Skilling tells his Enron story
On the witness stand in his own defense, the former CEO cites his 'shock' at first reports of problems.
One of the most enduring images of the Enron collapse is of a defiant Jeffrey Skilling testifying before Congress in February 2002, raising his right hand and defending the reputation of the Texas energy company he'd help build.Skip to next paragraph
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He did so, he told a jury in a Houston courtroom this week, against the advice of his lawyers, who urged him to exercise his constitutional right not to incriminate himself and to remain silent in front of Congress, the Securities and Exchange Commission, even "Larry King Live."
"Someone had to get out and start explaining what had happened before someone else explained it incorrectly," said Mr. Skilling in his first days on the stand in his criminal trial.
He still stands behind what he did and said, he testified. But now that he is in the witness box in his own defense, those prior statements make his path much harder.
"Skilling made so many public pronouncements at the embryonic stage of the investigations, and all of that can be used against him," says Christopher Bebel, a Houston securities lawyer and former federal prosecutor.
After those early days, the former Enron president and CEO went quiet - and remained so for four years. Now, in his first testimony since Enron's collapse, Skilling is still defiant - this time over the allegations against him.
In his first days of testimony, he has said repeatedly that he is "absolutely innocent," that he never lied about Enron's financial health or told anyone to lie about it. He has detailed certain transactions and talked in general about his feelings about Enron.
"I was proud of the people that joined Enron, proud of walking into the building. When you walked into the lobby, there was excitement," he said. "We were making the world better."
On a personal level, Skilling said, the company meant a lot to him because he had a large part in its transformation from a small pipeline business into one of the world's largest energy companies. In the process, he became rich beyond his wildest dreams, but also suffered from an "obsession" with Enron, he said. When he came to realize that his professional life had overshadowed his personal life, he resigned in August 2001. Enron collapsed in December.
Prosecutors argue that Skilling quit because he was involved in fraud at the company and could see the handwriting on the wall when the firm's stock price began to drop.
Skilling, for his part, said the stock price began to fall because of bad publicity planted by short sellers. He told Congress the same thing when he testified before a House Energy and Commerce subcommittee in February 2002. "Enron's failure was due to a classic run on the bank, a liquidity crisis spurred by a lack of confidence in the company," he said at the time.
In court this week, Skilling said he was shocked in October 2001 to read articles in The Wall Street Journal questioning the propriety of the LJM partnerships created and controlled by Enron CFO Andrew Fastow.
Mr. Fastow testified earlier in the trial that the partnerships essentially bought low-performing Enron assets and "warehoused" them until Enron bought them back - a move prosecutors say allowed the company to record the sale and achieve strong earnings to show Wall Street.
Skilling said he and Enron's board of directors viewed the LJM partnerships as "independent third parties." Some may have thought they were illegal because the idea was "so new," he said.
After leaving Enron, he said, he felt powerless in the fall of 2001 as the company began to suffer from the bad publicity. "I thought it was in very good shape when I left," he said. "It's almost inconceivable to me, even now, what happened." He said he even tried to return when things were sliding, thinking it would be a show of support to the marketplace.
Skilling testified he doesn't recall trying to sell Enron stock in early September, as prosecutors allege, but did so after the 9/11 attacks because of worries about the stability of US markets.
Daniel Petrocelli, Skilling's lawyer, asked him what he did after resigning: "Did you leave town? Did you set up offshore bank accounts to hide funds? Did you destroy documents, computers? Did you do anything to acknowledge that you might have known something was wrong at Enron?"
"No," was the answer every time.
So far, Skilling has only answered questions put to him by his own attorney. It may not be clear until next week, when prosecutors get an opportunity to grill him, whether Skilling's testimony will help or hurt him.
Other CEOs charged with financial malfeasance have testified in their own behalf, with mixed results. Former WorldCom CEO Bernard Ebbers and former Tyco CEO Dennis Kozlowski did, and were found guilty. Former HealthSouth CEO Richard Scrushy did not, and was acquitted. Mr. Scrushy's lawyer, Jim Parkman, says he knew the case against his client was weak and did not feel the need to put him on the stand.
Martha Stewart's lawyers also kept her off the stand and called just one defense witness. That was a mistake, says Marc Powers, who represented Douglas Faneuil, the prosecution's star witness against Ms. Stewart. "I have always felt that [she] should have testified. It would have humanized her to the jury," he says.
Skilling's defense team is banking that their client, though not known for his winsome ways, will in fact be appealing - even amiable and humble - in the eyes of the jury.