Risk & Compliance

Hollings Disses Pitt

Senator "not satisfied" with SEC chief's Enron performance. Elsewhere: Skilling's Mom a tough audience, and D&O premiums skyrocket.
Stephen TaubFebruary 12, 2002

The Enron hearings resume today.

The highlight, of course, will be former chairman Ken Lay taking the fifth, making him the sixth person to refuse to testify before Congress.

While a number of legislators spent the weekend on the TV interview circuit promising to get to the bottom of the Enron scandal real quick, one Senator took dead aim at SEC chairman Harvey Pitt.

Sen. Ernest Hollings (Dem.-S.C.) told Reuters he is unhappy with the way Pitt is handling the entire Enron fiasco. Hollings says he thinks Pitt has been quiet on Enron because he did work for Enron’s former auditor (Andersen) prior to joining the SEC. “I’m not satisfied,” Hollings told the wire service. “Whatever he (Pitt) would recommend, I’d look at with a jaundiced eye.”

In reaction, SEC spokeswoman Christi Harlan said, “Chairman Pitt has said all along that he now represents the best client in the world and that’s the investing public.”

Momma Said Knock You Out

It’s been a bad couple of days for former Enron CEO Jeffrey Skilling. Last week, Skilling’s testimony before Congress drew howls from lawmakers and the media alike.

Now, Skilling’s Mom appears to be harshing on her son. In an interview prior to Skilling’s testimony last week, Betty Skilling says she finds it hard to believe the former Enron executive was not aware of wrongdoing on his watch.

Speaking to Newsweek, Skilling’s Mom told the magazine, “When you are the CEO and you are on the board of directors, you are supposed to know what’s going on with the rest of the company. You can’t get off the hook with me there. … He’s going to have to beat this the best way he can.” Ouch.

Skilling’s resignation from the CEO’s post in August has some observers wondering if he knew Enron was in deep trouble — or that he couldn’t save the company. After all, Skilling had been chief operating officer at Enron for several years, and the CEO post would seem to be his ideal job. Why quit after only six months at the helm? Betty Skilling apparently has the same question. The 77 year-old told the weekly magazine, “I don’t think he knew he was in such high water, but I think he must have had some idea because he resigned.”

Still, Skilling’s father, Tom Skilling, said he didn’t think his son would do anything wrong. “I’ve never known him to do a dishonest thing in his life.”

Meanwhile, EOTT Energy Partners, L.P., a crude oil marketing and transportation affiliate of Enron Corp., announced on Monday that Andersen has withdrawn as its auditor, effective Feb. 5.

The Insurance Fallout

Enron keeps rippling everybody else’s lake. The latest example: it seems the company’s collapse is sending premiums for officers and directors insurance through the roof.

Companies whose market caps exceed $1 billion will see their premium bills jump more than 50 percent, according to published reports citing Willis Group Holdings Inc., the third-largest insurance broker.

Specifically, the price of policies has jumped from $5,000 to $10,000 for every $1 million of coverage for the first $50 million, to between $25,000 and $30,000 per $1 million for the same coverage.

Not surprisingly, fear of an Enron-like feeding frenzy is driving premiums up. The fear appears well-founded, too. In 2001, the number of suits filed against companies and their officers and directors jumped to a record 500, according to James Newman, executive director of Securities Class Action Services, in a published report. Keep in mind that from 1996 through 2000, there were between 200 and 300 class action suits filed each year.

The average settlement has grown, too, up to $25 million in 2000 from $17.5 million in 1999.

Interestingly, Skilling’s testimony last week seemed to indicate that the former Enron CEO was willing to take a civil hit rather than a criminal one. In his testimony, Skilling appeared to be stating that you could fault his judgment — he repeated said he thought the company was in good financial shape. But Skilling would not admit to possessing any information that might make him criminally liable. If that’s his tack, it’s an intriguing strategy — particularly if Skilling is still covered by Enron’s D&O insurance.

For a detailed look at rate increases across all major lines of corporate insurance, read
Insurance at Risk, a CFO.com Buyer’s Guide.

Short Takes

Investors must believe charges of accounting irregularities at Whirlpool Corp. are drummed up. The share price of the largest U.S. appliance maker rebounded by nearly 5 percent Monday.

Target Corp. filed a shelf registration to sell up to $4 billion worth of debt securities, preferred and common stock, depositary shares and securities warrants. Management at the discount retailer said it plans to use the proceeds to meet working capital requirements, fund capital expenditures, remodel existing stores and refinance debt. It also said it plans to use the proceeds toward financing share buybacks or acquisitions of real estate, other assets or companies.

R2 Technology Inc., which makes and sells medical systems that help detect breast and lung cancer, on Monday said it would sell 4.5 million shares at between $10 to $12 each in its IPO. As a result, it will raise between $45 million and $54 million. The company said it would use the proceeds for general corporate purposes and working capital, including $9.5 million for research and development, $11 million for sales and marketing, $2 million for clinical and regulatory studies and $1 million for capital expenditures. The offering is being co-led by Robertson Stephens and U.S. Bancorp Piper Jaffray.

— Embattled Tyco International Ltd. Chief Financial Officer Mark Swartz and Chairman Dennis Kozlowski each recently spent nearly $15 million to buy 500,000 shares of their company’s stock at between $29 and $29.75 a pop. News of the purchases of the company’s top two executives sent Tyco’s share price up 6 percent on Monday.