we’re trying to get some answers. And…

KING: You angry at her?

SKILLING: Am I — am I angry at her? I’m not angry at all. I think Sherron is absolutely entitled to her opinion. Sherron’s not entitled to her own facts, but Cheryl (sic) — Sherron is certainly entitled to her opinions. I think some of the things that she said about her opinion of what I was thinking I think were incorrect, but, you know . . .

KING: But she used a tough word when she said she believes you and Mr. Fastow “duped” Ken Lay and the Enron board.

SKILLING: Well, actually…

KING: That’s a strong charge. That means (UNINTELLIGIBLE)

(CROSSTALK)

SKILLING: … Larry, I think, actually — I think she said that during some of the House testimony. I don’t believe she said that in the Senate testimony. And I don’t know if she’s changed her mind or what, but, you know, again, Sherron’s entitled to her opinion. Sherron’s not entitled to her own facts.

HILER: Larry, I’d like — that’s another thing. I mean, Congress has, obviously, treated her as a heroine. I personally don’t think she’s either the heroine or the finder of truth. She does just have her opinions and views. Her lawyers obviously told her to start her sentences with “in my opinion,” or “in my view,” but one of the big problems here is that Congress has taken her opinion — and they know it’s simply opinion — and dressed it up as fact, and presented it to the American people as fact. And that, in our view, is really irresponsible because the American people begin believing that someone’s unfounded view or opinion is factual, and it causes a lot of confusions.

KING: Back to like when — what did you know and when did you know it? Was she in a position to know the things she’s talking about?

SKILLING: I don’t — I don’t think so. She couldn’t know what I was thinking and was making — had an opinion about it. But, Larry, you’re going to have to ask her.

KING: I guess the most damaging thing for you, in the public opinion, which, maybe in this area you can help us with, is the picture of you urging people to buy the stock with reports of you selling the stock. That looks — it looks duplicitous. What’s the response?

SKILLING: Well, actually, you know, it’s kind — it’s kind of interesting because I hadn’t seen that video tape before Senator Boxer showed it at the Senate the other day. I think what the videotape actually showed is someone else saying that you ought to buy the stock and this is a great thing.

KING: But you were standing there, smiling.

SKILLING: And I think…

(CROSSTALK)

KING: You weren’t disagreeing. You didn’t stand there and go…

(CROSSTALK)

SKILLING: I thought the stock was a great buy. I think anybody that bought the stock in 1999 was — saw over the next couple of years a strong growth. During the year of 1999, I significantly increased my ownership of shares in the company. So I — to the extent that matters for anything, I’ve believed in the company, Larry.

KING: But you did sell, though, right?

SKILLING: I sold some shares, but on a net basis, significantly increased my ownership.

KING: In other words, you spent more than you got?

SKILLING: I bought more than I…

KING: Yeah, that’s what I mean. You bought more than you sold.

SKILLING: Yeah.

KING: Therefore, did you lose a lot of money in this?

SKILLING: I don’t think — over the last three or four years, I don’t think at any time was less than 90 percent of my net worth in Enron Corporation. I am still a major shareholder of Enron Corporation. The only stock I owned — the only stock I owned was Enron Corporation. Was I believer in Enron Corporation? Yes, sir, I was.

KING: Had you not sold, would you be up against it now?

SKILLING: I’m sorry?

KING: Had you not made those sales of stock in ’99?

SKILLING: Well, I think, over the years, I sold a very small portion of my ownership position in the company, and I lost the rest. I lost a significant — now, I’m not, you know, in no way am I trying to say that I’m a victim of this because I know a lot of people that have been caught up in this — in this with the organization and the company who have been hurt more than me.

KING: What could be done about that by the way? What do you think as a — as a — as a citizen, as a former executive, could be done about someone wiped out?

SKILLING: Well, I think there are remedies. I think there are a whole bunch of lawsuits that are — that are in process right now and I think that’s — and certainly, the appropriate authorities are looking at the 401(k)s and pension plans to try to protect the interests of the — of the employees.

KING: Do you think the government should back up large 401s? I mean, 401s held by private corporations?

SKILLING: Larry, I just don’t know enough about the mechanics of the pension system and how it ought to be.

KING: Is there money to pay the lawsuits? What if they all prevail?

(CROSSTALK)

SKILLING: … that knows.

HILER: If they all prevail? Well, we don’t think they will prevail. In fact, I think, even with the Powers report out there, that a lot of people have talked about, that report is not really probative, and that when the postmortems are in, they will show that this company really was in good financial condition and it was a classic run on the bank.

KING: Then what happened? A run on the bank?

HILER: Run on the bank.

SKILLING: What I think happened, Larry, is that there were allegations of accounting problems — accounting irregularities. In the business world, allegations of accounting irregularities is tantamount to yelling fire in a crowded theater, except, today, in our Internet world, instead of people running for the exit signs, they just push the button on their computer. And I think it was a very short — in a very short period of time, there was an absolute flight of liquidity from the company.

KING: Could the company have done something? For example, there are some companies, when there are accounting irregularities, they immediately come out and say this was a misplaced thing. We’re taking a loss here. Should Enron have done something on that day?

SKILLING: Well, I was …

KING: You weren’t there.

SKILLING: … I wasn’t there, Larry.

KING: What should they have done?

SKILLING: I just don’t know what the issues were.

KING: Do you think this was a snowball effect? SKILLING: Yes, sir. I think it was — I think it was run on the bank.

KING: Is it, therefore, Arthur Andersen’s fault?

SKILLING: I think Arthur Andersen, you know — in fact, shortly before — actually, it was shortly after the earnings issue, there were a number of adjustments that were made; retroactive adjustments to the income statement and to the balance sheet.

What’s interesting about those is that none of them impacted the cash flow of the company and none of them impacted the future earning capacity of the company. There have been some other allegations about a set of partnerships that were called Raptor. I can tell you in the — in the board of directors meeting that Arthur Andersen — it was represented that Arthur Andersen and the lawyers had looked at it, and Arthur Andersen and the lawyers thought that the structure of those partnerships was entirely appropriate. So…

KING: That’s what Andersen told you?

HILER: Right, and, Larry, we’re not assigning blame here, or trying to assign blame. I mean, the point is that, as in any corporation, the CEO, the board of directors rely on experts, and this company had hundreds of them. Very, very expert derivatives and financial experts, as well as all their accountants and lawyers.

KING: Lay — Ken Lay says he feels betrayed by those who reported to him. I guess, does that include you?

SKILLING: I don’t know. You’re going to have to ask…

KING: Have you spoken to him?

SKILLING: No, I haven’t spoken to Ken. We…

KING: Were you friends?

SKILLING: Yes.

KING: Is the friendship over?

SKILLING: No.

KING: You still consider yourself a friend of Ken.

SKILLING: Yes.

KING: Do you think he’s OK in his statements that he didn’t know anything?

SKILLING: Well, again, I…

KING: Statements — it is written in the public, he didn’t testify. SKILLING: Larry, you know, I left on August 14, and I can tell you that on August 14, I had no idea that there was an issue with the financial statements of the company. And on August 14, I can’t believe that Ken would have had any knowledge of an issue with the — with the accounting statements. So…

KING: Something went wrong somewhere, though, right? Were you too big? I mean, you can’t keep your hands on everything, right? You know the name of the guy who headed the mail room?

SKILLING: No, I don’t.

KING: You don’t, OK. Some CEOs — it’s hard to be. You were not a hands-on CEO, then?

SKILLING: Well, I think in any company — Enron was a large company. We had operations in, I think, 33 countries. We had 24,000 employees around the world. I tended to focus my areas — I think, if I look at what I thought I was particularly good at, I was good at things like building businesses and spent time on areas of emphasis in the company.

KING: I think someone said you were good at that and not a manager, though. It is guilty as charged?

SKILLING: Oh, I’d say that my forte, the thing — the thing I liked the best was building things, so we…

KING: You’re sorry you took the CEO job, aren’t you, Jeff? You are sorry you took that job.

SKILLING: Oh, I don’t know, you know.

KING: You liked the other job better.

We’ll be right back with Jeff Skilling and Bruce Hiler. Don’t go away.

(BEGIN VIDEO CLIP)

SKILLING: I am here and prepared to answer the committee’s questions because I have nothing to hide. I take and will continue to take full responsibility for my actions as a senior executive of Enron corporation. While I worked at Enron, I served the shareholders and the board of directors faithfully. When I left Enron on August 14, I did not believe the company was in financial peril and I have no knowledge — and had no knowledge of any wrongdoing by its employees.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

KING: We should have asked you at this point, Jeff Skilling: has the press been fair to you or unfair, generally? I mean, the “Wall Street Journal” quoted you as saying you would have stayed with the firm if the stock price had stayed up. You’re saying here you left because you were just flat out wanted to go back to family, and tired of it. Have you been treated fairly?

SKILLING: Well, yeah. I mean, that specific instance, I think I made it quite clear that there were personal reasons, that were the reason that I left. And, sure, the stock price in the end, as it was going down like many other factors that you evaluate, impact your personal response to things. And, so, I can’t say that it was incorrect or I was misquoted. But I can’t say that the…

KING: How, generally, have you been treated?

SKILLING: I think the — just in general, that the allegations in the press have been unfair. I think in many cases, the judge and jury have already met and they’ve already convicted at this point, with no trial.

KING: And you think that was due to the press or the Senate and the House treatment of you?

SKILLING: Well, I think — you know, I certainly think that the Congress was acting as judge and jury. I don’t think the Congress was acting as a fact-finding entity, trying to figure out what happened, which is the reason I was there. I was trying to help fill in the missing pieces. But I think that the Congress was — I mean, it’s an election year, and during an election year, I guess you would expect something like that to happen, but I think that Congress is acting as judge and jury. And in my opening statement, I mentioned to them that, in my view, the framers of the Bill of Rights are watching and the Bill of Rights — the framers of the Bill of Rights, I think they knew tyranny.

KING: In the past — in the history, Congress would get mad — more angry at the people who took the Fifth than those who testified. Is that a reverse now?

SKILLING: I — Larry…

KING: Testify at your peril, do you think? You’d still to it again, though?

SKILLING: Oh, absolutely, I would do it again.

HILER: Larry, I’ll be a little less…

KING: Political.

HILER: Gentle. A little less gentle than my client. I think it’s a highly politicized process. I think they want good guys and bad guys. They want heroes, heroines, and…

KING: And he’s a bad guy?

HILER: … and they’ve decided he’s a bad guy, and that’s something I think Jeff should talk about, because I think there’s a real danger in Congress saying, “you were the CEO, you were there, you made some money on stock sales, therefore, you’re it.” We’re going to make you guilty. SKILLING: That’s the old Truman thing, isn’t it? The buck stops here.

HILER: Well — but, you know, this is a big company with a lot of people. And one thing I want to say about Congress specifically is; if they’re going to try to find facts — and they’re not really the type of agency organization that can do that, and I really think they ought to leave that for the people that can — you have to start with the truth.

The other day — one example — when we are tracking all the different statements that are made and the speeches that are made by Congress and all the things that they get inaccurate, and they are legion, but Senator Dorgan pulled a chart out at the hearing the other day and he had the top 10 largest companies in America, and it purported to show all the subsidiaries they had, and then it showed Enron with a lot more subsidiaries. And there were a lot of, you know, the top 10 companies on this. We had in one day, from the same sorts of sources they used — public filings with the SEC — found that their chart understated the number of subsidiaries that these companies had by two to 10 times.

KING: So the chart was wrong.

HILER: Absolutely, and in one case, Larry, very dramatically, they put down information unavailable for one of the top 10 companies. We, in one day, have found out that there were at least 1,714 subsidiaries. You can’t get the truth if you don’t start with truth.

SKILLING: So, do you say to yourself, Jeffrey, why you? Why are you the boy, since you had left in August? Does it look like — do they think — are they malicious? Is it political? Do they — do they think because you left, you knew something was coming and you bailed? Why you?

SKILLING: Larry, I think a lot of people have been hurt by this. I mean, there is no question that a lot of people have been hurt by this. And, in that kind of environment, I think people look for who’s at fault.

KING: And they’ve accepted Sherron as fact.

SKILLING: I think the Congress has decided — the United States Congress has decided that I am guilty until proven innocent.

KING: Do you think she has a purpose?

SKILLING: I don’t know. You’d have to — I don’t — I don’t…

KING: Well, you know her well, though, don’t you? I mean, you worked with her.

SKILLING: I know — I know Sharon. You know, when you ride up and down the elevator I would say good morning to her and good afternoon.

KING: You didn’t work a lot in contact with her? Talk to her a lot every day?

SKILLING: No.

HILER: See, that’s one of the problems. She doesn’t have facts on my client, and I think part of her motivation was very clear in her first letter to Ken Lay, the August 14 one that was published. She said: what are the rest of us, who didn’t get rich going to do at Enron? I think she’s discovered what she’s going to do. She has a lucrative book deal.

KING: How well did you know — do you think that’s part of it? How well did you know the late Cliff Baxter?

SKILLING: I knew — I knew Cliff very well.

KING: Were you shocked at that? His suicide?

SKILLING: Oh, yes, I was shocked.

KING: What do you make of it? I mean, everyone knows someone who — if you know someone who killed themselves, all you do is think about why. Why do you think he did that?

SKILLING: Larry, Cliff and I were very close — very close, and I know — I know his wife very well. I know — I know his family. They are very private — they’re very private people and I just as soon not — could you ask Carol, his wife, her view?

KING: You were that close?

SKILLING: Cliff and I were very close. Cliff was my best friend.

KING: Your best friend at the company?

SKILLING: Yes.

KING: OK, I don’t want to pressure you, if that’s not where you feel like you want to go. How do you feel abut Mr. Fastow?

SKILLING: Well, I worked with Andy for a long time, as well. Andy is a very bright, very energetic person. And, just in the same way that I sure hope people aren’t pointing accusing fingers at me, I’m going to wait and see how the facts come out before I want to start pointing fingers at anybody else.

KING: He was chief financial officer, as everybody knows.

SKILLING: Yes.

KING: Would be — would — who do you focus on in a big company if something goes wrong? Do you focus on the chief financial officer, the CEO, the chairman of the board?

HILER: That’s a problem. You want — what Congress is doing is they’re just focusing on the CEO, or wherever the easiest target is. KING: He’s the only one talking to them.

HILER: Well — and that’s right. You — but you need to focus on the facts, and you need to find those, and those facts aren’t out. There are some indications of people receiving money from investments that the board of directors didn’t know about. That’s a good place to start. My client isn’t one of those.

KING: Those people — you saying people at the company who got money from what?

HILER: From investments that were not authorized by the company, or were not disclosed to the company that maybe should have been. That’s a good place to start, but we’re not — you know…

KING: It’s a big company, Jeff, can you hide things? Are people in position to hide things from other people? To generate money from it?

SKILLING: I mean, Larry, we had, as a company, I believed, one of the best control systems in the world. I mean, we had a risk control group that had hundreds of people. We had — we had hundreds of accounts, hundreds of lawyers.

It used to be kind of a joke in Enron that you couldn’t go to the men’s room without the accountants and the lawyers going in with you. We had a lot of spent time — the board spent time, the audit committee, management spent time putting good controls in place. Can those controls catch everything? Of course not. It just can’t happen.

Does a CEO of McDonald’s company go and close out the cash drawers of every store every night? Does the president of General Motors go down and check out as the shift punches out and changes? You just can’t do that. You have to have systems and people in place to manage, and you rely on those systems and you rely on those controls and you rely on the people within the company.

KING: Jeff Skilling’s our guest. His attorney is Bruce Hiler. We’ll be right back.

(BEGIN VIDEO CLIP)

SKILLING: What has happened thus far, primarily in the House, should be cause for concern of every American. The entire management and board of Enron has been labeled everything from hucksters to criminals with a complete disregard for the facts and evidence assembled. These untruths shatter lives and do nothing to the public understanding of what happened at Enron.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

KING: We’re back with Jeff Skilling. His attorney is Bruce Hiler. We’re here in Washington. What about the political aspect of this? The huge donations that the corporation made to people of both parties, the friendship, especially, with the former President Bush, what was that all about?

SKILLING: Well, Larry…

KING: Just part of doing business?

SKILLING: I think so. I mean, if you look at it — I think when this originally started, I think part of the reason that this has gotten so much attention is I think people thought there was a political scandal here and it just — I don’t think anyone’s gotten anywhere with that. It just doesn’t — just doesn’t hunt.

KING: Just — but there was a lot of donations made to people, and when you make donations, it gives you entree, right? I mean, you’re not just making it out of the clear blue wind; you’re making it to hope they effect change for you — both parties.

SKILLING: Well, I think, you know, the individuals — I know in my own case, when I made contributions to candidates, it was because I believed in them. I believed that — and they needed support and I personally would support them. I think if you actually go through the records and look at Enron’s contributions, they’re relatively low compared to a lot of very large companies in the United States.

We were in the process of trying to build a new business. The new business involved really remaking the way the natural gas and electricity markets ran, and we had a lot of entrenched competitors; monopolies, the local electric utilities, the local gas companies. When we started our broadband business, the local RBOCs, these were entrenched monopolies, and so, we as a company had to work real hard on our business — from the business side to help build these businesses. And, so, I think if you look at it in aggregate, I think it was probably just — I don’t think there’s any story there.

KING: Do you think you had clout over those energy meetings with the vice president, and the like — and eventual energy policy?

SKILLING: Larry, I wasn’t — I personally wasn’t involved in any of that. I just don’t know.

KING: You think they did?

SKILLING: I doubt it, but I really don’t know, Larry.

KING: In other words, you don’t think contributions buy some influence with either party? I mean, they — Kenneth Lay was a friend of both Bush and Clinton, right?

SKILLING: I think if you look at what happened — we had — again, I believe the company experienced a run on the bank. I certainly didn’t see any government agencies jumping in to help us out. So…

KING: The run happened so fast, didn’t it? SKILLING: It did happen fast.

KING: How do you explain that to yourself? I mean…

SKILLING: Well…

KING: … companies like Enron don’t go down that quick, do they? Kmart lasted a while.

SKILLING: One of the issues — and it’s an issue that I mentioned in the Senate testimony which is kind of interesting, because I don’t think people have picked it up, or spent a lot of time talking about it, but we were a company, as most companies in the future will be, that were based on intellectual capital. You know, the physical assets — the companies that compete in the physical asset business are moving increasingly offshore because the U.S. is just a high-cost place to do business. So businesses in the U.S. are going to become more based on intellectual capital than they are on on hardware.

KING: No car.

SKILLING: Well…

KING: There isn’t the car.

SKILLING: It’s going to be brains, and that kind of business depends an awful lot on the confidence of the people that you do business with. And, so, if that confidence, for whatever reason, goes away, you can see a flight of capital very quickly. I think it was exacerbated in this case, and something that I hope the Congress looks at is that part of the issue was that, as confidence declined in the company — and this is my hypothesis, Larry.

KING: OK.

SKILLING: … that we were an active player in the derivatives market. We were — which are important to help people shield themselves from price risks in natural gas and electricity. Those derivatives were typically written to something called an ISDA standard, and that — I know it sounds complicated, it’s actually — it’s pretty important. But — International Swap Dealers Association — they all had something in them called MAC clauses; material adverse change clauses.

KING: Break it down for the — for the dumb.

SKILLING: For the — for the average guy, what it means is that when people lost confidence, you could trigger a MAC clause and pull money out. And, so, in a very, very short period of time — and, again, this is my hypothesis — but in a very, very short period of time, billions and billions of dollars were being pulled out of the company.

KING: Was this, then, preventable? SKILLING: I think Enron, when it all — when it all is said and done, might turn out to be a little bit of the canary in the coal mine. That I think there are some structural things in the economy right now that — unfortunately, a lot things happened altogether. The old, sort of, what they call the storm — the perfect storm kind of analogy that a lot of things happened suddenly and once that — once that domino starts falling, it’s pretty darn hard to stop it.

KING: Therefore, you are pessimistic about making it preventable elsewhere?

SKILLING: I think there are probably some things that should be — should be looked at, and I have suggested some places that I would have looked if I were looking at general policy…

KING: More regulation?

SKILLING: I’m not a — I’m not sure that regulation, in the long run, makes a big difference. I think there’s some business practices, for example, in the derivatives business, it is literally a hundreds of trillions of dollars business, and there are the clauses in contracts that get automatically triggered, which I think it makes it tough when you begin to have that problem to stop it.

KING: A trillion here, a trillion there, it mounts up.

SKILLING: It does add up.

KING: We’ll be right back with Jeffrey Skilling and Bruce Hiler. Don’t go away.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: During that period of time, February ’99 to June 2001, did you convert stock worth $66 million at that point? Did you sell $66 million in stock sales?

SKILLING: What was the time period?

UNIDENTIFIED MALE: February ’99 to June 2001.

SKILLING: 2001. I don’t know, but I have don’t the records with me.

UNIDENTIFIED MALE: Would that be surprising to you to learn that you did that?

SKILLING: No, that would not be surprising.

UNIDENTIFIED MALE: And do you consider $66 million a great deal of money?

SKILLING: Yes, it is, sir.

UNIDENTIFIED MALE: Do you still have most of that?

SKILLING: Yes, I do.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

All right, it must be asked: what did you make of the report from the Enron special committee; the 217-page report submitted earlier this month? An investigation done for Enron’s board, probe headed by William Powers, said that you, Jeff Skilling, certainly knew, or should have known, of the magnitude and the risks associated with the transactions.

And it also said: “Skilling who prides himself on the controls he put in place at many areas of Enron, bears substantial responsibility for the failure of the system of internal controls to mitigate the risk inherent in the relationship between Enron and the partners.”

Your chance to respond.

SKILLING: Just — Larry, I just don’t buy it. I mean, we set up — when the partnerships were set up, every — we knew about them, and some people have said: Skilling says he didn’t know, and — absolutely not true. We in the board approved the creation of the partnerships. At the time we created the partnerships, we put in place a set of controls to manage — we knew a conflict of interest was created, and we put in place a set of controls to manage and eliminate that conflict of interest. It didn’t work.

HILER: Just to be clear, I mean, the partnerships were put together by somebody else, but the board…

KING: The board approved.

HILER: … approved Andy Fastow’s involvement with the…

(CROSSTALK)

KING: But the controls didn’t work?

SKILLING: It’s not clear yet. It’s still not clear exactly what happened.

KING: The report, then, is…

SKILLING: Well, I think…

KING: … too soon?

SKILLING: The Powers report — in particular, one of the — one of the things the Powers report spent a lot of time on is, they talked about the set of transactions that were called Raptor transactions, where they were related to this LJM partnership. The Powers report says that the accounting for those was inappropriate.

Larry, all I can tell you is that we were — we, the board of directors, Ken Lay and myself, were assured that Arthur Andersen, Vinson and Elkins, our law firm, had thoroughly reviewed those partnerships and they were appropriate.

Now, the Powers report apparently has gone out and gotten a different accountant, and the other accountant is questioning that. Well, you know, OK, let’s have dueling accountants, you know.

KING: Does the CEO have to listen to his accountants? I guess it’s not the accountant, right? There’s no other course, but to listen to his accountants.

SKILLING: Well, I think you have accountants there to give you their professional advice on how things should be accounted for. I guess you could probably go out and hire two accountants, or three accountants, or five accountants. And if you do that, I think that’s called opinion shopping and that’s illegal.

KING: Jeff, do you ever — moments at all, ever have any feelings, morally, forget legally, a responsibility?

SKILLING: Larry, again, I can’t tell you how catastrophic this has been for myself and for a lot of other people and I don’t — I don’t — again, I don’t want to try to make it sound like I’m a victim because a lot of people have been hurt a lot more than I’ve been hurt in this. But, did — what did we do wrong? What did the board do wrong? You know, you go back and you look at it, and I think we made the right decisions. We had good people, we had good control systems, we had accountants, we had auditors, we had lawyers. Can you go back and — I…

KING: No, personally, do you ever say, I should have done this?

SKILLING: Larry, I honestly…

KING: No, I want…

SKILLING: … have gone back in…

KING: Honest, there’s nothing you could have changed, as you saw it, the day you left in August?

SKILLING: I think when we made decisions — and I’ve agonized — I mean, I’ve agonized…

KING: I bet. Sure.

SKILLING: When we made the decisions, based on the information we had at the time, I think we made the right decisions.

KING: How have you been treated by friends, people in Houston?

SKILLING: Well, people say when you go through something like this you learn a lot.

KING: Sure do. Who your friends are, and… SKILLING: Who your friends are, and who your friends aren’t. I think I have gotten a tremendous amount of support in the city of Houston. I would like to tell the people in the city of Houston I really appreciate it. I think Houston maybe, of all places in the world — you know, we went through the oil and gas bust in the 80′s and all, and people kind of know things happen, and you can be a good person, you can be doing your best, and things can go wrong for you. So I think I’ve gotten support from an awful lot of people.

KING: Anger from some, too?

SKILLING: Absolutely, I think — I think there’s some people that I think, justifiably, are angry. This was — this is a tragedy. I mean, there’s no question it’s a tragedy, but I think, over time, what I’m assuming — I am not — and people said are you going to — are you leaving the city of Houston? I’m not leaving the city of Houston. It’s my home. It’s where — it’s where my children are. It’s where my friends are. I’m going to do all I can to help in this process and see if we can get the answers, fill in all the pieces, and I think when all is said and done, I think my friends and my family are going to feel pretty good about what I did at Enron Corporation.

KING: Bruce, is it tough when the client is up against it media- wise? Image-wise? Image is part of our culture.

HILER: It’s very difficult, especially when there is, you know, interest by a number of regulators and potential prosecutors and you have to be concerned about…

KING: Do you fear him being indicted?

HILER: I do not. I do not think that should be in the cards, you know, and I think we know an awful lot about the facts. A lot of facts have to come out yet. The media is getting them wrong, also. Constantly, we see things reported in the media as facts. We see Congressmen and Senators giving speeches claiming that they are facts.

(CROSSTALK)

KING: But isn’t the media just reporting what…

HILER: You know, they’re trying to draw their conclusions, too, but some of them are just getting it wrong. We had a correction the other day in one of the major newspapers that said my client testified that he didn’t know about the LJM partnerships. Well, that’s absolutely not correct.

KING: When you read…

HILER: That is something fundamentally wrong.

KING: … something that’s totally wrong, how do you react?

HILER: It’s — when I read — Larry, this is every day. I mean, I wake up in the morning and I go down and get out the newspaper and I would guess — you know, when I see something — I was in a meeting, or I was there, and the representation of it — right now, we’re getting maybe a third of it right. And when you read this, it’s like getting punched. It’s…

KING: We’ll be back with our remaining moments with Jeffrey Skilling and his attorney, Bruce Hiler, right after this.

(BEGIN VIDEO CLIP)

SKILLING: My only reccollection of the restructuring of the rafters is that I was told that they were restructuring the rafters. I asked if the accountants had signed off on it. It looked OK and I was told that it was and went along with it.

SEN. JOHN MCCAIN (R), ARIZONA: Was it your responsibility to know?

SKILLING: Sorry?

MCCAIN: Was it your responsibility to know?

SKILLING: As I said, Senator, I am not an accountant.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I want to tell you, if you look at Ms. Watkins’ testimony, she says it in a sentence. “My understanding as an accountant — she says — is that a company could never use its own stock to generated a gain or avoid a loss on its income statement.” Did you — is that true? Were you aware of that?

SKILLING: I am not an accountant.

UNIDENTIFIED FEMALE: I didn’t ask you that. Is her statement true?

SKILLING: I think I’d have to be an accountant to know if it’s true.

(END VIDEO CLIP)

KING: A couple of other things as we wind it up. When Senator McCain said he was shocked that you couldn’t remember millions of dollars in bonuses, is that true? You didn’t remember millions of dollars in bonuses?

SKILLING: He asked me what — if I remembered what my bonus was last year, and I don’t — I don’t. If you asked me what my salary was last year, I can’t tell you.

KING: You didn’t know your salary?

SKILLING: No, sorry, it just — and I think this might be, you know, indicative of part of the things like I said. I mean, I think I’d probably…

(CROSSTALK)

KING: You had a good job.

SKILLING: I had a — I had a good job, no question about it, but I think there’s some imbalances in my life. You know, I think my — I spent probably all of, you know, 10 minutes a year thinking about my finances. I didn’t…

KING: Didn’t know your net worth?

SKILLING: Did not know my net worth.

KING: Do you know your net worth now?

(LAUGHTER)

SKILLING: Yes, I do now. I had to do that.

KING: Is it less than it was?

SKILLING: Oh, it sure is.

KING: When Senator Boxer pointed out that you have this, what, masters from Harvard…

SKILLING: Yes.

KING: … that you should know accounting.

SKILLING: Well, I think, actually, what Senator Boxer said — and this is classic, Larry. This is absolutely classic — she said, Well, the, you know, Accounting 101 suggests that you cannot use your own stock to impact your income statement. And she says, You didn’t know that? And I said, Senator, I didn’t know that. And she said, And where did you go to school? I said, Harvard Business School, and the audience kind of laughed. And the reason I don’t know that is that I know for a fact that that’s not true.

A classic example: executive stock options. Executive stock options reduce compensation expense, increase profitability, using your own stock. That is classic contrary situation. In fact, Senator Boxer introduced the legislation that allowed that accounting treatment to be continued.

KING: Do she now know this?

SKILLING: Well, I pointed it out to her and she got off the subject pretty quickly, but I believe that that’s one exception. I’d imagine — I know there were hundreds.

HILER: There is accounting literature that allows the use of your own stock in a derivative transaction. In addition — I mean, this is an example; they wanted to ridicule him about not knowing accounting or relying on accountants and the control structure. They know in the real world every CEO does that. In fact, they rely on people. This chart that I was talking about, which we someday will make available to the media, they got that wrong. I would assume the Senator would say he relied on people to give him that information.

KING: A couple of other things: you a baseball fan?

SKILLING: Yes, I am a baseball fan.

KING: Feel bad about Enron Field is no more? It’s Astro Field.

SKILLING: I think it’s a tragedy.

KING: They had to remove the name, though. Don’t you think?

SKILLING: I think so.

KING: They had to. What do you say to people who lost? I mean, when they come up to you, I lost all my savings.

SKILLING: I can — I can only — I can apologize to the — I will apologize until the day I die to people for what Enron has come to represent. It was a tragedy — it was a tragedy.

KING: What do you want to do with your life, Jeff?

SKILLING: I don’t know, Larry. You know, at this point, I think my purpose, right now, in life — what gets me up in the morning, which, some mornings, it’s pretty tough to get up, but my purpose in life right now, getting up in the morning, is I want to be someone that goes out and helps explain what happened.

There are a lot of employees out there that, I imagine, have children that go to them and say, Mom or dad, did you work for a criminal organization — a bad company? We weren’t’ a bad company. We were — we were — we thought we were building a great company. We thought we were building a company that was helping to open and create new competitive markets, give customers choice where choice never existed before. We felt good, all of us, and I think if I can do anything to get the message out so that — so that our employees can look at their children and they can say we were part of a good organization. Something happened. It was — you know, and we will find out what happened, but it was not because of the motives of the people that were involved, either their motives or certainly my motives. We were trying to build a great company.

KING: It’s going to consume a lot of your life, then.

SKILLING: Yeah, I would imagine this is going to take — this will probably take up the next five to 10 years of my life.

KING: Thanks, Jeff. Thank you, Jeff.

SKILLING: Thank you, Larry.

KING: Thank you, Bruce. Our guests have been Jeff Skilling; he is former CEO of Enron, and Bruce Hiler, his attorney. I’m Larry King, thanks for joining us. LARRY KING WEEKEND tomorrow night. We’ll be back live on Monday. Good night.

Enron Executives Were Underpaid

The (Canadian) Globe and Mail launches a screed about executive pay thusly:

Bosses – are they worth it? A series of corporate-world disasters over the past decade – the internet bubble, Enron, banks – suggests that a lot of executives are overrated.

Enron is never mentioned again in the article so we don’t know what proof she has to support her position that Enron’s compensation was proof that executives are overpaid. However, I’ll take a stab at talking about Enron executives’ pay.

First, if you have a problem with executives’ compensation, take it up with Towers Pirren, a consulting firm with whom Enron devised its pay packages. Like everything Enron did, auditors and lawyers were circling like hawks. Enron, in its zeal to be transparent, loved to spend money on outsiders and advisers. McKinsey, Arthur Andersen, and Vinson and Elkins all advised Enron. Of course the company would outsource the pay packages.

In a 1999 proxy statement, Enron’s board said its goal was to set executive pay in the 75th percentile of its peer group. It’s not completely clear whom the board included among its peers. It did not expressly list its peers, but did compare itself to Duke Energy, Dynegy and PG&E to assess overall corporate performance.

Thus it is difficult to know if Enron executives were objectively overpaid. Were I to design a study on the situation, I would define Enron’s peers as those alike in market cap, number of employees, and income, then try and figure out what they were paying. The companies listed above were smaller than Enron; I would not be surprised to learn Enron paid more than them because Enron was not a peer.

In its proxy statements, Enron’s board said its “key performance criteria” for executive compensation included, “funds flow, return on equity, debt reduction, earnings per share improvements and other relevant factors.”

By these benchmarks, Enron’s executives did well. Between 1996 and 2000, revenue increased to $100.8 billion from $13.3 billion. Enron’s earnings per share grew to $1.22 from $1.12. Reported earnings climbed to $979 million from $584 million.

The compensation of the top-earning five Enron executives (Ken Lay, Jeff Skilling, Stanley Horton, Mark Frevert, Ken Rice) was inexorably tied to the health of the company. See for yourself:

Year	1996	1997	1998	1999	2000
Top Five Executive Salaries	$3.04	$3.13	$3.62	$3.80	$3.61
Top Five Bonus Payments	4.70	1.85	9.46	11.30	17.55
Top Five Stock Grants	29.71	62.51	54.74	81.40	85.61
Top Five Total Compensation	37.46	67.48	67.82	96.50	107.67

Eighty percent of their compensation was stock. Their livelihoods depended on that stock. The best interest of the company was their own best interest – which is how it should work. Compensating executives with stock is supposed to cement allegiance to the company, keeping them there for a long time (thus the vesting scheme) and doing their best to keep the stock price high.

Between 1996 and 2000, the average chief executive salary and bonus increased by 24% to $1.72 million, according to a Forbes study. Total CEO compensation, including stock options and restricted stock grants, grew 166% to an average of $7.43 million. But look what the top five Enron execs were making.

Their salaries grew only 2.6% from 1996 to 2000. Their bonus payments grew 16.55% from 1996 to 2000. These two figures are well below their peers’ compensation. Their stock grants grew by 85.51% in the same time period – again, below their peers’ 166% figure. At the same time, Enron’s reported earrings grew 97% and revenue increased 99.8%.

That is what you call an argument that Enron’s execs were underpaid.

Enron Year 2000 10-K Disclosure: Broadband

I found an interesting risk related disclosure in Enron’s Year 2000 10-K. It is regarding Broadband.

In 2001, Broadband Services expects to continue
to expand the commercial roll-out of its content service
offerings including video-on-demand.

There are literally hundreds of examples of statements like these (i.e., “forward looking statements”) spread through analyst conference books, financial disclosures, press releases and other media. Enron – and Jeff Skilling – were very clear about the status of Enron Broadband Services.

A version had been up and running since 1999. The company streamed the Country Music Awards, an Andre Agassi tennis match and a Drew Carey show. But like Rex Shelby said on the stand, “Software is not complete until it is obsolete.”

Yet prosecutors and even some ordinary folks still claim that the EIN was vaporware. It doesn’t make Enron look criminal; it makes the accusers look foolish.

Speculating About Jeff Skilling’s Resentencing

An Enron exec and I were discussing Jeff Skilling. He said that he had lunch with his lawyer recently and the lawyer expects the judge to give him around 10 years. With good behavior, that makes 8.5 years and if he gets the drug and alcohol program he might get another year off for that. (This person stipulated that he had heard there were some changes to this program, so this isn’t rock solid.) So, that makes 7.5 years and he would get 6 months halfway house/home confinement, so that would make 7 years. He is completing his 5th year, so hopefully, he will only have only a year and a half to two years left to go.

I hope that is the case. Jeff Skilling is innocent; he does not belong in prison at all. But if he gets ten years, instead of 24, I will consider it a partial victory.

Enron and Apple

I’ve not been shy about my love of Apple products. I love the minimalist design of my computer, iPod, iPhone. I love how they just work. I love how they seem to be created with the express purpose of allowing others to be creative. When the iPod came out, I lost my mind; I was just blown away. How did they get such great sound in that tiny itty bitty gleaming white case? It was a piece of art I carried in my purse, a beautiful totem. I was seduced anew when in 2010 my crummy old Dell exploded and I needed a new computer. Big bought me a MacBook Pro. I was shrieking with joy at the purchase of this computer. It was amazing. I love everything about it – the fact that it integrates seamlessly with my iPod and my iPhone, the fact that it is beautiful, fun to use, and it feels like a device that supports creative passions, such as writing books.

What’s more, since I like CEOs in principle, I found Steve Jobs fascinating. When he passed away, I felt bereft. I worried that the creative spark that was born in every Apple product would fizzle, but I’ve come to believe the DNA is woven into the culture at Apple and will be there for generations. One can hope. Anyway, I began reading the Steve Jobs biography a few days ago, and I came across two passages that set off my Enron alarms.

Passage one:

Partly because of the poor sales of the Cube, Apple produced disappointing revenue numbers in September 2000. That was just when the tech bubble was deflating and Apple’s education market was declining. The company’s stock price, which had been above $60, fell 50% in one day, and by early December it was below $15.

This dramatic decline in Apple’s stock brought me up short. Though I remember the tech bubble bursting, I wasn’t aware that all companies were having these massive spikes and dips in their stock price. 50% in one day is alarming. Shocking, even. It was this fact that made me do a little research and realize that indeed, I had foolishly imagined that the market burst in a calm, orderly way with stocks s-l-o-w-l-y declining. Why I had overlooked that intraday turbulence as normal at the time, I don’t know – just a weird little blindspot. But it did serve to strengthen my belief that Enron was outperforming many companies in September 2000, notably Apple.

Enron’s stock closed at $85.33 on September 1, and was at $87.46 on the last trading day of that month. On December 1 it was $65.50 but by the last day of trading for the month (and the year) it was back to $83.13. Go Enron.

The second passage, which was actually the very next paragraph, was this:

Making matters worse was a June 2001 cover story in Fortune about overcompensated CEOs, “The Great CEO Pay Heist”. A mug of Jobs, smiling smugly, filled the cover. Even though his options were underwater at the time, the technical method for valuing them when granted (known as a Black-Scholes valuation) set their worth at $872 million. Fortune proclaimed it “by far” the largest compensation package ever granted a CEO. It was the worst of all worlds: Jobs had almost no money that he could put in his pocket after four years of hard and successful turnaround work at Apple, yet he had become the poster child of greedy CEOs, making him look hypocritical and undermining his self-image. He wrote a scathing letter to the editor, declaring that his options actually “are worth zero” and offering to sell them to Fortune for half the supposed $872million the magazine had reported.

Oh really? Color me interested. One thing I hadn’t done, which I probably should, was to go back and take a look at the Fortune archives to see what else they were reporting back then. We already know that in March, Bethany McLean had published “Is Enron Overpriced?” Then two months later, this hit piece on Steve Jobs came out (it was not written by Bethany McLean.) Fortune was definitely taking a jaundiced eye at CEOs, and lurid, lying portrayals seemed to be the mode of lashing out.Fortune seemed to be trying to stir up trouble by exaggerating and misrepresenting what was happening both at Apple and Enron. I am curious to know if Fortune published any positive articles at all during 2001 or if the publication was only interested in stoking class warfare.

While reading the book, I couldn’t help but compare Steve Jobs to Jeff Skilling. Steve Jobs was a tyrant, an ego-maniac who sucked the life out of people around him. He had an absolutely nauseating personality, prickly and short-tempered. Jeff Skilling was a prince. He could be demanding, but he didn’t humiliate people just for fun the way Jobs did. He was brilliant, but didn’t have weird affectations, such as practicing a “hard stare” that was designed to intimidate people. He was a doofy, brilliant guy who believed passionately and who was not without a great sense of humor.

Neither Steve nor Jeff saw their children as much as they’d like. Steve could be cold and mercurial to his own kids though, and by all accounts Jeff is a wonderful father. When he left Enron, it was for the purpose of spending more time with his children.

Another point zooms to mind, and this one really bugs me. After Dr. Lay passed away, there was some discussion about whether his heart problems had been revealed in the financial documents. I remember this public conversation very well and it angered me even then. But as I read the Jobs bio, that anger bubbled up anew. Steve Jobs was a narcissistic jackwagon who refused to have cancer surgery when his tumor was discovered, then refused to follow medical advice (the pancreas provides enzymes that make allow the stomach to digest food and absorb nutrients; after he finally had part of his removed some nine months after diagnosis, he had difficulty getting enough protein. The doctors advised eating meat and fish proteins as well as full-fat milk products. Steve, a vegan, stubbornly refused.) Even while he was going through these procedures, he refused to discuss the fact that he had cancer. Certainly nobody demanded he disclose this in his financial filings.

I am of the belief that CEOs are entitled to as much privacy as anyone else. I hate the fact that their compensation is discussed so openly. To give those busybodies a taste of their own medicine, I’m always tempted to say, “So how much money do you make? I think that’s way too much. You should give more to charity.” Some things, like money and health are nobody’s business at all. But CEOs, I suppose, are our cultural whipping boys right now so nobody is willing to shut up about these things.

The final point is that Steve Jobs was ensnared in what looks now like a quaint backdating scandal in 2006. He just had a run of bad luck and every time he would change the date of his options, they’d become worthless. But the SEC declined to pursue this for no real reason other than Apple acted “swiftly” to correct it – and probably the fact that Al Gore was on the board.

This made me think of the NatWest Three. They suspected something might be amiss with a deal they did with Andy Fastow and went to the British version of the SEC, and were promptly strung up like common criminals.

It seems to me in many ways that in the late 1990s and early 2001, the two companies were mirror images of each other. But Apple got the good fate and Enron was doomed to collapse.

Sexiest Man Alive

People Magazine has aggregated the collective conscious of tweens everywhere and pronounced Bradley Cooper the “Sexiest Man Alive.”

We here at Cara Ellison Corporation have said for years that the sexiest men alive are Enron defendants. So today, I pronounce Rex Shelby, Jeff Skilling, and of course, ANDY FASTOW the sexiest men alive.

How can I pick just one? They’re all so sexy in different ways. Rex Shelby looks British, therefore he’s sexy (which means the NatWest Three are also the sexiest men alive!) Jeff Skilling is sexy because he’s the wrongly accused hero and he’s gorgeous with those blazing blue eyes and sharp jaw.

And Andy Fastow is the sexiest man alive because he’s just so damn hot. So very very hot. The hottest of the hot. Sexxy hot. Almost sexier than Big! That’s how sexy he is.

And he should totally get in touch with me. Bring on the sexy!