Jeffrey K. Skilling, the former chief executive of Enron Corp., surrendered to the FBI to face charges contained in 42-count indictment by a federal grand jury. He pleaded not guilty. If convicted on all counts, Skilling faces a maximum of 325 years in prison and $80 million in fines.
The Post's Carrie Johnson talks about the charges brought against Skilling.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
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Carrie Johnson: Thanks to everyone for your questions about a signal event in the Enron investigation. I'm happy to be here to chat.
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Washington, D.C.:
Hello Carrie:
I've been a follower of this Enron explosion, and I have no sympathy for any of these manipulative scamming people.
You are an "accessory" when a crime is committed by someone else and you go through it with them, same applies here.
Lastly, I think about all those innocent people that walked out of that building with their belongings for the last time, with their investment moneys gone and unemployed.
Lock them up and throw away the key.
washingtonpost.com: Enron's Ex-CEO Turns Himself In (Post, Feb. 20)
Carrie Johnson: There are certainly still lots of strong feelings out there about what happened at Enron, even though two years have passed since the bankruptcy.
Prosecutors at the Enron Task Force have charged 29 people with crimes in connection with the company's demise, including former executives and bankers who helped Enron manipulate its earnings and take part in shady deals. So some of the "accessories" you mention are being called to account.
Still more executives (including Jeff Skilling) have declared their innocence and they will have their day in court later this year and for Skilling, late next year.
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Boston, Mass.:
Why hasn't Ken Lay been charged with anything yet?
Carrie Johnson: That's the single biggest lingering issue that faces prosecutors and regulators at the SEC. Lay was very much the public face of Enron and he has painted himself, with some success, as a man who was not involved in the company's day to day operations.
So proving that he knew Enron's accounting gimmicks were illegal, even though some of them got the blessing of auditors and lawyers, is a difficult task, as Justice Department official Jim Comey mentioned at yesterday's news conference in Washington.
Still investigators are continuing to examine Lay and they are especially interested in what he knew about the company's finances when he took over from Skilling in August 2001--about three months before the bankruptcy.
We have a story on Lay in today's business section you might want to check out as well.
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Laurel, Md.:
Many Wall Street skeptics date the 1990s stock market boom to the 1993 tax code change that limited corporate deductibility of executive compensation to $1 million per executive, except for performance-based bonuses -- usually stock options. This motivated companies to increase reported earnings and hopefully boost stock prices.
Would it be a winnable defense to argue that aggressive accounting was pretty rampant in corporate America at the time; and that Enron's practices may have exceeded other companies in degree, but not in kind?
Carrie Johnson: Good questions. There certainly was an enormous incentive for executives to manage their company's earnings in the 1990s and perhaps that still exists today.
Skilling's defense lawyer Bruce Hiler came out swinging yesterday, raising the very defense you mention. He is going to point to deals that were approved by auditors at Andersen, lawyers at Vinson & Elkins and elsewhere, and other instances where prosecutors are questioning Skilling's "business judgment" related to the use of cash reserves to cover losses.
The government will likely argue certain deals and maneuvers had no real legitimate business purpose except to inflate Enron's earnings. It will be a complex question for a jury to decide, at the end of the day.
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Mentone Beach, Calif.:
What is going to happen to all the employees of Enron who lost the bulk of their retirement money?
Carrie Johnson: Enron's shareholders and former employees have filed big class action lawsuits against the company, its former officials, and the law firms, banks, and accountants that helped Enron stay afloat. The investors are hoping to recover at least some of their billions of dollars in losses.
Separately, the Justice Department and the SEC have collected more than $400 million in fines and penalties as part of Enron-related settlements that SEC Enforcement Chief Steve Cutler said will ultimately be distributed to shareholders and employees.
That probably won't happen for some time, though, and workers who lost retirement savings will not come close to being "made whole." It's probably the saddest part of the Enron story--though some critics argue employees should not have bought into the Enron mystique and placed all their bets on Enron stock rather than diversifying their portfolios.
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Washington, D.C.:
This Enron story sure has been in the news for a long time. When did the alleged "crimes" take place? Was this in the late in 1990's? Was is it in 2000 or 2001?
Carrie Johnson: The dates of the alleged Enron conspiracy have shifted in the various indictments and complaints that have been filed to date.
But the government argues that what in the early 1990s might have been "aggressive" accounting crossed the line into illegality toward the end of the decade, starting in 1998 or 1999. That's when Enron started using exotic and, some might say, desperate measures to meet short term earnings targets. It's also when the partnerships devised by Enron chief financial officer Andy Fastow (who pleaded guilty to conspiracy last month) began to spiral out of control.
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Arlington, Va.:
During the investigation over the past two years were Skilling's funds regulated so that the millions of dollars that he stole (if it is proven that he stole) are recoverable?
Carrie Johnson: As part of yesterday's indictment, prosecutors, SEC lawyers, and IRS experts attempted to trace Skilling's alleged "ill gotten gains."
They sought to freeze yesterday $66 million from Skilling, including his mansion in Houston, property in Dallas, and more than $50 million in securities. It is unclear whether Skilling will challenge the asset freeze, a step that has been taken by other executives under fire.
But clearly he has enough money on hand to post a $5 million bond with a cashier's check and to hire lawyers like Dan Petrocelli, Bruce Hiler, and Ron Woods in Texas. Defending a high profile white collar criminal case is not cheap.
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Washington, D.C.: Thanks for taking my question.
If Skilling is found guilty of a number of serious crimes, do you think the jail time he faces will be significantly more than the seven years being served by Sam Waksal? If that appears likely, what are the chances for a plea agreement?
Carrie Johnson: Skilling has been charged with 35 crimes, including conspiracy, insider trading, securities fraud, and false statements to auditors.
He faces decades in prison if he is convicted on all or even most of those charges, in part because federal sentencing guidelines tell judges to take into account during sentencing the amount of the alleged fraud. (That's absolutely enormous in the Enron case.)
It's unclear whether prosecutors have the appetite to do a deal with Skilling, or what he could give them of great value. Justice Department official Jim Comey yesterday called Skilling "THE guy" at Enron--a sign that the government views him as the most culpable for shaping Enron's culture.
What's more, Skilling has fought hard against critics for years now, and he's unlikely to stop now.
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Washington, D.C.:
Do you think Skillings defense lawyer's statements about the prosecution's case being 'weak' is true in any sense?
Personally, I don't see how someone in Skillings' position, as someone who was a recipient of the profits, and one of the people responsible for the distribution of Enron's corporate wealth could NOT have known what was going on. It doesn't make any sense.
Or is his lawyer's statement a reflection of what is 'provable' in court - depending on what is 'allowed' in?
washingtonpost.com: Enron's Ex-CEO Turns Himself In (Post, Feb. 20)
Carrie Johnson: The government has secured the cooperation of former Enron finance wizard Andy Fastow and other insiders, including Dave Delainey, who headed up two of Enron's biggest divisions. All signs are they have provided information on Skilling.
But we have yet to see exactly what the cooperating witnesses have said--whether they can place him in rooms where fraud was allegedly discussed, whether they have incriminating notes taken at meetings Skilling attended, etc.
In any event, Skilling's lawyers will likely try to tear apart Fastow and other cooperators on the witness stand, pointing out they have motives to lie to save their own hides.
Intentionally hiding from knowledge you know to be bad or incriminating (called 'willful blindness' under the law) can itself be a crime.
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Boston, Mass.:
Ms. Johnson:
Can you please tell me what kind of investigative work you have been doing on Enron?
Carrie Johnson: The Post produced an excellent, vivid series on Enron's collapse in 2002 that still reads as a road map to the government's investigation. That series is available online and it was prepared by Peter Behr, April Witt, Chuck Babcock, Jeff Leen, and a number of talented researchers at the paper.
I covered the criminal trial of Arthur Andersen and have been following SEC and Justice Department developments in the Enron probe since that time.
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Huntingtown, Md.:
Hello Carrie - Let me start off by saying that this situation hit close to home as my 86 year old Grandmother had over $60,000 invested in Enron and has lost it all.
With that said, I am as disgusted as anyone.
I have two questions:
1. Do you think Skilling will do any real time?
2. Do you think this whole situation can be rooted in the deregulation of the energy business that was brought on by the Bush I-Reagan administrations?
I think it does because the fact that deregulating took all the government watch dogs out of the picture. Leaving companies like Enron to make up their own accounting practices. I understand that Enron was given unprecedented freedom with it's books - is this all really a result of deregulation? Please comment.
Carrie Johnson: Sorry to hear about your grandmother's misfortune.
When he came to Enron in 1990, Jeff Skilling began lobbying for the company to use an accounting treatment called "mark to market," which would let Enron book profits on its books from deals that would culminate years into the future. Skilling won that battle, and others, before regulatory agencies and some people trace those decisions to the beginning of Enron's aggressive and (prosecutors would say) ultimately illegal accounting gimmicks.
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Read Article: Lay Is Among the Few Not Charged
Carrie Johnson: Here's a link to the Lay article I mentioned above.
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Lancaster, Pa.:
What is the likelihood that in the course of any of these trials, the extent of the Bush family connections to Enron will come out? Kevin Phillips in his "American Dynasty" contends that the connections are close and date back to the mid 1980's (despite GW Bush's claim that he didn't know Ken Lay prior to 1994.)
Carrie Johnson: Before Enron fell apart, Ken Lay had been a major fund-raiser for the Bush campaigns, a fact that came out soon after the company collapsed. He called several administration officials for help as Enron slipped into fiscal disaster, but those executives have steadfastly denied doing anything to bail out Enron.
To some extent, in the public imagination, it can be difficult to separate the politics from the decision about whether or not to bring a civil or criminal case against Ken Lay in connection with Enron's demise.
Yesterday Justice officials strongly denied there was a political aspect to their investigation, and career government prosecutors Leslie Caldwell and Andrew Weissmann stand at the helm of the Task Force investigating fraud at Enron.
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washingtonpost.com:
Here's Part 1 of The Fall of Enron Series from 2002
Coming Storms
Carrie Johnson: And here's Part One of the Post's Enron series.
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Louisville, Kentucky:
I don't have a real concept of how significant Fastow returning - do I have this number right? - $29 million is relative to the money he made. Will he have to sell that house we all watched being built shortly after Enron's bankruptcy filing? And what kind of leverage do the prosecutors have re Skilling to get money back?
Carrie Johnson: You're right on target on the Fastow figure. Enron's bankruptcy examiner estimated that Fastow made about $60 million from his secretive business partnerships. But in the course of years, some of that money went to pay for taxes and some has gone to pay for his legal defense against the criminal charges and massive class action lawsuits filed by shareholders and employees. Prosecutors have seized control over his Houston mansion, which was ultimately sold to an outside buyer.
The government is trying to get back about $66 million from Skilling that they argue is traceable to the fraud at Enron. They first must convince a judge that the money (in the form of securities and homes) flowed directly from illegal acts.
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Boulder, Colorado:
Do you believe that white collar crime is reduced when executives of corporations are sentenced for crimes such as those that were committed at Enron?
Carrie Johnson: The Justice Department does. Prosecutors argue that white collar criminals are almost uniquely sensitive to pictures of CEOs in handcuffs and that the deterrent effect of a corporate "perp walk" is strong.
I've never discussed with CEOs whether pictures of HealthSouth's Richard Scrushy or Adelphia's John Rigas really leave them shaking in their boots.
But surely the death of audit firm Arthur Andersen in 2002 after being convicted of obstructing justice has produced changes in the universe of big accounting firms. Industry experts say auditors are pushing back now more than they have ever before, and are dropping "risky" clients.
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Washington, D.C.:
Assume Skilling is convicted on all counts and fined $80 million--where will the $80 million go? Will it be divided among the former Enron employees?
Carrie Johnson: The SEC is developing a system under which it will try to return those funds to shareholders--but no money has been distributed yet, and investors who lost money are unlikely to break even.
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Austin, Texas:
I recently heard a prosecutor's (I don't know if he was involved with this case) comment that the nice thing about going after white-collar criminals was that prosecution of these cases really does act as a deterrent. More so, than, say, prosecuting liquor store robbers.
Is this really true? Do you think other executives who might have been willing to account creatively have been / are looking at the prospect of these guys losing everything and spending most of the rest of their lives in jail and actually changing their behavior?
In other words, is there a real cultural change going on among corporate executives and boards? If so, how profound do you think it is? How lasting will it be?
Carrie Johnson: This is the question of the era, and it's difficult to tell now. (I took a stab at answering part of this earlier in the chat.)
But the situation at HealthSouth (a Birmingham rehabilitation hospital company) might be instructive. A chief financial officer at the company came forward to the government after he grew nervous about certifying the accuracy of the company's financial statements. This was a new requirement under the Sarbanes-Oxley Act, passed in 2002 after blowups at Enron and WorldCom. Since that executive at HealthSouth turned to the government, federal prosecutors have secured 15 guilty pleas and have brought a case against former chief executive Richard Scrushy. Scrushy is strenuously fighting the charges and has denied wrongdoing.
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Washington, D.C.:
Why should former employees recover any of their "losses?" They were greedy enough to invest 100% of their savings in a single stock. No financial planner or adviser would ever, ever suggest that is a prudent thing to do.
Carrie Johnson: An interesting counterpoint.
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Washington, D.C.:
Wait a minute, in all fairness...you said that some folks say that the employees shouldn't have invested their money into Enron the way they did. Let us remember please, the Enron manipulators were going to the employees selling the idea of investing in the business.
Who wouldn't?
Carrie Johnson: And the ball bounces back to the other side of the court.
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New York, New York:
Is Skilling being held at all accountable in any of these charges for the manipulations of the energy markets that almost bankrupted California (while he explicitly laughed about it on stage at company events)?
By the way, the employees of Enron were always aware of the type of firm it was and what its ethics were like. They cheered it on. They decried any type of government regulation and then went
straight to the government for help once they discovered that their employers treated the employees as immorally as their clients. Live by the sword, die by it too.
Jill Cerino
NY, NY
Carrie Johnson: Yesterday's charges do involve alleged false statements Skilling made about the profits the company made in California. They also relate in part to massive cash reserves (over $1 billion I think) that Enron stored away from its California business and used to prop up other parts of the company.
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Arlington, Va:
I knew Andy Fastow in high school and he seemed like a high flyer even then. Did he do Skilling's bidding or vice versa? Thanks.
Carrie Johnson: I can't wait to hear what Fastow has to say about that on the witness stand.
Skilling's defenders would point out that Fastow apparently hid some things from Skilling, including how much money Fastow was making from his extraordinarily profitable side deals. A former Enron lawyer has told investigators that Fastow said Skilling would have fired him if he knew how much Fastow was reaping.
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Gaithersburg, Md.:
Why did it take 3 years to bring this man in?
If it was a normal person like myself I would have been put in jail a long time ago.
Carrie Johnson: Enron is, in the words of veteran prosecutors, the most complex white collar investigation in history. Many of the company's activities got the approval of accountants and lawyers, requiring investigators to seek out the deals where key facts were hidden or where those outsiders were actively misled by Enron insiders.
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Carrie Johnson: Thanks very much for all of the good questions. It was a pleasure to be here.
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