Posted on: Sunday, February 22, 2004
Charges in indictment tell of Enron collapse
| • | Chart: 28 enron indictments later |
By Edward Iwata and Elliot Blair Smith
USA Today
Enron CEO Jeffrey Skilling was unrelentingly bullish on his company's outlook in early 2001 even as Wall Street worried.
Speculation was growing that Enron — one of the world's largest companies and a Wall Street favorite — was facing financial troubles. Talk was spreading that Enron's broadband and energy businesses were stumbling. Enron's stock had plunged to $60 a share from $80.
But during a March conference call with securities analysts, Skilling reassured them that he was "highly confident" about Enron's prospects.
During one briefing with analysts, Skilling said: "I know this is a bad stock market, but Enron's in good shape."
According to a grand jury indictment unsealed Thursday, Skilling knew that Enron's broadband unit was failing, jobs were getting cut and the broadband industry faced "a total meltdown." He also allegedly knew that California utilities owed Enron "hundreds of millions of dollars."
Beginning at least in late 1999, Enron failed to meet its budget targets through normal business operations and was able to appear successful only through fraud, the indictment charged.
While the allegations are only a small part of the Justice Department's 40-count indictment against Skilling and former Enron chief accounting officer Richard Causey, they illustrate the widespread financial scheming and inside trading that prosecutors accuse Skilling of conducting during the onset of Enron's collapse in 2001.
Ultimately, Skilling allegedly pocketed $200 million from insider stock sales between 1998 and 2001. In one sale, he gained $15.6 million after selling 500,000 shares on Sept. 17, 2001, four weeks after he abruptly resigned as Enron CEO, the indictment alleges.
The indictment of the highest former Enron executive yet also marks a near-climax to the Enron financial scandal that led to the company's collapse and filing for bankruptcy protection in late 2001. Unsealed Thursday in Houston, the grand jury indictment against Skilling alleges 35 counts of securities fraud, inside trading, wire fraud, conspiracy to commit fraud and making false statements to auditors. The Securities and Exchange Commission filed a separate civil complaint.
The charges were added to an indictment in January against Richard Causey, Enron's former chief accounting officer, that accused Causey of fraud and conspiracy.
The new indictment says Skilling, Causey and other Enron executives engaged in a sweeping scheme from 1999 to 2001 to hide large losses, jack up Enron's earnings and mislead investors.
The indictment alleges the executives fraudulently portrayed Enron as a healthy company by:
• Hiding massive energy-trading profits made during the California energy crisis by putting them into reserve accounts.
• Concealing large losses from Enron's energy services and broadband businesses, which were highly touted to Wall Street and investors.
• Inflating Enron earnings by falsely touting the company's broadband business and overvaluing assets in Enron's investment portfolio of energy and high-tech companies.
Skilling's defense attorneys said Thursday that prosecutors have no strong evidence of wrongdoing by their client.
"They have no proof he stole anything, no proof he lied, no proof he cheated anybody," said Daniel Petrocelli, one of Skilling's attorneys.
Petrocelli and Bruce Hiler, a former SEC enforcement official who is Skilling's lead defense attorney, said Skilling passed a lie-detector test conducted by Paul Minor, a former FBI official now at American International Security in Fairfax, Va. The test was conducted Dec. 4, 2001 — two days after Enron filed for bankruptcy court protection from creditors. Polygraph results are inadmissible as evidence in court.
According to a copy of the report provided by defense attorneys, Skilling said he:
• Did not sell Enron stock in September 2001 on the basis of inside information.
• Was unaware of "any improper financial arrangement that was concealed from the board of directors," according to the polygraph report.
• Believed that Chewco, Jedi and LJM — accounting vehicles allegedly used by Enron executives to hide debt and inflate Enron's earnings — were properly accounted for in Enron's books.
Defense attorneys earlier last week met with prosecutors in Washington, hoping to ward off the indictment. According to the defense lawyers, they gave prosecutors the polygraph report, and the prosecutors replied: "We're going to indict your client."
Since the Enron scandal erupted, Skilling has been abandoned by many friends and colleagues.
Skilling is periodically seen around town at popular restaurants but seems to spend much of his time in his $4 million mansion in Houston.
Local observers don't appear sympathetic. They're still hurting from the billions of dollars lost by shareholders and former Enron employees when Enron collapsed.
"I'm tickled pink they finally got to him," said Charlie Prestwood, 65, a former Enron natural-gas plant operator in Conroe, Texas, who said he lost $1.3 million in his Enron retirement fund.
