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Enron Witness Tells of Transfer

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Times Staff Writer

A former Enron Corp. risk manager testified Tuesday that he was pushed out of a key assignment at the energy trading company because he objected to what he believed were questionable financial maneuverings.

Wincenty “Vince” Kaminski said Jeffrey K. Skilling, then Enron’s president, called him in July 1999 to say that Kaminski and his team of analysts were being transferred. The call came a month after Kaminski had raised objections to LJM, an off-the-books partnership created by then-Chief Financial Officer Andrew S. Fastow to provide financial insurance for an important Enron investment.

The testimony came in the fraud and conspiracy trial of Skilling and former Enron Chairman Kenneth L. Lay. The charges grew out of a federal probe sparked by Enron’s 2001 collapse. Lay, 63, and Skilling, 52, face decades in prison if convicted.

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The jury also heard from a former Enron pipeline worker who lost most of his life savings when the company’s stock became worthless.

Fastow, the government’s star witness, testified last week and Monday that LJM and similar partnerships quickly became vehicles for hiding Enron’s losses and falsely boosting earnings.

Kaminski, 58, said he told his boss, Chief Risk Officer Richard B. “Rick” Buy, that there was a conflict of interest in Fastow’s running LJM while he was Enron’s CFO. Also, in Kaminski’s analysis, LJM would get more benefits from the arrangement than Enron would, and there was a good chance the insurance, known as a hedge, wouldn’t protect Enron because LJM might not have enough money to pay a major “claim” on the insurance.

It was like gambling at an insolvent casino, Kaminski said. “If you lose you lose, and if you win you lose” because the house can’t pay your winnings, he said.

Kaminski, who holds three graduate degrees, said it was his job, often involving high-level mathematics, to evaluate complex Enron transactions to make sure the potential benefits outweighed the risks. He said he offered to write a memo detailing his analysis of LJM, but “Mr. Buy said he’d be better qualified to play the politics,” Kaminski testified. He said there was “a lot of pressure” to approve the arrangement, and it soon went through despite his warnings.

A few weeks later, Skilling called to say he had decided to transfer Kaminski and his team of financial analysts away from the LJM deals. Skilling said he had received “complaints that my group acted more like cops preventing people from executing deals than helping them,” Kaminski said.

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The most spirited courtroom exchanges Tuesday were between former pipeline worker Johnnie Nelson, 46, and George M. “Mac” Secrest, a member of Lay’s defense team.

Nelson patrolled natural-gas pipelines between New Mexico and Arizona. He said that in late 2000, after co-workers bragged about their gains on Enron stock, he switched one of his diversified retirement funds completely into Enron stock.

As the stock price tumbled in the fall of 2001, Nelson said he was encouraged by Lay’s statements in a videotaped employee meeting Oct. 23 that Enron’s business fundamentals were “as strong as they’ve ever been.”

The assurances from Lay, whom Nelson said he and his fellow workers fully trusted, “meant everything to us. We were all on the bubble about whether to sell our stock or keep it.”

Nelson kept his stock, which became worthless when Enron filed for bankruptcy protection less than six weeks later.

Lay, as top executive of a huge company, relied on information from subordinates, including the accountants and lawyers who had vetted Fastow’s deals, Secrest said. He asked whether it wasn’t reasonable for Lay to listen to lawyers.

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“I wouldn’t,” Nelson shot back, drawing a big laugh from the crowded courtroom, Lay and Skilling included.

Secrest noted later that Lay had lost “hundreds of millions of dollars” on his Enron stock.

“I’m heartbroken,” Nelson said.

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