May 25, 2006 Skilling and Lay were convicted by a jury of conspiracy and fraud. Sentencing will be on September 11, 2006, which could make these two former executives never again see the light of day as free men for the rest of their lives.
(Well, maybe: see bottommost update.)
The Rest of the Story
- Stock Price -- December 31, 1996 = $ 21.50
- Stock Price -- August 17, 2000 = $ 90.00
- Stock Price -- December 2, 2001 = $.50
- Stock Price -- December 5, 2001 = $ 1.01
- Stock Price -- January 1, 2002 = $0.0
The deal for the "David" hero, Dynegy, Inc. to buy the Enron "Goliath" is off, and 4000 Houston Enronians are no more.
The problems with Enron can be traced back to the business philosophical shift adopted by Kenneth L. Lay that were developed by the McKinsey & Co. consultant hired in the start of the company: Jeff Skilling. Skilling implemented the strategy of giving the behemoth assets a diet, as he explained 11 months ago:
In the old days, people worked for the assets. We've turned it around ---- what we've said is the assets work for the people.
Now the company is not only anorexic, but hemorrhaging: to the tune of somewhere around 55 billion dollars. On October 16, 2001, a couple of months after Mr. Skilling sold his sliding stock and then quit a conference was held where Mr. Lay could not explain the complex partnerships that he had let his CEO forge. He had relinquished the daily management to Jeff after he was promoted to CEO around a year, just when their stock was the highest. The threat of investigation by California officials on Enron's price gouging precipitated the plunge.
Enron was formed in 1985 as combination of two natural gas pipeline companies, Internorth and Houston Natural Gas Company, with Kenneth Lay CEO for the quickly renamed Enron. Deregulation that made them lose exclusive ownership of pipelines hit them hard, therefore Jeffrey Skilling was brought on board to take care of the accounting. The idea was to buy from various suppliers then sell fixed price contracts. Lay indeed had business dealings with George W. Bush in 1986. Enron merged with Spectrum Seven, run by Chairman and CEO, George W. Bush. The company did support W. Bush in elections, and received deregulation in return. Meanwhile expansion big time was in the works.
The buying of the Dabhol power plant in 1998 was followed by their purchase of a 1.3 billion dollar Sao Paulo main energy source; and then again by obtaining Britain's Wessex -- now to be run by Enron Vice-president Rebecca Mark as Azurix. This latter deal got washed thin by the English regulators slashing rates. Here's how the money magic went to camouflage the crisis:
- Atlantic Water Trust partnership formed by Enron (holding 50%)
- Wessex is now not on Enron's balance sheet
- Marlin Water Trust becomes the other joint venturer (backed by institutional investors)
- Enron promises to back up with its own stock if necessary
Another figure in the Enron scandal is Andrew Fastow, who was a MBA holder from Northwestern hired in 1990. By 1999 he had earned the CFO Magazine's CFO Excellence Award for Structure Management. Unfortunately his snotty attitude at his position might have made enemies in the company, but it was that same effeteness on Wall Street that made it hard to lure emergency investors when things began to get rough. He gets investigated by the Security Exchange Commission (SEC) in October of 2001, and then he leaves. (See update, below.)
Several employees had savings invested in their company: like Charles Prestwood. He testified with others before a Senate subcommittee December 18, 2001, that he had lost 1.3 million dollars. It seems that right after the SEC's announcement of a probe, the company had locked employees out of access to their accounts. Janice Farmer earned about three quarters of a million dollars for her retirement last year, but was told because of the change in retirement plan administrators could not allow her to sell, this fact she had finally testified. Enron's Portland unit manager, Robert Vigil made a rebuttal to Florida Democrat Senator, Bill Nelson's opinion that "the lock-down was no coincidence." He explained, "Our plan prohibited anyone under the age of 50 from selling stock." However, like the earlier House meeting, the discrepancies of Enron officers selling one billion dollars worth of stock over three years, while rank and file were encouraged to invest, did not set well with congressmen. Anderson Worldwide, Enron's auditor could be charged with breaking the "Financial Fraud Detection and Disclosure Act."
It was discovered that Enron had set up 881 offshore accounts (like in the Cayman Islands) and, even though President Bush's Cabinet member, O'neill may become a casualty due to Enron ties; and most politicians connected are Texans -- the affiliations (from donations, mainly) cross Party lines as there are 71 senators and 81 congressman linked.
Kenneth Lay was a no-show for the second week, but promised to appear at the next February 4, 2002 hearing. C.E. Andrews, managing partner, at Arthur Anderson, got to receive the "slings and arrows of outrageous fortune" in Lay's place, answering that they only made one bad decision, and that was showing members half a billion dollars less than it reported, the reality being twenty percent of that number.
In the early weeks of January 2002 Enron was de-listed off the New York Stock Exchange, SEC head Pitt chewed out Enron and Anderson big-time. Donald Duncan, taking care of his big client's business at the shredder for Anderson was fired, and Enron, after paying them a million dollars a week fired their accounting firm, Anderson on the 17th of January.
Arthur Anderson pleaded the fifth, as well as other vice-presidents; and one vice-president, who retired last May, Cliff Baxter was found dead January 25, 2002 in his car due to an apparent self inflicted gunshot wound to the head. Besides trying to convince Skilling he had misgivings about their misdealing, he is mentioned in the report by whistle blower Sherrin Watkins concerning secret ops Raptor.
Enron now is in the largest Chapter 11 reorganization ever.
Not only has Watkins testified, but, ironically, Skilling has bravely faced hearings, but his outrage at "shattered lives" has not stopped the continued outrage from everyone else. Ms. Watkins believed that Skilling had knowledge of the potential inappropriateness of the "Raptor" transactions offshore. Mr. Skilling's answer was that he is not an accountant, thus Anderson has the ball; but they agree on the problems came from a "run on the bank" with slight differences in semantics. Sen Dorgan's scathing questions to Skilling about making 66 million selling his stocks ahead of the fall makes him compare himself to the poor employees who were kept in the dark and lost their life savings.
Enron, who was once seventh on the Fortune 500, has it's reorganization plan ready to submit to the U.S. Bankruptcy Court and Judge Arthur Gonzalez in New York City. They have been busy shortening the amount of creditors from the original twenty-four thousand, and they are offering to pay back about 15 billion of the 64 they owe. They were held up for a while by the extinct trading company Enron North America over guaranty claims.
There will be two new companies, a U.S. one, CrossCountry Energy Corporation for the natural gas business, and the global power pipeline entity, Prisma Energy International, Incorporated.
They are selling Portland General Electric.
February 19, 2004
The headline was there, somebody's gonna pay:
Ex-Enron CEO Arrested for Fraud, Insider Trading
Things finally caught up to ex-Enron Corp. chief executive Jeffrey Skilling as the Feds arrested and charged him with forty-two counts in their indictment of fraud and insider trading; and lying to authorities. Five weeks ago CFO Fastow plead guilty, and agreed to "sing like a canary."
Andrew Skilling has several lawyers on his team, besides Daniel Petrocelli, there is also a Washington D.C. counselor working for him, Bruce Hiler, who of course echoes his client's denials of wrongdoing.
He is consistent, at least. On a CNN Larry King interview in 2002 he said,
I spent probably most of my professional life helping to build Enron Corporation.
I don't think there was anyone that was as shocked by the collapse of the company as I was.
Larry King asked Skilling whether he saw it coming, and he answered,
Not only that, Larry, I'd go even farther than that. I think we had made some tremendous progress in the six months before I left.
Skilling's answer to King's inquiry to his motivation to leaving while things were so "hunky-dory" was:
I was tired.
I guess maybe he can have Martha Stewart do a jail cell makeover for him.
Move Over Rover
Update, Thursday, July 8, 2004:
Ex-Enron CEO Kenneth Lay turned himself in to the FBI Thursday. Wednesday he was indicted by a Houston grand jury .
Yet another update:
The legal fees for the Enron trial are costing $ 995 million dollars, and some large Atlanta, Georgia law firms are going to reap from this whirlwind, like: Weil, Gotshal and Manges; Alston and Bird, Milbank, Tweek, Hadley and McCloy; and Squire, Sanders and Dempsey. Maybe they are a bargain because the New York firms that are also involved can charge up to $ 900 an hour. (Batson charged $ 586 an hour). It's almost as bad as the fees from the mechanics on the Enron's CEO's Mercedes.
Neal Batson from Alston and Bird was the court-appointed bankruptcy examiner, and his final report was the one that reamed a new one, each, for Kenneth Lay and Jeffrey Skilling. There were many complexities involving all the hidden assets and other snookering, needing the best of the best to find them. He started his fame for the 1971 Atlanta International Raceway bankruptcy, and was a choice by Chief Justice Rehnquist in 1993 to serve on the Bankruptcy Advisory Panel. Thus he was chosen for examiner over 25 candidates in this situation because he was the top peer in this arena. However, there were some court reviews and requests for cuts in some of the charges in lieu of the bills' enormity. Were the creditors actually eating up little monies they were trying to gain by these expensive attorneys?
There are 21000 entries in the Enron docket in the US Bankruptcy court in NY, the filings are in the millions of pages. Hope they took their Evelyn Woods' speed reading course.
The work is supposedly going to continue for many years even after finishing with the proceedings.
June 1, 2005: Arthur Anderson's firm is found not guilty of wrong doing by a Federal Judge.
December 28, 2005: Richard A. Causey, 45, former Enron chief accountant will appear in a Houston courtroom to make a plea bargain with one of guilty. Skilling and Fay's lawyers' hard cross exam might prove more damaging to their client than to the well-respected family man. Andrew S. Fastrow is already going to do 10 years with his deal copping a guilty plea for two counts. Causey's testimony should make it hard for Skilling and Lay to get a get out of jail card.
Yet Another Update:
April 11, 2006:
In a second day of former Chief Executive Officer, Jeffrey Skilling used his testimony for him and his defense team. This was aimed at countering the prosecution's assertion, with star witness, Fastrow squealing like a pig, that he masterminded the scheme to cheat stockholders was. Lead council Daniel Petrocelli in a parallel of James Cagney asked, "You're a smart guy, aren't you?
Skilling, in his best version of a toned-down John Garfield, laughed and said "No." The logic was to show that Enron was in the black at the time, and had no need for tomfoolery up the sleeves. He has not been cross examined yet. And with Paula Rieker, the second investor relations executive and Wesley Colwell their chief accounting officer singing like canaries, it is going to be a tough going then.
While CEO Lay faces the max of 45 years for his 6 counts of fraud, Skilling could spend 275 years in jail from 28 counts, with the majority of them as a corpse. (Probably more like 20, still a death sentence.) Oh, not to mention what hurts almost worse: tens of millions of dollars in fines, and even higher: his lawyers' fees.
Last Update for Kenneth Lay
Kenneth Lay died of a massive heart attack at his Aspen, Colorado home, Wednesday, July 5, 2006 in the wee hours. The trial will take new twists with Skilling maybe getting off the hook, since his trial is based on Lay's case, and the deceased's family may keep assets.
UPDATE!! ON Jeffrey Skilling
According to October 14th, 2009 AP report, those 29 charges of fraud/conspiracy will be appealed to the Supreme Court. Ok, maybe he won't have to serve all 24 years, but there's plenty left for him.
Settlements are now still being doled out by the Enron Creditors Corporation.
Updated Update Update Again
Skilling might be released early from his 24 year prison term.
Probably the Very Last Update
July 1, 2013:
After a deal with prosecutors for Jeffrey Skilling to drop his Supreme Court action, his sentence was reduced to 14 years, thus since he's been incarcerated since 2006. he will be able to get out in four years. It is also good news to those who need to get some of the forty million dollars that can be released now that this settlement has finished.
Source: Business Week, December 17, 2001
USA Today, Dec. 19, 2001
Network and PBS News broadcasts
"Enron to Present Reorganization Plan", Kristen Hays, Associated Press, Dec. 2003. (online)
CNN/Netscape News, Feb 10, 2004. (online)
"Enron's legal tab close to $ 1 billion", The Atlanta Journal Constitution, Nov. 14, 2004.
Google News; April 11, July, 2006
Business Week Online, April 11, 2006, The Associated Press/HOUSTON, By KRISTEN HAYS: AP Business Writer, "Skilling Denies Leading Enron Conspiracy."