Look Who’s Not Talking

Citing inflammatory public comments, former Enron CEO decides not to appear before Congress. Also: Enron internal report says CFO Fastow made $4.5 million on $25,000 investment in company partnership.

They’re starting to circle the wagons.

On Sunday, one day after an internal Enron investigation blamed the company’s executives, auditors, directors and lawyers for the energy trader’s stunning collapse, the key players in the drama went on the defensive.

Former Enron chairman Kenneth Lay cancelled his scheduled testimony for Monday in the Senate and Tuesday in the House, saying lawmakers’ “inflammatory” public comments following the report’s release had prejudged the outcome. “I have instructed Mr. Lay to withdraw his prior acceptance of your invitation,” Lay attorney Earl Silbert said in letters to the Senate and House panels.

Jeffrey Skilling, Enron’s former chief executive officer, is scheduled to testify on Thursday. Later this week, former Enron CFO Andrew Fastow and an aide, Michael Kopper, are scheduled to appear before the House Energy and Commerce Committee. But, Rep. Billy Tauzin, the Louisiana Republican who chairs the committee, said the duo will likely invoke their constitutional right against self-incrimination. “They will be before the committee on Thursday and Fastow will take the Fifth, Kopper will take the Fifth,” Tauzin said on NBC’s “Meet the Press.”

They wouldn’t be alone in taking that tack. Last week, fired Andersen partner David Duncan invoked his Fifth Amendment rights before a congressional panel. Other Andersen auditors and managers claim Duncan ordered the destruction of key documents relating to the Enron case.

Enron Probe Skewers Enron, Fastow

While Enron’s 217-page internal report lays the blame for the company’s downfall on a host of players, CFO Fastow was singled out for his contributions to the company’s downfall. Specifically, the report criticizes Fastow’s dual role as both Enron CFO and general partner in a number of the company’ special purpose entities (SPE). The report says Fastow’s dual role was a means of “enriching himself personally and facilitating manipulation of Enron’s financial statements.” Adds the report: “Both of these objectives were inconsistent with Fastow’s fiduciary duties to Enron and anything the board authorized.”

The Enron internal report also states that the evidence suggests that Fastow:

  • Placed his own personal interests and those of the LJM partnerships ahead of Enron’s interests.
  • Use his position in Enron to influence (or attempt to influence) Enron employees who were engaging in transactions on Enron’s behalf with the LJM partnerships.
  • Failed to disclose to Enron’s board of directors important information the directors were entitled to receive.

The report cites one instance where Fastow proposes to Lay and Skilling that he run the LJM Cayman SPE. “Fastow presented his participation as something he did not desire personally, but was necessary to attract investors to permit Enron to hedge its substantial investment in (Internet service provider) Rhythms NetConnections, and possibly to purchase other assets in Enron’s merchant portfolio.”

The report also details how Fastow and other executives apparently enriched themselves from the questionable partnerships they helped to created. In one case, the former Enron CFO allegedly made $4.5 million from a $25,000 investment–in two months. Kopper, one of Fastow’s employees, is said to have earned at least $10 million from a $125,000 investment in one of the partnerships, the report notes.

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