Risk & Compliance

LJM ”Horrible Idea,” Skilling Says Now

Former Enron chief executive also maintains that the first time he saw the so-called Global Galactic memo was when it was published in the newspape...
Stephen TaubApril 12, 2006

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In retrospect, the controversial LJM partnerships were a “horrible idea,” former Enron chief executive officer Jeffrey Skilling told jurors on his third day of testimony, according to The Washington Post.

He tempered that judgment by referring to them as a “bad idea,” added the newspaper, even though he as well as Enron’s board of directors signed off on the arrangements.

Only a day earlier, Skilling acknowledged that the partnerships posed a conflict of interest because they were run by then-CFO Andrew Fastow, though he also insisted that both he and the board of directors were confident that sufficient checks and balances were in place. He added that “the only time Enron would use this if it were in the best interest of the shareholders.”

Testifying on Wednesday, Skilling also reportedly disputed Fastow’s testimony last month regarding the so-called Global Galactic memo. Fastow had testified that he had destroyed the original paperwork, which listed the side deals and payment details for the LJM partnerships. But in 2004, a photocopy was uncovered; it had been initialed by Fastow and former chief accounting officer Richard Causey but not Skilling.

Defense attorney Daniel Petrocelli had asked last month whether Fastow knew whether Causey went over the document with Skilling in detail, according to Bloomberg. Fastow reportedly replied, “My understanding was that Causey had reviewed these transactions with Mr. Skilling and Mr. Skilling agreed to them.”

On Wednesday, under questioning by Petrocelli, Skilling asserted that he hadn’t heard of the Global Galactic memo at the time, reported the Houston Chronicle. In fact, he reportedly told jurors, the first time he saw it was when it was published in the newspapers, “sometime in 2003 or 2004.”

If he had known that Fastow was breaking the law, Petrocelli asked him, what would he have done? According to the Chronicle, Skilling said: “I would have called the FBI. I might have a little hesitation now doing that, but at the time I would have called the FBI.”

Asked by Petrocelli whether he thinks he was falsely accused by the government, Skilling reportedly responded, “Yes.”

Skilling also continued to refute government assertions that he misled analysts investors about the health of the company, maintaining that his accusers misunderstood how the company actually operated.

He elaborated that the two most important metrics at Enron were volume and head count, according to the Chronicle. Skilling insisted that sales would be a misleading metric, the newspaper noted, since Enron was a complex business that depended heavily on hedging widely fluctuating prices.