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Jason Leopold: Jeffrey & Me

Jeffrey & Me

By Jason Leopold
t r u t h o u t | Perspective

Tuesday 24 October 2006

The conclusion to the ongoing Enron saga was anti-climactic. Jeff Skilling, the company's former chairman and chief executive, will spend the next 24 years in a federal penitentiary after being found guilty by a federal court earlier this year of insider trading, wire fraud, conspiracy and other charges related to his involvement in the financial machinations that led to Enron's demise five years ago. The one-time high-flying energy company is now nothing more than a symbol of 1990s/Millennium-era corporate greed and Skilling its public face.

For Skilling, however, the realization that he will be spending the next two decades holed up in an eight-by-six foot cell has yet to set in. A month ago, he was arrested for public intoxication near his wife's home in Dallas. Last year, he was arrested in New York on similar charges. It's sad, really, to watch someone of Skilling's stature, the architect of the company's transformation from a pipeline owner into an energy trading powerhouse, a person who believed so passionately in the power of the free market that at one point in his career he helped an Enron employee develop an idea she had to trade weather derivatives in the open market, to fall so spectacularly and so publicly.

When I met Skilling in December 2001 at the Washington, DC, offices of his law firm O'Melveney & Myers, the firm he hired to represent him in matters before Congress and the Securities and Exchange Commission, there were no signs of the meltdown that was to come. But he was certainly knee-deep in the first stage of grief: denial.

I was the first reporter in the country who was granted an interview with Skilling following Enron's bankruptcy filing in December 2001. I was the Los Angeles bureau chief of Dow Jones Newswires and had cut my teeth as a business reporter writing about Enron and its role in the California energy crisis. I went through hell to land that interview and ruffled a few of my colleagues' feathers along the way. Apart from Osama bin Laden, Jeff Skilling was the only high-profile interview target journalists pursued in late 2001. Skilling could have stubbed his big toe and it would have been front-page news if someone got wind of it. Because he resigned from Enron citing personal reasons two months before the company's accounting machinations were exposed, people were interested in what Skilling knew and when he knew it. But he wasn't talking.

I aggressively pursued Skilling's spokesman in Houston, Denis Calabrese, for two months before he convinced Skilling to grant me an exclusive interview. I took the red-eye to Washington, DC, on Wednesday, December 20, 2001, and met Skilling at his attorney's office. Calabrese had said I wasn't allowed to use a tape recorder during the interview because the government might try to subpoena any tapes as evidence. Before I walked into the conference room to meet Skilling, one of the attorneys gave me a binder filled with newspaper clippings praising Skilling and his work. She said I should use it as background information. I never did.

Bruce Hiler, Skilling's attorney - who, ironically, used to work for the Securities and Exchange Commission prosecuting people like Skilling - led me into the conference room to meet the infamous ex-CEO. I had no idea Skilling was so short. He was about five seven, and balding. How could such a short man have run such a big company, I wondered. When I shook Skilling's hand, it was limp. This was a man who had a reputation for abrasive treatment of journalists and analysts who had questioned Enron's financial claims.

"You got 40 minutes," said Hiler, who sat in on the interview. I took a yellow legal pad from my knapsack and fired away.

"Were you aware that Andrew Fastow was benefiting financially from these secret partnerships?"

"Absolutely no idea," Skilling said, blinking his eyes at me like a puppy dog.

"What about Enron's financial condition?" I asked. "What shape was the company in when you left?"

"Absolutely, unequivocally, when I left the company August 14th I had no concern or any knowledge of problems at the company," he said, in a statement that smacked of being rehearsed. "The core wholesale business of the company had never been stronger. The third quarter earnings report was positive."

Hiler interrupted me a few times when I asked specific questions about Skilling's sale of Enron stock and told Skilling not to answer those questions, along with several others that had to do with his role in some of the company's secret partnerships.

Skilling insisted that he had nothing to do with the company's stunning collapse.

"The last two months have been horrible," Skilling said at the time. "I've gone back to try and think of any decisions I was involved in that could have caused this. I've agonized over this, and I'm convinced I haven't found anything. I believe we made the right decisions at the time given the information we had. We kept the interest of the shareholders. I believe the decisions that we made were correct decisions, and we'd do it again."

Skilling painted a picture of himself as an executive unaware of some of the details of the partnerships at the center of Enron's unraveling and reliant on others to ensure compliance with SEC and accounting rules. He said he learned of Enron's troubles primarily from media reports. Skilling, who held his post for only eight months, spoke of his frustration at being forced to sit on the sidelines and watch from his mansion in Houston as Enron, the company he helped put on the map, fell to pieces.

"It was like watching the World Trade Center come down," Skilling said. "I spent 20 years of my life working to build this company. To see it brought to its knees is heartbreaking."

Skilling played a leading role in shaping the aggressive, "asset-light" company Enron became. He started working with Enron and its chief executive, Ken Lay, as a McKinsey & Co. consultant in the late 1980s, when the company was beginning its evolution to compete in the newly deregulated natural gas market.

He then joined Enron in 1990 and headed Enron North America Corp. and its predecessor companies from 1991 to 1996 before being named president and chief operating officer. He was named chief executive in January 2001.

Enron's reputation and stock price soared at the end of the 1990s. In November 2001, however, Enron restated four and a half years of financial reports stretching back to 1997 to reflect its failure to consolidate partnerships that were improperly kept off its balance sheet. The restatement cut Enron's earnings over those periods by about 20%. Skilling, a federal court ruled, was well aware of the financial wrangling going on behind the scenes and in some instances directed subordinates to hide losses from Wall Street and the SEC.

After Enron began to falter, Skilling said he phoned Lay, who at the time had reassumed the title of chief executive, and offered to return and help.

"I called up Ken and offered to come back with no compensation," Skilling said during our interview. "But the board thought it might confuse the press if I came back."

Skilling, his white sleeves rolled up, said he didn't know in hindsight whether he could have saved the company from bankruptcy. "I think I could have helped," he said.

Skilling said he relied on other people to run day-to-day operations and trusted them to make sure accounting and SEC filings were in order. He said he didn't read "individual documents" regarding the off-balance-sheet financing vehicles, which he said were dwarfed by the company's $60 billion balance sheet.

"You gotta realize Enron was a huge corporation," Skilling said. "We created an architecture that was very control oriented. We hired excellent people to manage the corporation."

Enron's collapse appeared to have been precipitated by circumstances, not individuals, Skilling said. The confluence of accounting restatements, allegations of self-dealing, a collapse in investor confidence and triggers in some of the company's financial arrangements left Enron without the liquidity it expected to have available.

"It's not 'Who' that caused this, it's a set of circumstances," he said.

But Enron executives, including Skilling, have come under intense fire from shareholders and employees for selling millions of dollars worth of company stock during periods in which Enron's earnings were overstated.

Skilling defended the sales. He told me he regularly sold 10% of his holdings in any given year, which turned out to be completely untrue.

Skilling also answered speculation that he left Enron because he saw trouble coming. His decision was personal, he said. His struggling marriage, which ended in divorce, led him to consider leaving Enron in the mid-1990s. After his marriage deteriorated, he worked to build up the company so he could leave on a high note. He thought 2001 was going to be a profitable year.

"I think the question people have is, 'Why was this so abrupt?'" Skilling told me about his departure. "I think the question should be, 'Why did he stay as long as he did?'"

When our interview ended, and I returned to Los Angeles, I continued digging into what he knew and when he knew it. It wasn't so much the byzantine partnerships or the shifting of debt from one division to another that his former colleagues claimed in interviews he spearheaded, but the incredible ruse Skilling manufactured to impress Wall Street analysts that showed the extent of his hubris. Skilling truly was a huckster.

A few months after I interviewed Skilling, I broke a story about Enron's phony trading floor. According to current and former employees of Enron's retail-energy unit, the company asked them to pose as busy electricity and natural gas sales representatives one day in 1998 so the unit could impress Wall Street analysts visiting its Houston headquarters.

Enron rushed 75 employees of Enron Energy Services - including secretaries and actual sales representatives - to an empty trading floor and told them to act as if they were trying to sell energy contracts to businesses over the phone, the current and former employees say.

"When we went down to the sixth floor, I remember we had to take the stairs so the analysts wouldn't see us," said Kim Garcia, who at the time was an administrative assistant for Enron Energy Services and was laid off in December 2001.

"We brought some of our personal stuff, like pictures, to make it look like the area was lived in," Garcia told me. "There were a bunch of trading desks on the sixth floor, but the desks were totally empty. Some of the computers didn't even work, so we worked off of our laptops. When the analysts arrived, we had to make believe we were on the phone buying and selling electricity and natural gas. The whole thing took like 10 minutes."

Penny Marksberry, who also worked as an Enron Energy Services administrative assistant in 1998 and was laid off in December, said Skilling instructed the secretaries to act as if they were trying to sell contracts.

"They actually brought in computers and phones and they told us to act like we were typing or talking on the phone when the analysts were walking through," Marksberry said. "Only the phones weren't plugged in. They told us it was very important for us to make a good impression and if the analysts saw that the operation was disorganized, they wouldn't give the company a good rating."

Peggy Mahoney, the former spokeswoman for Enron Energy Services, confirmed to me that some employees were told to move to the sixth floor for a visit by 150 analysts from Wall Street firms who were in town for a convention in 1998. But she said it was just a handful of employees who participated, not 75, and Enron didn't ask anyone to pose as traders or sales reps.

"We weren't trying to mislead anyone," Mahoney said. "There were some employees who were moved down there. They were told to just sit there. I don't know why. Analysts were brought in, and we showed them our operation. We were just showing them how we structured deals and contracts."

In the 1998 trading-floor incident, analysts were led around by Ken Lay, then Enron's chairman and chief executive, and the EES floor appeared busy with actual work, said an analyst who recalled the visit to Enron headquarters.

"The big push then was EES and retail electricity in California," the analyst said. "The trading floor looked fully staffed. There was a presentation in a little auditorium right where EES was operating. It looked like people were very busy. We didn't interact with any of the employees on the floor."

Enron Energy Services was set up in late 1997 to sell energy and advisory services to large consumers that had been freed or were expected to be freed from their local utilities by newly hatched deregulation. The unit was still small in 1998.

Enron executives, including Ken Lay and Skilling, escorted the analysts through the floor and returned later to tell the employees that they had done a good job, Garcia, the administrative assistant, said.

"I think a bunch of us asked [Skilling] why did we just do this, and he said the analysts needed to see a bunch of warm bodies working so Enron could get a good credit rating," Garcia said. "He said the trading part of Enron was the company's bread and butter."


Jason Leopold is a former Los Angeles bureau chief for Dow Jones Newswire. He has written over 2,000 stories on the California energy crisis and received the Dow Jones Journalist of the Year Award in 2001 for his coverage on the issue as well as a Project Censored award in 2004. Leopold also reported extensively on Enron's downfall and was the first journalist to land an interview with former Enron president Jeffrey Skilling following Enron's bankruptcy filing in December 2001. Leopold has appeared on CNBC and National Public Radio as an expert on energy policy and has also been the keynote speaker at more than two dozen energy industry conferences around the country. He is the author of NEWS JUNKIE.

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