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Skilling Feeling The Heat

Aug 11, 2002 | The Houston Chronicle

One year after resigning ahead of the Enron Corp. cataclysm, former CEO Jeffrey Skilling is preparing for likely criminal charges and an ensuing legal battle that will determine his future.

"He definitely understands there is a strong risk of indictment," said his brother Mark, a lawyer and writer living in Istanbul, Turkey.

"He thinks he has committed no crime, but he understands in the political climate that exists now, anything is possible," Mark Skilling said.

Lawyers and analysts either directly involved in the Enron case or following it closely agree that Skilling is likely to face criminal charges from the Enron task force.

"I would say he is a near certainty to be indicted," said Ross Miller, co-author of the book What Went Wrong at Enron. "And I'd expect him to fight it out to the bitter end going for an acquittal."

Another attorney with an Enron-related client and experience as a prosecutor said, "I think Skilling is in a hopeless position from a perspective of legal tactics. The pressure to indict him is enormous. It is likely their No. 1 priority."

Justice Department spokesman Mark Corallo said he could not comment on the details of the Enron task force's investigation or on whether Skilling is a target of that investigation.

Legal experts said that although the Enron investigation is bewildering in its complexity, the goal of prosecutors when it comes to Skilling and other top executives is straightforward.

Skilling reaped millions of dollars in compensation while the company's true financial condition was unknown to stockholders. Demonstrate that he knew stock analysts and investors were being lied to, and questionable accounting concealed, and you've shown fraud.

The difficulty for federal prosecutors will be proving beyond a reasonable doubt that Skilling knew Enron's true condition was being hidden, that he knew details of the transactions that disguised its financial health.

Skilling has refused all interview requests for several months.

But his brother said, "If there is a criminal trial, he believes absolutely that he will be exonerated. I know him as well as anyone, and I certainly know he is ready to fight this as far as humanly possible."

Soon after his departure from Enron one year ago Wednesday, Skilling told a Chronicle reporter he was looking forward to a less stressful life, spending time with family, learning a foreign language, traveling to Africa, becoming a dirt bike master. It hasn't worked out that way.

"It has been the roughest time in his life so far, by any measure," said his brother.

Asked about his current routine, attorney Elizabeth Baird said, "Mr. Skilling is spending a great deal of time with his family. Much of the balance of his time is devoted to responding to government investigations into the collapse of Enron and defending the multiple legal actions to which he is now a party. "

Those close to Skilling said he feels there is so much pressure to hold him accountable for the people financially ruined at Enron that he could be charged even if evidence is inconclusive.

"Between now and the elections, he is not expecting much in the way of fair handling of his case," Mark Skilling said.

Certainly, the anger many Enron employees felt at Skilling isn't abating.

"I hope he winds up in jail," said Charles Weiss, a former manager at Enron Broadband Services who was among those who lost careers and investment dollars when Enron imploded.

"My guess is he will be led off in handcuffs, and when that happens the people who worked at Enron will feel that it didn't come soon enough," he said "For him to take this approach that he wasn't responsible is ludicrous."

And Skilling isn't gaining much support in the national culture.

News editorials have pricked the Justice Department because it hasn't charged top Enron executives. CNN is running a scoreboard on its nightly Moneyline program showing the days elapsed with no criminal charges against Enron leaders such as Skilling.

His February congressional appearances were panned in the press, and by members of Congress who accused him of lying about how much he knew of key transactions that swamped the company.

After his testimony, some legislators speculated that Skilling had committed perjury.

Rep. Billy Tauzin, R-La., said Skilling, "thought he could come and just, you know, flamboozle us, just tell us anything he wanted, and we would buy it. I'm afraid he may have put himself in some legal jeopardy as a result."

Several legal experts close to the Enron investigation said Skilling's testimony certainly was a risk.

It put him on the record, under oath, denying critical responsibility about some of the financial restructuring, the creation of corporate entities and the specifics of hedging some of Enron's transactions that contributed to the company's collapse.

For example, Skilling told congressional investigators that he was unaware that Enron partnerships were used to conceal losses from investors.

But Enron accounting managers Rodney Faldyn and Ryan Siurek have reportedly told investigators they believed Skilling knew about an effort to hide $500 million in Enron losses in special purpose entities called the Raptors.

And Richard Causey, former executive vice president at Enron, has told investigators that his general recollection was that Skilling approved the restructuring of the Raptor deals, which involved transferring 12 million shares of company stock, worth $700 million at the time, into the Raptors.

That prevented reporting a $500 million company loss in the first quarter of 2001.

Skilling has maintained he relied on accounting firm Arthur Andersen's representations that the Raptor restructuring violated no rules.

The fact that Skilling did testify, while others cited Fifth Amendment protections, showed he believed he did nothing wrong, supporters said.

Attorney Bruce Hiler said Skilling may have overestimated the fairness of Congress and media outlets.

"It has become apparent that Congress and many media commentators are not interested in serious fact-finding but rather in an opportunistic blame game on the eve of an election."

Prosecutors could prepare perjury counts related to congressional testimony as part of a Skilling indictment, sources said.

"It is something prosecutors do to increase the target's exposure to prison time, and to give the defense team something else to worry about," one attorney said. "It gives you the chance to portray the guy as a liar before a jury."

But his testimony before Congress probably will be peripheral to the main investigation of Skilling, which revolves around how much he did or didn't know about possibly fraudulent transactions that damaged the company and investors.

Skilling's defense against a federal indictment remains the same as it was when he testified in February -- if there was fraud, he didn't know about it.

That defense may be tough to sell to a jury, experts said.

"It takes an incredible, phenomenal ability to synthesize information and retain details to achieve what Skilling did at Harvard Business School, and later as a top financial consultant," Miller said. "It is very hard to believe he suddenly developed amnesia."

Skilling's problem is that a complex federal fraud prosecution often becomes a feeding frenzy. "The only leverage anybody has in this is to hand them somebody up the ladder. Well, Skilling is at the top of the ladder," said one attorney close to the case.

Key subordinates such as former Treasurer Ben Glisan already have given prosecutors a written offer to tell what they know in exchange for immunity from prosecution.

Others, such as former Chief Financial Officer Andrew Fastow and former Executive Vice President Richard Causey, had direct dealings with Skilling on Enron transactions being scrutinized by prosecutors. That makes them potential witnesses against him, sources said, especially if doing so could keep them out of prison, or carve years off sentences.

That is critical, because Skilling's fate likely comes down to what prosecutors can demonstrate he authorized or was aware of in a series of complex deals subject to various interpretations.

His supporters and legal advisers said that in none of those deals could he be linked to criminal wrongdoing. In the case of transactions such as the Raptors, Skilling has said he didn't know the details.

In another deal, called the Southampton entity, federal prosecutors have charged three British bankers with fraud and are clearly focusing on Fastow, who was involved. Skilling has maintained he knew nothing, or almost nothing, about Southampton.

Then there is Chewco, a complex Enron partnership that accounted for a majority of the company's losses beginning in 1997, while appearing to show that the company was in better financial shape than it was.

Prosecutors signaled during the Arthur Andersen trial that Chewco was in their cross hairs

Joseph Bernardino, former head of Andersen, testified before Congress in December that Chewco might have been illegally designated a separate company rather than an Enron subsidiary.

To be a separate company, Chewco needed at least 3 percent of its financing to come from an independent third party. That appears not to have happened. And anybody who knew it wasn't really an independent company but allowed it to be described as one in Enron books may have committed fraud, investigators said.

Skilling has told the Chronicle through attorneys that he had no knowledge that Chewco was improperly structured.

That theory is being tested by prosecutors, who have accumulated a great deal of information about Chewco, including details about Skilling's role, provided by Glisan, sources said.

Aside from possible criminal charges, Skilling has been named in roughly a dozen civil lawsuits related to Enron's collapse.

"He expects to spend the next few years in court on these matters," his brother Mark said. "He said during his testimony that five to 10 years was possible. I hope for his sake it isn't that long."

Skilling raked almost $90 million out of Enron from salary, selling stock and cashing stock options between 1999 and the company's collapse, congressional investigators calculated. The fact that other stock and stock options worth about $170 million became worthless has elicited little sympathy.

Those vanished riches are now the least of the worries of a man who saw himself revolutionizing the way America did business.

Skilling now spends his time with his children, with a second wife he married in March, and in preparation for what could be a titanic, yearslong legal struggle.

Mark Skilling said his brother feels there has been almost a willful refusal to fairly consider his contributions.

"He saw himself as part of something that benefited many people, and that changed the way energy was traded. They created a brand new industry. Then they got creamed. But the industry will still be around because it was a good idea."

He added, "If Jeffrey could say something to the people of Houston, it'd be, `Continue to give me the benefit of a doubt, and give Enron the benefit of a doubt.' "

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