Risk & Compliance

Enron’s Funky Financing

Standard & Poor's analyst Ron Barone testified Tuesday about the surprises that marked Enron's slide into default.
Tim Reason and Stephen TaubMarch 21, 2006

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Jurors in the Enron trial were treated to an inside look at the souring relationship between the energy trading company and credit analysts on Tuesday, when Standard & Poor’s analyst Ron Barone took the stand.

Barone described his astonishment when he learned in October 2001 about a $1.2 billion accounting adjustment from Enron’s assistant treasurer, according to the Houston Chronicle. “We were very surprised to hear about” the adjustment, Barone reportedly said, adding that it was significant due to “the sheer dollar amount and that it hadn’t been disclosed to us previously.”

Barone testified that CEO Kenneth Lay requested a private phone call less than a week later to discuss what Enron could do to keep its credit rating at BBB plus, according to The Chronicle. In that phone call, Barone testified, Lay assured him the company would take whatever steps were necessary to shore up the balance sheet, including selling the company’s valuable pipeline assets. Lay also assured Barone that there would be no additional write-downs or financial surprises, the Chronicle reported.

Barone, it seems, had his doubts. At one point, reports the Chronicle, he clarified for defense attorneys that an e-mail reference to Enron’s “funky financing structures” were his words and not Lay’s.

Defense attorneys also questioned Barone about a quote he gave to CFO magazine in October 1999, when then-CFO Andrew Fastow was named one of 11 winners of that year’s CFO Excellence Award. “[Fastow] has successfully financed billions of dollars in a manner that has held credit quality,” Barone told CFO at the time. “And that is not an easy thing to do. It is a testament to Andy’s focus on cash flow and his ability to think outside the box.”

“That’s how I felt at the time,” Barone responded, according to the Chronicle.

Testimony ended for the day after about half an hour of long-awaited testimony from former Enron treasurer Ben Glisan, now serving five years after pleading guilty to conspiracy. After some perfunctory legal wrangling over Glisan’s Fifth Amendment rights (prosecutors had an immunity document ready to go), the Chronicle reported “rapid testimony” in which Glisan accused Skilling of misleading investors about the value of the company’s assets. Glisan’s testimony is likely to consume most of the day on Wednesday when the trial resumes.