Waxman Says Video Contradicts Skilling

Former Enron Corp. Chief Executive Jeffrey K. Skilling vigorously defended the company’s accounting methods to employees more than a year ago as “appropriate” and “conservatively executed” and lauded the same type of off-balance-sheet partnerships that would eventually spur the energy-trading giant’s collapse, a video obtained by congressional investigators shows.

Rep. Henry A. Waxman (D-Los Angeles) on Monday released a transcript of the comments, which were recorded at an Oct. 3, 2000, company meeting. Waxman said the comments appeared to bluntly contradict Skilling’s testimony to lawmakers this month and sent Skilling a letter asking for an explanation.

Skilling is scheduled to testify today before the Senate Commerce Committee, and Waxman said he has forwarded the letter to Sen. Ernest F. Hollings (D-S.C.), the committee chairman.

Skilling “seems to have known a lot more than he let on when he testified,” Waxman said in an interview. “We hope [the Senate committee] will pursue some of these issues. I think Mr. Skilling has a lot of questions to answer.”

In a testimony to a House panel Feb. 7, Skilling--who served as Enron’s chief executive for six months last year--insisted the company was “solvent and highly profitable” when he abruptly resigned in August. He said he “was not aware of any inappropriate financing arrangements designed to conceal liabilities or overstate earnings.”

A transcript of the employee meeting, however, indicates that Skilling was familiar with allegations that Enron’s accounting tactics masked losses. The matter was raised when an employee questioned Skilling about a Sept. 20, 2000, Wall Street Journal article critical of aggressive “mark-to-market” accounting by Enron and some other energy companies.

The technique allows companies to book as current earnings profit that it expects to earn over the course of long-term contracts. In cases in which future market conditions are highly uncertain--such as with electricity--Enron based the value of the deals on its own often overly optimistic models. Although the technique is legal, Enron’s use of it has been criticized by analysts, former executives and others as misleading in the months since the energy trader filed for bankruptcy protection Dec. 2.

The Wall Street Journal article raised those concerns more than a year earlier, noting that Enron would have reported a second-quarter loss if not for $747 million booked in anticipated, but as yet unrealized, gains from “risk management activities.” But Skilling dismissed the concerns as “totally, totally without merit.”

“Quite frankly, we provide more data in our annual report than anyone else in our industry and more data than anyone in any transaction-based industry,” Skilling said in the video, according to the transcript. “Our accounting policies are not only appropriate, in my opinion, they’re conservatively executed.”

At the same meeting, Skilling also described how the company planned to bring in partners to help leverage its capital in its new Enron Net Works division, according to the transcript, and do so “in a way that minimizes the impact on Enron’s balance sheet.”

In his letter, Waxman said the comments make it sound as though Skilling was “endorsing exactly the same kind of off-balance-sheet partnerships that contributed to Enron’s downfall.”

Skilling’s attorney, Bruce A. Hiler, issued a statement Monday declining to “respond to every inquiry and attempt to draw unsubstantiated conclusions from each new piece of information that comes available about Enron.”

Lawmakers today are expected to ask Skilling to explain what they say are contradictions between his testimony to the House panel and that of other Enron executives, who say he knew details of the partnerships. Among those are Vice President Sherron S. Watkins, who first warned former Chairman Kenneth L. Lay about the problems last summer, and current President Jeffrey McMahon, who as treasurer said he raised concerns with Skilling about the partnerships. Both are scheduled to testify today as well.