Former Enron Corp. Chief Executive Jeffrey Skilling on Tuesday addressed prosecution testimony that painted him as an earnings-obsessed leader so bent on meeting or beating Wall Street expectations that his underlings resorted to fraud with his knowledge.
The ex-CEO denied that he spearheaded a conspiracy that in part included fudging Enron’s books before the company sought bankruptcy protection in December 2001.
“You are a smart guy, aren’t you?” his lawyer, Daniel Petrocelli, asked the ex-CEO known for a swaggering bravado.
“Yes,” Skilling replied matter-of-factly.
“Are you smart enough to mastermind this kind of conspiracy and pull it off without getting caught for years?” the attorney pressed.
“I don’t think so,” Skilling said.
Testimony from Skilling, who transformed Enron from a stodgy pipeline company to an energy heavyweight in the decade before it crashed, is among the most highly anticipated in the federal criminal trial. The other marquee testimony will come from his co-defendant, Enron founder Kenneth Lay, who aims to testify later in the case. Skilling began testifying Monday and is expected to be on the stand for several days.
Lay and Skilling are accused of repeatedly lying to investors and employees about Enron’s financial health when they allegedly knew fraudulent accounting created a facade of success.
The two men say there was no fraud at Enron other than that committed by former Chief Financial Officer Andrew Fastow and a few others, who skimmed millions from secret scams, and that bad publicity as well as lost market confidence sank the company.
Prosecutors allege Skilling predetermined that Enron’s earnings would grow up to 20 percent annually and resorted to accounting tricks to manufacture profits when business operations weren’t up to snuff.
Skilling sought to erase his image as an overly demanding CEO who expected top performance at all costs. He acknowledged he had high expectations, but described himself as a negotiator with business heads when setting earnings targets. He said Wall Street would understand if companies missed expectations if they had a reasonable explanation.
“Are you just ordering these people: ’You come up with this number. We need it. I don’t want to hear anymore. I’m Jeff Skilling?”’ Petrocelli asked.
Skilling laughed, then said, “No.”
Skilling later addressed one of the most notorious elements of the Enron scandal — partnerships created and run by Fastow to conduct deals with the energy company.
Fastow testified last month that Skilling told him, “Get me as much of that juice as you can,” regarding the personally lucrative partnerships the ex-CFO used to manipulate Enron’s finances.
Skilling said he didn’t recall making that statement. “I don’t use the word ’juice’ in that context,” he said.
Fastow had testified that Enron turned to the partnerships to buy its own poor assets and investments so the energy company could hide debt and boost earnings. But Skilling said Fastow pitched the partnerships as quick buyers for Enron assets, which the ex-CEO thought would help the energy company manage risk while benefiting shareholders.
“Was LJM a puppet of Enron?” Petrocelli asked.
“No, it wasn’t,” Skilling said.
Fastow testified the partnerships helped Enron meet earnings targets, but Skilling minimized their importance. He said the $125 million in deals one of the partnerships conducted at the end of 1999 was “something you would hardly notice, frankly.”
Skilling also denied he gave Fastow “bear hugs” — the ex-CFO’s term — or promises that LJM wouldn’t lose money on deals with Enron. The indictment alleges he knew Fastow and former Enron Chief Accounting Officer Richard Causey hatched such side agreements guaranteeing no losses for LJM.
“That is not true,” Skilling testified, having earlier described Causey as “a conscientious, hard-working guy” and a “consummate professional.”
Fastow and Causey are among 16 ex-Enron executives who have pleaded guilty to crimes. Fastow admitted to two counts of conspiracy in January 2004. Causey was bound for trial alongside Lay and Skilling until he pleaded guilty to securities fraud in December.
Unlike Fastow, Causey didn’t testify during the prosecution’s case. However, he could testify for the defense — or the government on rebuttal.
By the spring of 2001, Skilling said he was “exasperated” with Fastow’s relationship with the partnerships when the ex-CFO tried to move in on an asset sale. Skilling ordered Fastow to choose between Enron and LJM. Fastow chose Enron — but maintained a secret partnership with the former Enron finance executive who bought his LJM interest.
Earlier, Skilling described Enron’s pre-scandal, halcyon days, using terms such as “very strong competitive performance” and “solidifying our cost position.” He sounded much like the company cheerleader jurors heard on hours of audiotapes of conference calls with analysts played earlier in the trial.
The government alleges his optimism hid bad news in 2000 and 2001.
“In 1999, given that you’re ahead of everybody else, was there any reason why the company needed to start breaking the law in order to continue that growth?” Petrocelli asked.
“No,” Skilling replied.
But a string of prosecution witnesses — including Fastow and seven of the other ex-executives who are admitted felons — said they and Skilling lied to investors or hid bad news. Skilling said Tuesday he never told anyone to cheat or lie, and prosecution witnesses earlier acknowledged he didn’t issue such explicit orders.
“Did you tell them you didn’t want to know about it, just take care of it, hit the numbers, or whatever?” Petrocelli asked.
“No,” Skilling replied, noting that prosecution witnesses lied to jurors when they said he participated in such schemes.
Skilling also addressed allegations from other prosecution witnesses that he ordered — or knew about — fraudulent moves to increase Enron’s reported earnings-per-share for the fourth quarter of 1999 and the second quarter of 2000 in order to ensure the company met or beat Wall Street performance expectations.
Paula Rieker, Enron’s former No. 2 investor relations executive, testified that her boss, former investor relations chief Mark Koenig, told her Skilling twice ordered those last-minute increases. Koenig didn’t go that far when he testified, saying only that Skilling had authority to do so.
And Wesley Colwell, former chief accounting officer for Enron’s profitable trading division, said he wrongly dipped into reserves to increase second-quarter 2000 earnings to 34 cents from 32 cents because he understood Skilling and other top executives wanted to impress Wall Street.
Skilling said Tuesday he had “absolutely no recollection” of the fourth-quarter 1999 increase. He called the alleged skullduggery behind the 2000 increase “absurd” because Enron’s trading profits had already pushed earnings above Wall Street expectations.
Skilling has yet to be cross-examined. Petrocelli told U.S. District Judge Sim Lake Tuesday that he expects to continue questioning his client through Thursday, which could push cross-examination to next week.
Skilling is charged with 28 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces six counts of fraud and conspiracy.
If convicted of all counts, Skilling faces a maximum of 275 years in prison and tens of millions of dollars in fines. But an actual prison sentence would likely only be 20 years or more. Lay faces a maximum of 45 years in prison if convicted of the six counts against him.