Enron CEOs deceived investors, witness says
By Kristen Hays
By Kristen Hays
HOUSTON — Enron Corp. founder Kenneth Lay worried in 2001 that the company's mounting financial problems would jeopardize its credit rating and inquired about managing its accounting to avoid a downgrade, a former Enron treasurer testified yesterday.
Testimony by former Treasurer Ben Glisan Jr., which began late Tuesday and has outlined a series of what he said were public fabrications by Lay and former CEO Jeffrey Skilling about the health of the company, struck a nerve with Lay.
During a break in Glisan's testimony yesterday afternoon, a visibly annoyed Lay said, "I've never heard so many lies in one day in my whole life." Lay's wife, Linda, nodded her head and added, "Unbelievable."
Glisan testified that Lay assigned him to feel out credit-rating agencies about how large some required accounting writedowns could be without jeopardizing Enron's rating.
"That's backwards," Glisan told jurors in the fraud and conspiracy trial of Lay and Skilling. "What should occur is we should take the charges that we needed to take and then deal with the consequences."
Glisan said Lay and Skilling knew Enron, then a reputed powerhouse, was actually weak and faced multibillion-dollar losses and writedowns on poorly performing or overvalued assets.
Skilling abruptly resigned in mid-August 2001, Lay resumed as CEO, and those problems grew, Glisan said. The company tumbled into bankruptcy proceedings in December 2001.
Glisan also said Lay and Skilling misled Wall Street in 2001 about the nature of Enron's business, describing it as a "logistics" company rather than as an energy trader.
Glisan said "logistics" indicated Enron made money by delivering commodities and could sustain its growth. A trader is vulnerable to market volatility and therefore a more risky investment, which Glisan said could translate into a lower credit rating and stock price.
"Mr. Skilling said the market does not like trading companies, and it was important to articulate our strategy as being a logistics company and stay away from the term 'trading company' or 'traders,' " Glisan said, describing Skilling's instructions to top executives before Enron held an analyst conference in January 2001.
Skilling lawyer Daniel Petrocelli was to begin Glisan's cross-examination today, followed by Bruce Collins, one of Lay's lawyers.
Glisan, a onetime protege of former Enron chief financial officer Andrew Fastow, is the last major government witness in its case against Lay and Skilling. The prosecution expects to rest its case next week, after which the defense teams then present their evidence — which they say will include testimony from Lay and Skilling. Lay lawyer Michael Ramsey said that of the two defendants, Skilling would likely take the stand first.
Glisan, in the eighth week of the trial, corroborated testimony from earlier government witnesses — including Fastow — who also said Lay and Skilling repeatedly lied to investors about Enron's financial strength. He often referred to notes he kept in 2001 of conversations and meetings.
The defendants claim there was no fraud at Enron and that negative publicity coupled with diminished market confidence fueled the company's failure.
Glisan is halfway through a five-year prison sentence for creating fraudulent financial structures known as Raptors, which he said Enron used to house poor assets and investments, and hide losses. He pleaded guilty to conspiracy in September 2003 and was immediately incarcerated because he hadn't yet begun to cooperate with prosecutors.
Prosecutors contend Lay and Skilling knew about the Raptors and how they were used.
"Ultimately, how was Raptor used by Enron?" prosecutor Kathryn Ruemmler asked.
"To help Enron avoid losses that it should have taken," Glisan replied.
Glisan described his presentation of the first of the Raptors to the finance committee of Enron's board in May 2000. Then-chief accounting officer Richard Causey explained that the structure had some "accounting risk," but outside auditors had approved it. Then he said Lay giggled.
"In what sense?" Ruemmler asked.
"In delight," Glisan replied.
At that, Lay turned to his daughter, Elizabeth Vittor, one of the lawyers at the defense table, and said, "I giggled?"
"Did they accept the No. 1 risk of the deal, which was accounting scrutiny?" the prosecutor asked, referring to directors at the meeting, including Lay and Skilling.
"Yes," Glisan said.
Glisan was among Fastow subordinates who participated in one of the scams the ex-CFO ran to skim millions from Enron. The young treasurer invested $5,800 in a deal that brought him a $1 million return within weeks. He said Fastow framed the windfall as compensation for Glisan helping make Fastow look good, and Fastow assured him that Skilling had approved the deal. Glisan didn't talk to Skilling about it.
Fastow was pushed out of Enron in late October 2001, and Glisan told jurors he told Lay about his windfall from a Fastow scheme and offered to resign.
He said Lay told him "the worst thing I could do at the moment was resign," so he stayed — but he was fired less than two weeks later.
Glisan said he regretted accepting the $1 million but regretted other actions at Enron more.
"At the end of the day, all the other actions I and others took at Enron impacted investors far more greatly," he said.
Fastow pleaded guilty to two counts of conspiracy in January 2004 and agreed to serve the maximum 10-year term. He is to be sentenced in June.
Prosecutors contend Lay hid bad news from debt-rating agencies to maintain an investment-grade rating.