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CNN Live Event/Special

Congressional Hearing on Enron Scandal

Aired February 07, 2002 - 15:02   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LEON HARRIS, CNN ANCHOR: Now we want to head you right now back to Washington where now we have been keeping our eye on the Enron hearings. And now Jeffrey Skilling, the man of the hour, one those many members of the House have been waiting to hear from, is now taking the microphone.

JEFF SKILLING, FORMER CEO, FORMER PRESIDENT, ENRON: ... monopoly-dominated industry. We were trying to save consumers and small businesses billions of dollars each year. We believed fiercely in what we were doing.

But today, after thousands of people have lost jobs, thousands of people have lost money, and most tragically, my best friend has taken his own life, it all looks very different. As proud as I was of what we tried to accomplish at Enron, as I sit here today, I am devastated by an apologetic about what Enron has come to represent.

I know that no words can make things right. Too many people have been hurt too much. I am here today because I think Enron's employees, shareholders and the public at large have the right to know what happened. I have done all I can to help this investigation. I have testified for two days at the Securities and Exchange Commission. I have spoken on three occasions to the special committee of the board and have spoken to the committee of this staff as well. I have not exercised my rights to refuse to answer a single question. Not one. And I don't intend to start now.

So let me talk about Enron and its demise. First, contrary to the refrain in the press, while I was at Enron, I was not aware of any financing arrangements designed to conceal liabilities or inflate profitability. The off-balance sheet entities or, SPEs, that have gotten so much attention are common place in corporate America, and if properly established they can effectively shift risk from the company shareholders to others who have a different risk-reward preference. As a result, the financial statements issued by Enron, as far as I knew, accurately reflected the financial condition of the company.

Second, it is my belief that Enron's failure was due to a classic run on the bank. A liquidity crisis spurred by a lack of confidence in the company. At the time of Enron's collapse, the company was solvent, and the company was highly profitable. But apparently, not liquid enough. That is my view of the principal cause of the failure.

Now, let me address some of the questions about my specific involvement in these events. First, I left Enron on August 14, 2001 for personal reasons. At the time I left the company, I fervently believed that Enron would continue to be successful in the future. I did not believe the company was in any imminent financial peril.

Second, similarly I did not dump any stock in Enron because I knew or even suspected that the company was in financial trouble. In fact, I left Enron holding about the same number of shares that I held at the beginning of 2001. On January 1, 2001, the start of my final year at Enron, I owned approximately 1.1 million shares of Enron stock. On August 14, the day I left, I owned about 940,000 shares of Enron stock. Indeed, in June of that year, I terminated an SEC sanction stock plan and elected to hold more Enron shares.

Third, with regard to the so-called LJM partnerships, the Powers report criticizes me for supposedly not taking a more active role in reviewing the conflict of interest arising from the involvement in those partnership of Enron's then CFO. I believed at that time there were adequate controls in place to manage that conflict of interest, that the controls were complied with and that I was discharging to the full extent of my mandate my obligations to the board with respect to that process.

Fourth and final, the Powers report also criticizes me for supposedly approving the restructuring of certain hedging transactions. The report then suggests that quote: "If the account of other Enron employees is accurate, that transaction was designed to conceal losses on some of Enron's investments," end quote, and that I personally may have withheld information from the board about that restructuring. I can state here today that I did not have any knowledge that the transaction was designed to conceal any losses and I did not do anything to withhold information from the board of directors of Enron corporation.

Ours was a company that emphasized creativity, but always in a manner that relied on the advice of the best people we could find, both those inside the company and the lawyers and accountants outside the company who advised us. With that, Mr. Chairman, I'm prepared to answer any questions that you may have.

REP. JAMES GREENWOOD (R), PENNSYLVANIA: Thank you, Mr. Skilling. Mr. Jaedicke, do you have an opening statement, sir? You are recognized for that opening statement.

ROBERT JAEDICKE, ENRON BOARD OF DIRECTORS: Chairman Greenwood, Congressman Deutsch and members of the subcommittee, good afternoon and thank you for the opportunity to address the subcommittee.

I am the chairman of the audit committee of the board of directors of Enron corporation. I have held that position since the mid-1980s. Let me tell you about my background. I joined the faculty of the Stanford graduate school of business in 1961. I served as dean of the school from 1983 to 1990. And at that time, I returned to the faculty of the business school and retired in 1992.

Throughout my tenure as chairman of the Enron board's audit committee, I had been committed to ensuring that it is an effective and actively functioning body. Over the last few years, we undertook to review and strengthen our already vigorous control systems. In 1999, we began a number of initiatives to ensure that we remained the best practices audit committee. Throughout 2000 and into 2001, our committee worked with Arthur Andersen to make certain we complied with the recommendations of the Securities and Exchange Commission, the New York Stock Exchange and the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees. That effort culminated in February 2001, when the audit committee finalized a new charter, which was approved by the full board.

Throughout that lengthy process, involving both Enron management and Arthur Andersen, we implemented a series of further refinements to our corporate policies and controls. The life blood of the work of any audit committee is the development and implementation of adequate controls, many of which cross-check each other. And the oversight function of the committee depends on the full and complete reporting of information to it. Without full and accurate information, an audit committee cannot function.

I have now read the report of the special committee. What comes across to me most clearly is that the controls the board put in place to monitor these transactions broke down. Enron management, Arthur Andersen, the internal legal department, each had a role in our systems and controls. The report of the special committee sets forth many instances where they did not fulfill their duty to us.

We put in place multiple controls, involving numerous parties because we are aware that one check may not be sufficient. We could not have predicted that all controls would fail. The special committee concludes that the audit committee and the board failed in their duties to oversee these transactions and that we were insufficiently vigilant. I do not agree with that conclusion. As the special committee found, the board understood that these were special transactions, and we review the economic benefits to Enron. We established numerous controls to insure that these transactions were properly structured, executed, reviewed, and reported. And the board reasonably believed that these controls were adequate and would work.

The board was entitled to rely on these controls. The successful implementation of these controls turned on management's and outside consultant's thorough evaluation and review of these transactions, and fully reporting back to the board. As stated in the report of the special committee, internal management and outside advisers did not raise concerns with the board. And they regularly assured us that the transactions had been reviewed and that they were lawful and appropriate.

It is now clear that management and the outside consultants failed to disclose critical information about these transactions, of which they were clearly aware. After reading the report, I would like to add that if even some of the board's controls had worked as expected, I believe that we could have addressed these issues and avoided this terrible tragedy. Thank you very much.

GREENWOOD: Thank you, Mr. Jaedicke. Mr. Winokur, do you have an opening statement? HERBERT WINOKUR JR., ENRON BOARD OF DIRECTORS: Yes, sir.

GREENWOOD: You are recognized, sir.

WINOKUR: Chairman Greenwood, Congressman Deutsch, and members of the subcommittee, good afternoon and thank you for the opportunity to address this group. My name is Herbert S. Winokur Jr. I am chairman of the finance committee of the board of directors of Enron and have held that position for several years. I have been a board member since the mid-1980s. I also was a member of the special investigative committee of the board which issued what has become known now as the Powers Report.

Let me keep my opening remarks brief. The recent events involving Enron weigh heavily on me as they do on many people. I have given them much thought. Beyond anything else, I deeply regret the impact that Enron's decline has had on the lives of so many people, our employees and our shareholders.

Like you and many others, I have been searching for explanations, answers and lessons. I volunteered to be on Enron's special committee, the board special committee, because I wanted to find out what happened, what went wrong. You all have read the Powers Report that resulted. It is the product of an intense effort to get to the bottom of many questions surrounded the related party transactions. The other directors on the special committee, Dean Powers and Ray Traub (ph) and our legal and accounting advisers essentially were strangers to Enron before the committee commenced its investigation. I want to thank them and commend them for undertaking the task and for their efforts and long hours.

My role in the committee was unique. As a director of Enron during the period investigated and that of my performance and that of my fellow directors, was part of what was being reviewed. For this reason, as the report states, I did not participate in that part of the report relating to its assessment of the board. I think it is clear from the report that it was no whitewash on any front.

As a board member, I'm deeply disturbed by what the investigation revealed. The report makes clear that those in management on whom we relied to tell us the truth, did not do so. Although I bear them no ill will, it appears that the outside experts at Arthur Andersen and Vinson & Elkins failed us and their professions as well. We too have been criticize sided for approving these transactions and for failing in our duties to oversee these relationships. Those criticisms have hit us hard because I firmly believed at the time and believe today that the board made a reasonable business judgment to permit Mr. Fastow to serve in these partnerships for one reason and one reason only.

Based on the information presented to us and on the advice of our outside auditors and lawyers, we believed those transactions would be in the best interest of Enron and its shareholders. In the super- heated environment surrounding the collapse of Enron and in the face of the Powers Report, I must therefore respectfully disagree with some aspects of the report relating to the board's performance and corporate governance principles.

What are these principles? The reality in the modern corporation is that directors cannot and are not expected to manage a company on a day-to-day basis. Rather, to be a director is to direct. As directors, our role was to form general corporate policy and approve Enron management's strategic goals. We were required to do so on an informed basis, in good faith and in the honest belief that the actions we took were in the best interests of Enron. In reaching our decisions, we are entitled and the Powers Report concurs, to rely on the information we received from management and our outside experts such and Arthur Andersen and Vinson & Elkins that we believe to be honest and reliable.

The report makes clear that the directors were acting in good faith when we approved these transactions. We had no personal interest in them and we honestly believed that these transactions, though not without risk, were in the best interests of Enron shareholders. With the benefit of hindsight, the report criticizes our decision, but our business decision can only be evaluated based on the facts known to us at the time when we made it.

In this regard, I think the following points are important. First, as a board, we were told by management and believed that this arrangement offered substantial benefits to the company and its shareholders in terms of supplying an entirely optional, quick and efficient source of capital for Enron. We were told that our council and Arthur Andersen concurred in the judgment that the structures were appropriate. We recognized the risk of having Mr. Fastow involved in a transaction with Enron and put in place supplemental controls to manage those risks. I will mention two of those today.

The chief risk officer, Mr. Buy, and the chief accounting officer, Mr. Causey, were to preview each LJM transaction independently to insure that they were fair to Enron and on arm's length terms. Second, Mr. Fastow remained a fiduciary to Enron under the code of conduct. He therefore was required at all times to put Enron's interests ahead of his own.

The basic controls already in place at Enron remained as well. The transaction approval process required board approval of all transactions in excess of $75 million. Had this control then followed the Raptor III and Raptor Recaptalization transactions, which the Powers Report says were concealed from the board, could never have occurred. The code of conduct, which prohibited related party transactions without the approval of the CEO, remained in effect as well. Had this control been followed, neither the Chewco nor the Southampton transactions, both of which also were concealed from the board, could not have occurred. Neither of the transactions could have occurred.

Third, the regular credit-risk reports we received in the finance committee should have informed us of the credit problems at Raptor. Mr. Buy knew this, but at no time that I can identify did any LJM transaction appear on our top 25 credit exposures list, even though the credit risk in these transactions, as we now learned, was massive and should have been disclosed. Next, Arthur Andersen's responsibility to audit our financial statements and the disclosure of related party matters should have but not did not reveal to the board another fact that we did not know, that a number of investments were repeatedly being sold to and then repurchased from LJM. Finally, Arthur Andersen's internal controls audit should have revealed all these transactions to us as they were all transactions to which existing or enhanced controls supply. I still do not understand why, over a period of years, Arthur Andersen did not tell either the audit committee or the board that the controls we had put in place were not being followed.

The Powers Report was an important first step in understanding what happened at Enron. We, as the board, commissioned that report in an effort to get at the truth. As board members, Dr. Jaedicke and I are here today to continue our dialogue with you and the American people about what happened at Enron and how it can be prevented in the future. I thank the committee for inviting us here today and look forward to a productive discussion of these important issues. Thank you.

GREENWOOD: Thank you, Mr. Winokur. We certainly appreciate all of your testimony today. The chair recognizes himself for five minutes for purposes of inquiry.

And let me start with you, Mr. Skilling. During your voluntary interview with our committee staff and then today in your opening statement, you repeatedly have stated that you believe that these related transactions in question were beneficial to Enron and not sham transactions. However, the special committee's report and additional documents made clear that these transactions were not true hedges. According to the minutes of the May 1 2000 Finance Committee, Ben Glisan presenting Raptor 1 and described it as, quote, "a risk management program to enable the company to hedge the profit and loss volatility of the company's investments." And if you would like to refer to that document, it's tab 4 in your notebook.

While not mentioned in the minutes, the Finance Committee was also given information suggesting that the Raptor vehicle was not a true hedge. Notes on the three-page written presentation materials, titled "Project Raptor: Hedging Program for Enron Assets," apparently taken by Enron's corporate secretary, according to the special committee's report that's on page 106 states, quote, "does not transfer economic risk, but transfers P&L, profit and loss, volatility." Was this the primary goal and benefit of these transactions, Mr. Skilling?

SKILLING: It was my understanding, and I believe it was the understanding of the board, that the transaction, the purpose of the transaction was to provide a real hedge of certain high-technology investments that had been extremely attractive for Enron over the last year and half. Compensation was provided, and in return derivatives were written that should have protected that position. That was my understanding of the nature of the transaction.

GREENWOOD: How would you explain then that the corporate secretary at that board meeting handwriting in, "does not transfer economic risk but transfers profit and loss volatility."

SKILLING: I think you would probably have to ask...

GREENWOOD: But you were there, I believe.

SKILLING: Well, there is an issue as to whether I was actually there. The particular meeting that you are talking about was in Florida, Palm Beach, Florida. And on the day of the meeting, the power had gone out at 3:00 in the morning, and we were scrambling to get it fixed. Oh, I'm sorry. Never mind. That's incorrect. I take it back.

GREENWOOD: So were you at this meeting, in fact, this board meeting?

SKILLING: I don't know. I don't recall. But I -- I don't recall.

GREENWOOD: You have not checked records that you might have as to your whereabouts?

SKILLING: Well, I would have been in at least a portion of the meeting. Was I there for the entire meeting, I just don't recall.

GREENWOOD: Here's what we have. This is minutes of that meeting, May 1. Committee members present: Ronnie Chan (ph), Jerome Myers (ph), the whole long list, and it lists you as being there, as well as Mr. Buy, Mr. Causey, Mr. Fastow, Mr. Glisan et cetera. So you were there. The meeting was supposed to begin at 4:00. It actually began at four minutes after 10:00 on May 1. So, you're not disputing that you were at this meeting?

SKILLING: I just don't recall, Mr. Chairman.

GREENWOOD: But can you imagine why somebody would -- why the minutes would include you as being present at the meeting if you weren't there?

SKILLING: Well, if I stepped out of the meeting for some period of time. I just don't recall.

GREENWOOD: OK. So you don't recall -- it's your testimony under oath today that you do not recall any discussion at that board meeting that would have led you or anyone else to believe that, in fact, that this did not transfer economic risk, but transfers profit and loss volatility?

SKILLING: I do not recall any discussion at that meeting that would have suggested there was no economic risk transfer from the transaction.

GREENWOOD: In retrospect, do you believe it was a true hedge?

SKILLING: There's nothing I have seen that would suggest anything different to date. GREENWOOD: Let me go to this question, Mr. Skilling. Special committee's report is most critical of the lack of oversight by management of the transactions. It states that management had the, quote, "primary responsibility for implementing the board's controls."

However, the special committee finds that no one was minding the store. Further, that the, quote, "most fundamental management control flaw was the lack of separation between LJM and Enron personnel, the failure to recognize that the inherent conflict was persistent and unmanageable. Fastow, as CFO, was in a position to exert great pressure and influence directly or indirectly on Enron personnel who were negotiating with LJM. Enron employees worked for LJM while still in their Enron offices, side by side with people who were acting on behalf of Enron." That's closed quote from the report.

These are pretty strong statements against the management of Enron, of which you were one, Mr. Skilling. How do you refute the allegations, or do you?

SKILLING: To the best of my knowledge, the procedures that were enacted by the board should have effective at managing the conflict of interest that was involved.

GREENWOOD: During the committee staff interview with you in December 2001, just four months after you left Enron, August 14, 2001, you said, quote, "the company was in the best shape it ever was."

I would like for to you explain that statement in light of fact that Enron has, subsequent to your departure, declared bankruptcy, fired its auditor, discovered massive insider dealing by CFO and other employees, fired its CFO, treasurer and one of its general counsels, seen Ken Lay's resignation as president and CEO, and as a director laid off over -- and as a director, laid off over 4,500 employees and has reneged on its promise to pay them a severance, is under investigation by both Houses of Congress, the Department of Justice and the SEC, had to restate its earnings from 1997 to 2000 in the amount of $586 million, and had to announce an equity rate down of $1.2 billion, not to mention likely additional earnings adjustments in excess of $1 billion that indicates that Enron was not even profitable while you were at the helm as CEO.

Enron's condition today seems nothing like being in good shape. How do you explain this?

SKILLING: All I can say is on October -- or August 14, the date that I left the company, I believed that the company's financial statements were an accurate reflection of its financial condition. Beyond that, there were a number of areas that we had made significant progress in the last six months. As you remember, there was a terrible issue related to the California energy crisis. By that point, prices had dropped. It looked as if the California energy problem had been contained and resolved.

Second of all, the broadband business. As we all know, in the first quarter of 2001, the stock and equity prices for broadband companies were under enormous pressure. We had restructured that business, two separate restructuring activities, the first in late March of 2001, the second in late June of 2001. And we believed that we had significantly reduced any exposure, further exposure from the broadband business to the rest of Enron's activity.

And third, and probably most important in my mind, we had completed the best quarter we had ever had, the second quarter of 2001 in our wholesale merchant business. The growth rates had remained at levels that, quite frankly, were extremely high, and the profitability from the business was extremely good. So on August 14, again, I believed the financial statements were an accurate reflection of the state of the company, and I believed that we had made progress on a number of different dimensions that put the company in a good position for the future.

GREENWOOD: Mr. Skilling, a massive earthquake struck Enron right after your departure, and people in far inferior positions to you could see cracks in the walls, feel the tremors, fear the windows rattling, and you want us to believe that you sat there in your office and didn't -- and had no clue that this place was about to collapse?

SKILLING: On the day I left, on August 14, 2001, I believed the company was in strong financial condition.

GREENWOOD: My time has expired. The chair recognizes the gentleman from Michigan, Mr Stupak.

REP. BART STUPAK (D), MICHIGAN: Thank you, Mr. Chairman.

Mr. Skilling, the "New York Times" this morning described you as, and I am going to quote, "the ultimate control freak, the sort of hands-on corporate leader who kept his fingers in all pieces of the puzzle." And "The Times" isn't the first publication to describe you this way. You really want us to believe, and the American people to believe, that a control freak was ignoring the very transactions that were providing 70 percent of the company's revenues in 2001?

SKILLING: First, with all due respect, the 70 percent number, I don't know where that comes from, and we would have to spend some time discussing that. But in terms of the assertion by the "New York Times" that I was a control freak, I think a probably more accurate description would be that I was a controls freak. We had a company that was an enormous organization, that was far flung across the globe. We had to put in place the ability for our managers across the world to make decisions on a timely basis. To do that, we put in force what I believe was a very effective controls structure for the company, and if you'd like I can go into some of the elements of that control structure...

STUPAK: No, because the earlier panel, one of the witnesses there described you as being "intense," "hands-on." Not a controlling freak, but intense, hands-on, that you really knew every part of this operation.

From 1997, you were chief operating officer until you became the CEO. so you were either one or two in the company for the last four years. And from what I have heard from your testimony today, you don't know what went on. Everything was fine when you left.

SKILLING: Congressman, Enron Corporation was an enormous corporation. Could I have known everything going on everywhere in the company? I had to rely on the best people. We hired the best people. We had excellent, excellent outside accountants and law firms that worked with us to ensure...

STUPAK: With all due respect, Mr. Skilling, you could not even answer the chairman's question about a board meeting. The board meetings, that was May 1 the one he asked you about. Every board meeting, when you leave the room, anyone leaves the room, it is all marked in there -- "left the room for a short period of time." So the transactions that the chairman was asking you about, you certainly were there. You certainly were there.

SKILLING: Well, first of all...

STUPAK: Let me just ask you a couple of other questions.

SKILLING: Sure.

STUPAK: You were COO when LJM I one was initiated, were you not?

SKILLING: Yes.

STUPAK: And you were also the COO when LJM II was created, were you not?

SKILLING: Yes, that's correct.

STUPAK: You were also the COO when JEDI was created, were you not?

SKILLING: I was not. I believe at that time I was chairman and chief executive officer of Enron Capital & Trade, which was our wholesale merchant business.

STUPAK: OK, well, you were the COO then when Chewco was set up.

SKILLING: I don't believe so. I believe I was still chairman and chief executive officer.

STUPAK: That was later in '97. When in '97 did you became COO?

SKILLING: It was January -- I believe January of 1997.

STUPAK: OK.

SKILLING: I think that's correct.

STUPAK: Well, the side agreements between Chewco and JEDI was -- I believe earlier today, it was December of 1997. So you would be COO then?

SKILLING: Then I would have been, yes. STUPAK: Now, in looking at all this, and in looking at your code of ethics, it says -- it's on page 49 -- "Investments and outside business interests of officers and employees."

And you ask from every person "complete loyalty for the best interests of the company and a maximum application of skill, talent, education, to the discharge of the job responsibilities without any reservation whatsoever. Therefore, it follows that no full-time officers or employee should" -- I'll go to B -- "make investments or perform services for his or her own related interests in any enterprise under any circumstances where the reason or nature of the business conducted by such an apprise there is or could be a disparity or conflict of interests between the officer and the employee and the company."

True statement, right, that code of ethics, sir?

SKILLING: I assume that is our code of ethics.

STUPAK: OK. Then why did you then waive that code of ethics from Mr. Fastow not once, but twice to create these companies, these SPEs?

SKILLING: You're asking somewhat a different question. You were asking about Chewcos. Is it Chewco that you are interested in?

(CROSSTALK)

STUPAK: No, I'm asking about -- you were there when all these -- you were the COO when all these were created?

SKILLING: Yes.

STUPAK: Especially this side agreement, which is the real problem between Chewco and JEDI because they sell an asset and the next day they sell it back -- a real roundabout way to make a lot of money here for some people.

SKILLING: Sir, I do not believe there were any transactions with Chewco. And, to my knowledge, there were no transactions with Enron subsequent to the Chewco purchases of JEDI.

STUPAK: Well, there was a conflict on June 28, 1999. I'm referring to the board meetings. I believe it's No. 7 in your book. And if you look on page two, and page three, page three in particular: "Resolved, therefore, the board hereby adopts and ratifies the determination by the office of the chairman pursuant to the company's conduct of business affairs, investments and outside business interests of officers" -- the thing I just read to you.

"And therefore, that participation of Andrew S. Fastow as the managing partner, manager of the partnership, will not adversely affect the interests of this company."

You and the board did it on June 28, 1999. You did it again for Mr. Fastow, again on October 11 and 12 of 1999. And on October 11, 1999, it is filed on page 18 of your board meetings. Is this part of your creative corporation that you

(CROSSTALK)

SKILLING: I think we are going to need to go back. If we want to answer this accurately, we are going to need to go back specifically, a specific, separate transaction.

The Chewco transaction, there was no wavier...

STUPAK: Oh, wait a minute.

SKILLING: There was no waiver made. To my knowledge, there was no waiver of the code of conduct for the Chewco transaction.

On LJM I, there was a waiver of the code of conduct that was based on a fairness opinion that we had from an accounting firm that the transaction was in the interests of Enron shareholders. On LJM II, we recognized that there was a potential creation of conflict of interests. To mitigate or eliminate that conflict of interests, we established some very tight controls to ensure that Enron's interests would be protected.

At no time did I enter into any transaction or was I personally involved in any transaction that I believed was not fully in the interest of Enron shareholders.

STUPAK: And the controls didn't work. And those controls that were there in your code of ethics, you waived them?

SKILLING: The code of ethics does not have a description of codes or specific procedures to be followed. The code of ethics is a code of ethics that was waived in lieu of establishing a range of very sophisticated procedures to eliminate the conflict of interests so that Enron could benefit from the creation of these entities.

STUPAK: And they never did?

GREENWOOD: Time of the gentleman...

STUPAK: They never did benefit?

GREENWOOD: ... from Michigan has expired.

The chair recognizes the gentleman from Louisiana, Mr. Tauzin, for five minutes.

REP. BILL TAUZIN (R), LOUISIANA: Thank you, Mr. Chairman.

Mr. Winokur, in your testimony, you say that the report makes it clear that those in management on whom you relied to tell us the truth did not do so. Was Mr. Skilling one of those people?

(CROSSTALK)

TAUZIN: I have asked Mr. Winokur a question.

WINOKUR: It's for me.

Congressman, I believe the report says that we have conflicting information about the

(CROSSTALK)

TAUZIN: Please answer the question. You said that people in management did not tell you the truth. Was Mr. Skilling one of those people?

WINOKUR: I do not believe that Mr. Skilling ever lied to us, no, sir.

TAUZIN: Do he tell you the whole truth?

WINOKUR: I believe that management, including a large number of people, did not disclose items we were entitled to receive.

TAUZIN: Well, let's look at the secrets that were kept from the board, according to you, Mr. Jaedicke.

One of the seven deadly secrets you mention in your testimony on page 10 -- and I will go through four of them -- the first is that the board did not know that Mr. Kopper was involved in LJM.

Is that correct, Mr. Jaedicke?

JAEDICKE: We did not know he was involved in LJM.

TAUZIN: Right.

Let's turn to you, Mr. Skilling. Did you know Mr. Kopper was involved with LJM?

SKILLING: Yes, I did.

TAUZIN: Did you tell the board?

SKILLING: I don't recall.

TAUZIN: Let's look at the second deadly secret. The board was not informed and did not approve of any other Enron employees besides for Mr. Fastow working for or having financial interest in LJM.

Mr. Skilling, did you know that other employees besides Mr. Fastow had interests or investments in LJM deals?

SKILLING: I did not.

TAUZIN: You did not know that? Who knew that?

SKILLING: Certainly whoever had the records for financial disbursements by LJM, which I assume would be the partnership records would know.

TAUZIN: You did not see the approval sheets that were sent to you by Mr. Mintz on these deals? He sent them to you in May, according to his testimony. He sent you approval sheets in all these deals. And these deals outlined who was negotiating for and against the corporation. And they indicated in one case that Kopper was negotiating for LJM and Mr. Yeager was negotiating for the corporation.

You have seen all these sheets?

SKILLING: You are going to have to -- can you give me a specific reference, Mr. Chairman, that I can look at?

GREENWOOD: Tab 26.

SKILLING: Tab 26?

TAUZIN: You were not aware that Mr. Glisan, Morant (ph), Yeager and others had investments in deals that were being done by LJM?

SKILLING: I had no knowledge that Messrs. Glisan, Morant (ph), Yeager or Lynn (ph) had interests in LJM.

TAUZIN: So, Mr. Fastow never told you this?

SKILLING: He never told me that.

TAUZIN: And, therefore, you never communicated to the board that other members of the corporation were engaged in investments in these corporations?

SKILLING: Mr. Chairman, I did not know.

TAUZIN: But you had your hands in everything, but you did not know this.

SKILLING: Have I said I had my hands in everything?

(CROSSTALK)

SKILLING: I think my comment was that this is a very large corporation. We have a multinational corporation, operations spread around the world. It would be impossible.

TAUZIN: One of the seven deadly secrets, apparently, that was kept from you, according to you, Mr. Jaedicke, was the secret that the board had sold -- turned around and sold, rather, assets right before the financial reporting period, only to buy five of them back immediately after the reporting period.

Mr. Skilling, did you -- or were you aware of that fact?

SKILLING: I was not aware of that fact.

TAUZIN: You did not know that the company was selling assets and repurchasing them after the financial reporting period?

SKILLING: There is only one asset I was aware that was sold and repurchased. And that was an interest in LJM I in a project in Brazil, a power project in Brazil that was called Quiaba (ph).

TAUZIN: And, finally, the board -- this is the fourth one -- that the board was not told that Enron agreed to protect LJM from losses on any of its transactions.

Mr. Skilling, you deny knowing that at all?

SKILLING: I absolutely, unequivocally deny that there was any arrangement, any agreement, period, that would have provided a riskless rate of return to anyone that we dealt with as Enron Corporation.

TAUZIN: Well, Mr. Jaedicke, you are telling me that that is true and you were never told of it. Is that correct?

JAEDICKE: Well, sir, I was quoting the findings of the special committee here, and saying we did not know. We did not have available to us that information.

TAUZIN: Let me quote you then. On page nine of your testimony, you say that one of the 13 controls that you put in...

JAEDICKE: Right.

TAUZIN: ... to make sure that there were not any conflict of interests and that these special transactions would be reviewed correctly, look at No. 4. It says not only that Buy and Causey would have approved all these transactions, but that Jeff Skilling, the president and chief operating officer and Mr. Fastow's superior, also was to review and approve any transactions. Is that correct?

JAEDICKE: That is correct, sir.

TAUZIN: Were you aware that Mr. Skilling was refusing to sign the approval forms?

JAEDICKE: No, sir, I was not.

TAUZIN: You were never told that he refused to sign the forms?

JAEDICKE: No, sir, I was not.

TAUZIN: You also have, on control No. 6, that once a year, the audit committee -- which I believe you chaired, is that correct?

JAEDICKE: Yes, sir.

TAUZIN: Was to review the transactions that had been completed in the prior year. Did the audit committee do that?

JAEDICKE: Yes, they did, sir.

TAUZIN: Did you see ever see these approval forms at all?

JAEDICKE: Not the approval form. TAUZIN: Let me read to you the bottom of the one I'm referring to. It's the one that has to do with the Cartes (ph). The deal names is Cartes (ph). It's a deal negotiated by Michael Kopper for LJM and negotiated by Yeager on the behalf of the corporation.

I'm sorry -- by (UNINTELLIGIBLE) And, in this deal, the last statement is: "Has the audit committee of Enron board of directors reviewed all Enron-LJM transactions within the past 12 months?" And the answer on the form is no.

Is that correct?

JAEDICKE: Sir, I don't have this...

TAUZIN: I am asking to look at that tab. I think it is number...

UNIDENTIFIED MALE: Twenty-six.

TAUZIN: Twenty-six.

JAEDICKE: Sir, it's the back part of the tab?

TAUZIN: It is multiple pages. But if you will look at the page No. 2 on the approval sheet, item number 3-F, you will you see the question. "Has the audit committee of Enron board of directors reviewed all Enron-LJM transactions within the past 12 months?" And the answer checked off is no.

The next question: "Have all recommendations of the audit committee related to Enron-LJM transactions been taken into account in this transaction?" And the box is marked no, with the further explanation that the audit committee has not reviewed any transactions to date.

Is that accurate?

Now, everybody has signed off on this. I've got -- if you look at the next page, you will see where the business unit, legal, Enron Corporation legal, Global Finance legal. Mr. Buy, Mr. Causey all signed off on it as being accurate. The only person who apparently didn't sign it was Mr. Skilling. Was this accurate or not?

JAEDICKE: Our first review of the LJM transactions would have been -- which we did once a year -- would have been in February of 2000. And I am just -- I don't know what I -- the date is what is hanging me up here. I have not seen this information.

TAUZIN: Let me ask Mr. Skilling.

Did you personally follow the control No. 4, which required you to review and approve every single one of these transactions?

SKILLING: Chairman Tauzin, I think there are a number of points that I would like to make. And I hope... TAUZIN: Could you just answer that first? Did you in fact review and approve all of these transactions as required by control No. 4?

SKILLING: Did I meet my responsibilities as chief operating officer and chief executive officer...

TAUZIN: Just answer that question. Did you review and approve all of the transactions as required by No. 4 of the controls?

SKILLING: I was not required to approve those transactions.

TAUZIN: Do you disagree with the control provision?

SKILLING: I think it is very clear...

(CROSSTALK)

SKILLING: Sir, if you would go back to the October 1999 minutes of the board of directors meeting, when the original control system was set up, it is absolutely explicit and absolutely clear that approval was to be made by Mr. Rick Buy and Mr. Rick Causey. And it was going to be reviewed by the audit committee.

(CROSSTALK)

TAUZIN: So, Mr. Jaedicke, let me go to your testimony. Look on page nine. Mr. Jaedicke, you tell us here in writing that Jeff Skilling, president and chief operating officer and Mr. Fastow's superior, also was to review and approve any transactions.

He is telling me that it is wrong. Who is correct?

JAEDICKE: Mr. Chairman, in the audit committee meeting, and the finance committee meeting too, I think of 5 -- of February 2001, the controls are enumerated. And I believe it says the controls that had been in place -- these were covering the LJM transactions -- required the approval of Mr. Skilling, Mr. Buy and Mr. Causey.

TAUZIN: In fact, I am reading it right now. It's on page two of the minutes of October 6. And let me quote it.

It says that: "He then discussed the mechanisms that had been put in place to mitigate any potential conflicts, including, one, his fiduciary responsibilities to the companies, to the office of the chairman of the board could ask him to resign from LJM" at any time, apparently.

No. 3: "Messrs. Buy, Causey and Skilling approve all transactions between the company and LJM funds."

Mr. Skilling, do you deny the existence of these board meetings?

SKILLING: Can you give me the specific reference, Mr. Chairman?

TAUZIN: The reference is on page two of the minutes of the meeting of the finance committee, the board of directors, Enron Corporation, October 6, 2000.

SKILLING: Do you know which...

TAUZIN: Tab 18.

SKILLING: Tab 18.

TAUZIN: I'm sorry, eight. Tab eight.

SKILLING: Tab eight.

SKILLING: I would refer you back earlier into the paragraph on page two of those minutes. In that paragraph, it says: "Mr. Fastow then discussed the company's private equity strategy." Mr. Fastow is the person that represented what controls had been in place inside the company to review LJM transactions. This is a report -- this is a verbatim report of what Mr. Fastow said to the finance committee and board of directors of Enron.

TAUZIN: Let me read you the next sentence, Mr. Skilling. It says: "Mr. Causey and Skilling then discuss the benefits of the company." You were at that meeting, weren't you?

(CROSSTALK)

TAUZIN: The lights were not out. The power wasn't out. You were at the meeting. You heard Mr. Fastow say that you were going to approve each one of these transactions. Did you say, "I am not going to do that"?

SKILLING: I got a little bit confused. We are under a tremendous amount of tension and a tremendous amount of pressure with what is going on here. And I will admit to being under a tremendous amount of pressure and an intense amount of...

TAUZIN: I grant you that, Mr. Skilling. I would just like a clear answer. Were you at that meeting?

SKILLING: This meeting was the meeting that occurred in Palm Beach, Florida. This is October 6 of the year 2000. In that meeting, the power had gone out. And, as everybody remembers, we were in a room -- the room was dark, quite frankly. And people were walking in and out of the meeting trying to...

TAUZIN: You never heard Mr. Fastow say that you would approve these transactions?

SKILLING: I don't recall.

TAUZIN: You just don't recall?

SKILLING: I do not recall.

TAUZIN: But you never, ever said to the board or the committee: "Uh-uh, I am not going to do that; I am not going to approve these transactions"? SKILLING: I wouldn't have to. In October of 1999, when the process was established for approval of transactions with LJM, the process is absolutely crystal clear. It involved approval by Mr. Causey and Mr. Buy.

TAUZIN: Is that why you would not sign these documents?

SKILLING: No.

TAUZIN: Why didn't you sign them? Tell me that, please.

SKILLING: May I give you -- you will give me time to answer?

TAUZIN: You got it. Please do so.

SKILLING: Thank you, sir.

First, I did not receive that memo. Second of all...

TAUZIN: Wait. You are saying you did not receive Mr. Mintz's memo?

SKILLING: To my recollection, I did not receive that memo.

Second, I would have had no problem signing that. And I believe, if you look at the specifics of the memo of Mr. Mintz's -- in fact do you have the reference for Mr. Mintz's memo in here. Do we have a copy of that memo?

TAUZIN: We have a copy of the memo? We also have his testimony right before you got here. He said he tried three times to ask you for a meeting to talk about the memo?

SKILLING: I do not recall that. Would you mind if we turned to that memo?

TAUZIN: Sure.

SKILLING: And which...

TAUZIN: Tab 15.

SKILLING: No. 13?

TAUZIN: Thirteen, I'm sorry, tab 13.

It is 15. I'm sorry.

SKILLING: I draw your attention to a couple of points in this memo, Mr. Chairman.

TAUZIN: Please do.

SKILLING: The first one is, is that is says: "Accounting and RAC (ph) require the signatures of Rick Causey and Rick Buy. Such approval sheet also provides for your signature." In the next paragraph it says: "All required sign-offs for the 2000 transactions have recently been completed. All sign-offs have recently been completed."

And then further in that same paragraph, it says: "In our discussions arranging for your signature" -- which, as it said, the form provides for my signature -- it says that we have -- "It was decided to provide you with all finalized approval in aggregate, rather than on a piecemeal fashion. And we are now ready to do so," which...

(CROSSTALK)

TAUZIN: In other words, everybody else had signed. They were ready to get your signature.

SKILLING: The transactions were done. The transactions had been completed.

TAUZIN: Of course. I am not arguing that. I am just asking you...

SKILLING: The transactions could not have been completed. Jordan Mintz is a lawyer for Enron Corporation. Those transactions could not have been completed if it was necessary for me to authorize those transactions. It could not have been done.

TAUZIN: I am not asking whether you authorized them. I am asking what you signed the approval sheets, because there is an issue here, Mr. Skilling, whether or not, under the controls set up by the board as they understood them, you were required to do so, to review and approve.

And you are telling us, No. 1, you never got the Mintz memo. No. 2, you do not recall anybody asking you to set up a meeting to discuss signing these documents. And, No. 3, I am still asking you, why didn't you sign them at all?

SKILLING: They were not given to me.

TAUZIN: You never saw them?

SKILLING: I do not recall being presented with these documents. I do not recall being presented with these documents.

TAUZIN: I have exceeded my time. Thank you, Mr. Chairman.

GREENWOOD: The time of the gentleman has expired.

The chair recognized the gentle lady from Colorado, Ms. DeGette.

REP. DIANA DEGETTE (D), COLORADO: Thank you, Mr. Chairman.

Mr. Skilling, you knew, certainly in 2000, and probably sooner, that these LJM transactions, in particular, there were risks of a conflict of interests with Mr. Fastow, did you not?

Because Mr. Fastow...

(CROSSTALK)

DEGETTE: Mr. Skilling?

SKILLING: Are you asking if I knew that there was a conflict of interests associated with LJM?

DEGETTE: There was a potential conflict of interests.

SKILLING: Absolutely.

DEGETTE: Absolutely.

SKILLING: That is why we put the procedures in place to eliminate

(CROSSTALK)

DEGETTE: And that is why, as you said, you were a controls freak, to make sure that the controls were in place, right?

SKILLING: We would not have entered into the LJM transaction...

DEGETTE: Yes or no?

SKILLING: ... without an adequate...

(CROSSTALK)

DEGETTE: You wanted controls, right? Yes or no?

SKILLING: We would not have entered into the transactions if we had not had adequate controls to manage the conflict of interests.

DEGETTE: OK.

Now, you said that October 6, 2000, you don't recall being there for this discussion about -- by Mr. Fastow about the LJM funds because the lights were out?

SKILLING: I do not recall.

DEGETTE: OK. So you don't recall him talking about how his role in the LJM funds could potentially create a conflict of interests in that he negotiates for the LJM funds?

SKILLING: We were all...

DEGETTE: Did you know he negotiated for the LJM funds?

SKILLING: Actually, I believe Andy had represented to the board -- and my recollection is, Andy had represented to the board that he would not be involved in direct negotiations of LJM transactions.

DEGETTE: So, as the captain of this ship, which was Enron, you don't recall being at a meeting in Palm Springs, California -- or Palm Springs, Florida, where Mr. Fastow said his role in the LJM funds could potentially create a conflict of interests in that he negotiates for the LJM funds?

SKILLING: There was no question in anyone's mind on the board of directors or in management that there was not a conflict of interests created. The objective was to create a process...

DEGETTE: No, but you don't recall him ever saying to you or anyone that he negotiated for the LJM funds?

SKILLING: Actually, it is my recollection that Andy had represented that he would not negotiate for the LJM funds.

DEGETTE: OK. So, did you, in your role, ever review the minutes of the finances committee?

SKILLING: I did not review them.

DEGETTE: You did not review the minutes. So what you're saying is, if someone wrote this in here -- it's in exhibit A -- that would be a lie?

SKILLING: No, if that was an accurate representation of what Andy said to the finance committee, that is what is in the board minutes.

DEGETTE: And that was the meeting you don't recall if you were there?

SKILLING: I was in the meeting. I do not recall if I was there at the time Mr. Fastow specifically went through the steps for the controls.

DEGETTE: Do you recall an agreement that you would approve all transactions between the company and the LJM funds?

SKILLING: No, I do not recall that.

DEGETTE: Did you think you had to approve all transactions?

SKILLING: That was not my understanding.

DEGETTE: You did not think you had to approve the transactions between the company and the LJM funds?

SKILLING: No, we had...

DEGETTE: OK.

SKILLING: ... a process in place where Mr. Causey and Buy, who each had organizational units of several hundred people, probably, in aggregate, several thousand controls people. We had Arthur Andersen reviewing the transactions. And we had Vinson & Elkins reviewing the transactions. DEGETTE: OK. Did you ever hear about a thing called a deal approval sheet, which was one of the controls that the board put into place?

SKILLING: Absolutely. I am familiar with the deal approval sheet process.

DEGETTE: And you knew those deal approval sheets were supposed to be signed off on by a variety of people when there was one of these transactions, correct?

SKILLING: That is incorrect. The deal approval process was the standard capital approval process. Any time Enron was disbursing cash, any time Enron was disbursing cash at a certain level of magnitude...

DEGETTE: Right.

SKILLING: ... there had to be a DASH generated. And that DASH had different authority levels within the company. So there were some people...

DEGETTE: Right. And some of the authorities required your approval, didn't they, some of the

(CROSSTALK)

SKILLING: For capital expenditure. For a capital expenditure where cash was leaving Enron Corporation, there were different levels of authority within the company. Business unit managers had a level of authority. I, as chief operating officer, had a level of authority. As CEO I had a level of authority. Mr. Sutton as vice chairman had a level of authority. Mr. Lay as CEO had a level of authority.

DEGETTE: OK. I got you.

Did you ever think that you had to sign a DASH sheet for any of the LJM transactions?

SKILLING: Any LJM transaction that involved a cash disbursement that would have been within my signing authority either had to be signed by me or someone else higher in the higher hierarchical chain of the company.

DEGETTE: Do you recall seeing a DASH sheet for any LJM transactions?

SKILLING: I don't recall.

DEGETTE: Do you ever signing one?

SKILLING: I don't recall.

DEGETTE: Do you recall seeing one and then not signing it? SKILLING: There would never be a case on a DASH where I would have been required to sign a DASH that, if someone higher in the authority chain had not signed it, that I would have to sign it, because we would not have disbursed cash.

DEGETTE: OK. With respect to the LJM transactions, where is the written policy that says either you or someone superior to you has to sign these DASH sheets?

SKILLING: The DASH sheets are a totally separate issue from the LJM transactions. The LJM transactions -- any transaction with LJM II was governed, in addition to the DASH process...

DEGETTE: But there were special DASH sheets for LJM, right?

SKILLING: Not initially. I think that there was a supplementary sheet that was developed later. But from the original -- the original approval of LJM II, which is where the transactions occurred, please go back to the board of directors meetings and the finance committee meetings of October 1999. The process is very clearly established and laid out in that.

DEGETTE: So you remember '99; 2000 you are not sure?

SKILLING: That was the time that the process was set up.

DEGETTE: And the lights were out and stuff like that.

SKILLING: That was the year 2000, not in 1999.

DEGETTE: Please take a look at -- right, the lights were out in 2000.

SKILLING: 2000, not in 1999.

DEGETTE: But everything was OK in '99. I think that is kind of prophetic, Mr. Chairman.

Exhibit 13, I want you to just take a quick look at that. We have talked about that before. The chairman talked about this. It is a memo from Jordan Mintz to Rick Buy and Rick Causey about the LJM approval process, transactions substantiations. And on page two, it says, "The company subsequently adopted a written LJM approval sheet." And it says, "Such approvals are to be reviewed and executed by certain members of Enron senior management, including Jeff Skilling." Do you see that?

And it does not say Jeff Skilling or someone else, does it?

SKILLING: It says reviewed. And it says, for example, that the checklist provides -- in the memo that Jordan wrote, which was clearly not contemporaneous with approval of LJM transactions, they were basically saying they were putting these up together, bundling them up. It was not necessary for approval of the transaction for me to sign, but they had a provision for me to sign. I don't recall receiving that memo. Had I received that memo, what I would have done is looked at the specific transactions. If Rick Buy and Rick Causey had signed those transactions, and I looked at the transactions and they looked reasonable, I would have had no trouble signing for those transactions.

GREENWOOD: The time of the gentle lady from Colorado has expired.

The chair recognizes the gentleman from Florida, Mr. Stearns.

REP. CLIFF STEARNS (R), FLORIDA: Thank you, Mr. Chairman.

Mr. Skilling, just sort of as an oversight, I think that your strategy at Enron has been basically to build an asset-like strategy. Hasn't that been true? I have seen it in "Business Week" and other literature that you have always said that you believed it should be asset light is your strategy for business.

SKILLING: We were trying to do as much profitable business per unit of assets as we could.

STEARNS: So, just as a commentary, then, the fact that this went into bankruptcy and failed to provide liquidity was really a failure of your strategy for this company, I mean, just in a man-to-man talk here, that...

(LAUGHTER)

STEARNS: You are going around telling all the literature and all these magazines that it's asset light and you just didn't have liquidity. And this company failed in a large part because of you. I mean, you are not trying to say this morning, this afternoon, that you are here saying this company was just flying along at 100 percent, in good shape, and then you left and things fell apart just because you left?

SKILLING: Congressman, I think -- and we've all read business history -- there are things called runs on banks.

STEARNS: It's called what?

SKILLING: A thing called a run on the bank. You can have a fundamentally solvent company that is profitable, that has an illiquidity problem. That's my interpretation.

STEARNS: I understand that, but it's just awfully hard to believe, after looking at all these partnerships and how they're financed, and Fastow taking money out when nobody on the board of directors knew about it, and this fellow reported to you. And I understand he was your protege.

So here we have all these partnerships, and you're saying -- you're saying today, basically, you did not know any of the financing structure of LJM. Isn't that what you're saying today?

SKILLING: I said that we knew that...

STEARNS: I mean you. You. I mean...

SKILLING: Me?

STEARNS: You're saying you didn't know...

SKILLING: ... as a member of the board of directors, and a member of management of Enron corporation, knew that a private equity fund was being established, and that one of our executives, Andrew Fastow, would have a role, an economic interest in that entity. We did know that. Yes.

STEARNS: So, Mr. Fastow reported to you. Did you ever talk to Jeffrey MacMahon?

SKILLING: Yes.

STEARNS: Was he in your office regularly, or did you talk to him infrequently?

SKILLING: Pretty infrequently.

STEARNS: Now, as I understand, his title was, basically he was president and chief operating officer of Enron. And you just didn't talk to him very much.

SKILLING: I'm sorry. Say again?

STEARNS: It says here that he was president chief operating officer of Enron.

SKILLING: I think that happened last week.

STEARNS: OK, OK. But you're saying you talked to him infrequently, then.

SKILLING: I would guess probably Jeff and I would talk once a month.

STEARNS: We've got a calendar of his, which shows that he met with you on March 16 at 11:30 a.m. Now, this is tab No. 10. You might want to just take a look at that.

And one of the reasons he was meeting with you, because he had some concerns about the LJM partnerships. And we have tab No. 9, which is before that, you're welcome to look at. Talks about his concern and basically, conflicts of interest, talking about the financing structure. Do you remember talking to him about this on March 16th?

SKILLING: Yes, I do.

STEARNS: OK. Well, that's good. We've established that Mr. McMahon's schedule is correct. He had you down for an 11:30 appointment. We have his notes before he met with you, which you can look at, at the tab 9. We have a schedule. So he did meet with you. So my question is to you, did he talk to you about LJM and the financing structure or any of the partnerships?

SKILLING: My recollection of the meeting is Jeff came in, and had some concerns about his compensation, related to LJM.

STEARNS: He never talked about any conflict of interest in any of these partnerships? He never mentioned anything like that to you?

SKILLING: What his concern was, as far as compensation was concerned, is Jeff felt that he was being put in an awkward position in having to negotiate with Andy. This is my recollection -- that it might his compensation package.

STEARNS: He never mentioned to you, that I'm concerned what's the best industry of shareholders here?

SKILLING: I don't recall that. I recall this being an issue of compensation.

STEARNS: Well, you know, you look at his schedule, he went out and talked to, on the 31st of March, he met with Fastow. And we've had a case on the 6th of April -- he had appointment, and basically, his job changed. Did you know about that?

SKILLING: Yes.

STEARNS: And why did his job change?

SKILLING: At the time, we were setting up a new business, that was related to some Internet activities that we developed at the company, and we were looking for someone to be a senior executive in that business. That search had been under -- the discussions in that search had been under way for quite sometime.

STEARNS: My time is expired, but I have a hard time believing, Mr. Skilling, that when he came to you, he did not describe these conflicts of interest. He didn't describe his huge apprehension with these partnerships, and didn't relay his angst about this whole process. You're saying to me today that you remember him coming in, but he was just talking about compensation. And you really don't really have much information on a financing structure of these LJMs. I have a hard time believing that.

GREENWOOD: Gentleman from Illinois, Mr. Rush.

REP. BOBBY RUSH (D), ILLINOIS: I'll try to get us out of a quagmire that we seem to be in, as it relates to the meeting in Florida. And what transpired at that meeting in Florida. I want to ask Dr. Jaedicke, were you at that meeting in Florida?

Yes, I was, sir.

RUSH: Do you recall Mr. Fastow telling you that Mr. Skilling would approve the LJM deal? Sir, I don't -- that occurred, I believe, in the finance committee or the board of directors. I know what is in the minutes. I do not personally recall that discussion.

RUSH: Mr. Winokur, were you at that meeting in Florida?

WINOKUR: Yes, sir, I was.

RUSH: Do you recall Mr. Fastow telling you that Mr. Skilling would approve the LJM deal?

WINOKUR: Sir, I believe that the minutes as presented were correct, and were approved by the finance committee. And so to the best of my recollection, these are what happened.

RUSH: OK. Let me ask Mr. Skilling, were you at that meeting?

SKILLING: Like I said, I was at the meeting. I walked into and out of the finance committee on several occasions. But I was at that meeting.

RUSH: OK, Mr. Winokur, do you recall Mr. Skilling being at that meeting?

WINOKUR: Sir, the minutes report that he was there, and that he participated in the conversation. I have no other recollection on what the minutes say.

RUSH: OK, so he participated in the total discussion, all the conversations, particularly as it related to the issue of controls and his sign off?

WINOKUR: Sir, to the best of my knowledge, the minutes reflect what happened. I have no other recollection.

RUSH: OK. Did anyone ever tell the board that Mr. Skilling wasn't going to sign off on the LJM deals?

WINOKUR: Congressman, if that's a question directed at me, no one ever told me about that.

RUSH: How about you, Dr. Jaedicke?

JAEDICKE: No, sir, I do not recall ever hearing that.

RUSH: So both of you are under the opinion that Mr. Skilling would sign off on all the LJM deals?

JAEDICKE: Yes, sir, I was.

RUSH: Mr. Winokur?

WINOKUR: Sir, the presentation said the minutes described that these were mechanisms that already had been put in place. I believe that these had been put in place and I never was told otherwise. RUSH: All right, let me refer you to the minutes here on page 2. It says he -- Mr. Fastow -- "he then discussed the mechanisms that had been put in place to mitigate any potential conflicts, including, one, his fiduciary responsibilities to the company, two, the office of the chairman or the board could ask him to resign from LJM Funds at any time, three, Mr. Buy, Causey and Skilling approved all transactions between the company and the LJM funds, four, that there is an annual audit and compliance committee review of the company's transactions with the LJM Funds, five, a review of his economic interests in the company, and the LJM funds, is presented to Mr. Skilling, and, six, there is no obligation for the company to transact with the LJM funds. Do you recall those statements?

WINOKUR: Sir, I believe that the minutes reflect accurately the discussions, to the best of my recollection.

RUSH: OK. Now, the fifth criterion that you have here, review of his economic interests in the company, and the LJM Funds presented to Mr. Skilling, was that ever done? Was that financial review, or economic interest review ever done by the company or by your committee?

WINOKUR: Not by my committee, sir.

RUSH: OK, was it ever done by Mr. Skilling?

WINOKUR: Sir, I think Mr. Skilling is better...

RUSH: Mr. Skilling, was that ever done by you? Did you ever do a...

SKILLING: This was requested that Mr. Fastow give me a summary of his economic interests. He presented me with a handwritten document, subsequent to that, that gave a view of his economic interests in LJM.

RUSH: Can you explain to the committee what that economic review indicated? What the did it state?

SKILLING: As best I recall -- I don't have a copy of it. But as best I recall, it was a handwritten sheet of paper, and it basically was split on two sides. And on one side it said something to the effect of total return to Mr. Fastow, under a set of assumptions. And the set of assumptions, as I recall, was a 20 to 25 percent rate of return on LJM over a 5-year period. And this was a cumulative five- year return, that he would earn from his interest in LJM.

On the other side of the page was a calculation that showed under the assumption that Enron stock price continued to grow at 15 percent a year, which was our basic assumption when we were doing compensation decisions, if Enron stock continued to grow at 15 percent a year, what would his total compensation package be from Enron? And again, I do not have a copy. I don't have a copy of this.

But my recollection, the best of my recollection is that the number that was shown for Enron compensation, from his ownership of Enron stock and options, was consistent with what had been presented to our compensation committee, because we did the same sort of calculation in the compensation committee. The number that was shown for LJM was something on the order of one-fifth of that number. It was a much smaller number.

And I said to Andy, how have you calculated or counted for fees? Because I think, as Mr. McMahon mentioned, it would be typical to have a 2 percent fee related to this. He said I have not included -- I have included the fees, but I have not included expenses associated with that.

RUSH: Can you tell us what those numbers were?

SKILLING: You know, I eyeballed it. And what I came up with just eyeballing it was that a cumulative five-year rate of return, return to Mr. Fastow would be something on the order of 1/10 of what his return would be from his Enron stock, assuming that our stock continued to escalate. And if pushed...

RUSH: Tell us the amounts.

SKILLING: Porches and hand grenades. My recollection is that if -- the number he had were total Enron-based compensation if the stock continued to escalate, would have been something on the order off $50 million. And so, a 10-to-1 ratio, that's my recollection of the number that was presented for LJM would have been something on the order of $5 million, over the time period.

RUSH: So he was really making...

JUDY WOODRUFF, CNN ANCHOR: Jeffrey Skilling, the highest-ranking former Enron executive to testify before Congress. He's the former president and CEO of Enron. He resigned last August. He's just been telling members of the House Energy and Commerce Subcommittee that when he left the company in August, he thought the company was in very sound financial shape. I'm Judy Woodruff in New York. And joining me now in Washington, Michael Weisskopf of "TIME" magazine. Michael has been covering the Enron story.

Michael, how believable is it when Jeffrey Skilling says when he left the company, he thought he had no reason to believe that it was in any financial peril. We know that it went bankrupt in December.

MICHAEL WEISSKOPF, "TIME": First of all, Judy, you've got to remark about his style. This is a guy with swagger, like he is addressing the board of directors, instead of a Congressional committee investigating him. And that may add some to his credibility. But just a witness or two ago got up, the treasurer of the company at the time Skilling was there, who said that a year -- that two years ago, March of 2000, he had a discussion with Mr. Skilling about these funny partnerships, and the conflicts involved. Skilling listened, said he'd resolve it and went about his business.

About a year and half later he left the business, and leaving in August of last year. And only to see wreckage to follow. WOODRUFF: But is it, for him to say that he when he left in August, which was a matter of three or four months before the company went under, and a short time before really danger signals started coming out of that company, it seems to me people are going to ask whether there is more there.

WEISSKOPF: Of course, this is what prosecutors and what committee investigators were ultimately determined. It is hard to understand, though, how a guy who was known as the ultimate control freak, a guy with hands on all parts of this company, extremely energetic man, creative man, wouldn't know how to watch the basic lines of his company, whether they were up or down.

WOODRUFF: Michael, we've seen four or five other senior Enron executives come before the Congress, only to say that they would not testify, take the fifth. We had four of them today separately say they wouldn't testify. In your opinion, is Skilling going to be one of the very few that the Congress hears from at all?

WEISSKOPF: Yes, and certainly, nobody higher than him because Lay was the only one higher, and he declined to testify. The key thing to listen to in Mr. Skilling's testimony is the number of times he says I can't remember. I can't recall. There were meetings where he was recorded as attending he didn't remember. There were papers he signed -- papers that were supposed to be signed by him, he didn't remember. And so that's a convenient escape hatch.

WOODRUFF: Michael, I'm going to ask you to stand by. We're going to dip back into the hearing, more of Jeffrey Skilling before the House committee.

JAEDICKE: As I look back, I guess, I would say that if some of our assets sales and things like that had gone better at the time. that may have helped. That didn't happen. There was a liquidity issue. I think the market lost confidence in Enron.

REP. CHRISTOPHER JOHN (D), LOUISIANA: Why do you believe that they did lose confidence? Did it have anything to do with these partnerships that were capitalized by Enron's stock.

JAEDICKE: I would imagine it did, sir. I would imagine it did.

JOHN: OK. Let me read -- Mr. Skilling, I'd like to read a part of the Powers report, and I would like your -- if you agree or not. "As a result of Enron's partnerships, particularly the Raptors, Enron improperly inflated its reported earnings for a 15-month period in the third quarter 2000, to the third quarter 2001, by over a billion dollars. This means that more than 70 percent of Enron's reported earnings for the period were not real. How could this have happened? Let me ask you, how could this have happened?

JAEDICKE: I have no understanding of where that number came from. That was certainly not...

JOHN: Is that a fact? That in a 15-year period, that the earnings were overstated? JAEDICKE: As I told you, when I left on August 14th, I thought the financial reports accurately represented the financial condition of the company. I don't know what that billion dollar number is. I don't know what the assumptions where that went into that.

JOHN: Mr. Winokur, do you agree with what I just read?

WINOKUR: Sir, the committee relied on the Deloitte & Touche accounting consultants for those numbers.

(CROSSTALK)

WINOKUR: To the best of my knowledge, as a member of the committee, those are right under the assumptions that they used to develop them. We have not heard, obviously, Arthur Andersen's response to the Deloitte & Touche analysis.

JOHN: Here is another statement of the Powers report, which really, I think, surmises the root of what happened. And it was the nontransfer of risk in some of these partnerships, so when, in particular, one that I am somewhat familiar with -- there were lots of them -- was the rhythms. I think it was the -- I don't remember, the Cayman partnership.

Basically what happened is, that partnership needed capitalization to purchase a put from Enron. And the capitalization, under the rules, they needed 3 percent outside funds at arm length, an unrelated party. That money that this partnership got was stock from Enron. So in fact, it was a double whammy, as the stock of Rhythms, obviously, as a dot-com, was going down. The partnership did not have the assets, because the fact that the dollars were eroding from the stock, plus the stock at Enron.

So there was no risk, and that's what the Powers report kept alluding to -- that the only way that these things were legal and not fraudulently done was to make sure that some of the risk was out of the hands of the primary company. And in this case, Enron's stock was supporting and capitalizing all of these partnerships, they were approved by somebody in the company.

And I believe that's ultimately what happened. And we have 4,000 people that -- and many, many investors that lost their money. I'm out of time, but I'll be back.

GREENWOOD: From Texas, Mr. Green.

REP. GENE GREEN (D), TEXAS: Thank you, Mr. Chairman. And I guess the frustration that my colleague from Louisiana is expressed, I can't believe a board of directors that;s paid $300,000 a year, that for 2 1/2 hours on the finance committee, did not see what was happening. And Mr. Skilling, sitting here and listening that you didn't know, as a CEO? Let me quote your testimony earlier. You said financial statements, when you left on August 14th, were reflective of the good condition of the company -- I'm paraphrasing, but is that what you said? SKILLING: I said that I believed that the financial statements that had been released were reflective of my understanding of the financial condition of the company.

GREEN: Well, I don't know how you could tell that, because we had testimony yesterday that nobody could understand Enron's financial statements. And it was based on trust. And that's what, if it was a run on the bank, I disagree with that. But just because that trust was lost, and that's what happened.

Let me follow up on the testimony of one of my colleagues. On August 14th, everything was fine...

WOODRUFF: We're listening to subcommittee of the house energy and commerce committee grill current and former executives of Enron, actually, Jeffrey Skilling, former CEO resigned in August. They're also questioning a former board member of Enron, and others. Joining me now from our studio in Washington, the two chairmen of the political parties in the United States. Terry McAuliffe is chairman of the Democratic National Committee. Marc Racicot, chairman of Republican National Committee.

Terry McAuliffe, to you first. I think you've been listening to some of this testimony today, the grilling that the members are conducting there. How good a job is Congress doing, of getting to the bottom of this Enron situation?

TERRY MCAULIFFE, DNC CHAIRMAN: This is the beginning of the hearings. I think they're going to go on for a long time, because there are a lot of issues that just have to be answered. What is becoming very clear through these hearings is the unparalleled access that Enron had to the Bush White House. We have a long way to go.

There are a couple facts we do know. That Enron was the biggest donor to the Bush White House and second, they had unparalleled access to the White House. So we've got a lot of questions that are out there that need to be answered. There are issues now, as you know, the Department of Justice has just told the White House by letter that they're not to get rid of any Enron documents.

So this thing has a long way to go, and unfortunately it's because of the nondisclosure out there that people are beginning to ask a lot of questions, and are wondering exactly what went on at the White House with Enron.

WOODRUFF: Well, Marc Racicot, your counterpart, is pointing a finger directly at the White House. I asked him about the conduct of these hearings. But, since he brought it up, let me ask you. Unparalleled access at the White House? Is that what was going on?

MARC RACICOT, RNC CHAIRMAN: Well, there is no question, but that Enron most certainly was active politically in the affairs of this nation. And they certainly were of assistance or offered advice and counsel and support to the members on both sides of the aisle. The shotgun attack that Mr. MacAuliffe has just launched, I don't think, however, is particularly probative. The nature of the hearings is as they should be. They're searing. The president called for these hearings first -- or, he called for investigations first. And the Labor Department and Department of Justice are doing just that. And his intention from very beginning has been to require that the facts be thoroughly examined, and distilled, and that appropriate regulatory and criminal, if necessary, actions are taken. And that's precisely what's going on.

So the effort to try and politicize this, Judy, and to opportunistically seek advantage, does a disservice to the American people, and it does a disservice to the interests of justice.

WOODRUFF: Terry McAuliffe, couldn't your accusations toward the Bush White House -- you're saying that this was a political scandal as much as it was business scandal. Couldn't this backfire if none of this materializes? Because after all, there is no proof of what you're charging, is there?

MCAULIFFE: Well, first of all, when the Department of Justice sends a letter to the White House not to destroy documents, that moves it into the political realm. But there clearly are instances, we know, that it's not what people took, it's what they got for their contributions. And as we know, 17 different proposals in the energy bill that were outlined by Congressman Waxman, of what Enron got, a $254 million tax benefit through the AMT, where, as you know, Ken Lay called Mitch Daniels.

You know, he got Karl Rove getting a job for Ralph Reed, involved in the presidential campaign. And you've got Ken Lay recommending, actually interviewing people to be on the federal energy regulatory commission. Those are all out there in newspapers. Those are all well-documented. That's not Terry McAuliffe telling you that. That's out there in the public domain today. People just need to make their decisions.

We call on Vice President Cheney to release who was in the meetings and what was discussed, and people can make their decisions.

WOODRUFF: Marc Racicot, do you dispute what Terry is saying here?

RACICOT: Well, of course I do. It's patent nonsense. In the first place, it's completely inaccurate in so many different ways. There is not enough time on this program to point out all the inaccuracies. And it's very unfortunate that the chairman continues to pursue this particular effort, so opportunistically. It's not going serve the best interests of justice, nor those pensioners and families that were harmed.

The best thing to do is precisely what the president has asked us to do, asked Congress to do, and that is make a thorough examination and let the pieces fall where they may.

MCAULIFFE: But, Judy, there is something to help the pensioners and the families, so that we don't have this abuse anymore. It is that we have campaign finance reform. It's coming up for a vote next week. Denny Hastert, the speaker, the Republican head of the House, said it's an Armageddon for us, we need to stop it. Dick Gephardt rarely calls Speaker Hastert. He called him the other day and said, "I'm going in for surgery, could you not hold the vote next week?" He immediately called the vote for next week.

This is a very important vote. Let's get the special interest money out of politics, let's pass campaign finance reform, so that all our pensioners and families for years to come will not have people in their using special interest money to get special access.

WOODRUFF: Well, let me ask Marc Racicot about that, because the Republican House speaker, Dennis Hastert, did say this was an Armageddon. And he said, in fact, if campaign finance reform does pass the house in the form it is now, he said the Republicans are going to lose control of the house. Do you agree with him?

RACICOT: Well, I think the central question to focus upon is the one that the president is focused upon. And this string of irrelevant and inaccurate statements that Terry tries to string together doesn't make the argument any more persuasive. The bottom line is, if you have campaign finance reform that is fair and applies evenly across the board, the president has, from the very beginning, talked about the notion of soft money being a relevant topic to inquire into and to address. But it cannot be the kind of campaign finance reform that diminishes the rights of the people of this country to participate in equal fashion. It has to apply both sides, equally.

WOODRUFF: But do you agree, Marc Racicot, that if it passes, that Republicans lose control of the House?

RACICOT: I don't agree with that. No.

(CROSSTALK)

RACICOT: I don't agree with that. That's not the kind of approach that the speaker is taking, nor is anyone else taking, from the Republican side. Their concerns are with whether or not this is an improvement, and whether or not it's fair, and whether or not it's keeping with our Constitution. They have very lofty concerns about this particular issue. It doesn't degrade down to that point that Mr. McAuliffe is trying to make.

WOODRUFF: And, one other question to you, Marc Racicot. It's been reported that you did lobbying, some lobbying, for Enron. Has all of that been disclosed, as well as what you were paid by Enron?

RACICOT: I did legal work for Enron. I know that there is an inclination here within the confines of the District to reflect everything that a lawyer does to be lobbying. But the fact of the matter is that I did a substantial amount of legal work on federal legislation, and provided advice to those that were working on the federal legislative questions at the time. But, no, I do not carry on any activity before federal officials that is defined as lobbying any longer, once I began serving as chair of the party. WOODRUFF: All right, well, we want to give you a chance to comment on that. Marc Racicot is chairman of the Republican National Committee. Terry McAuliffe is chair of the Democratic National Committee. Gentlemen, we thank you very much for joining us, as we listen in on this hearing of the House energy and commerce subcommittee. In fact, right now, we're going to go back to the hearing with some questions from our Democrat Congressman Ed Markey. And this is Jeffrey Skilling, once again, former CEO of Enron.

SKILLING: I don't recall.

REP. EDWARD MARKEY (D), MASSACHUSETTS: You don't recall. Now, according to both Watkins' memo and the Powers report, you took no action after McMahon warned you, even after being told that Fastow was pressuring employees who were negotiating with LJM. Is that true?

SKILLING: In a discussion, again, as I recall, on that day, when Jeff came into see me, he said he was concerned about his compensation. And I said, Jeff, You know how compensation is determined around here. Maybe you all don't know this, but our compensation system was based on something called the PRC, performance review committee. There were typically 20 to 24 people on the performance review committee. Jeff's concern was that Andy was on the performance review committee and might influence his compensation.

What I said to Jeff is, "Jeff, if you negotiate hard on behalf of Enron, and if you take a baseball bat to Andy Fastow in a negotiation that benefits Enron corporation, 23 of the 24 people on that committee will be cheering for you.

MARKEY: OK, three days later, you reassigned Mr. McMahon. Now, why did you reassign him?

SKILLING: Well, first I'll say there was absolutely no connection, no connection...

MARKEY: He is warning you about conflicts of interest, you don't take any action. Three days later, he gets reassigned, there is no connection.

SKILLING: There is absolutely no connection.

MARKEY: You resigned on August 14, Sherron Watkins writes a memo on August 14, there is no connection?

SKILLING: I think Sherron wrote the memo in part because I did resign.

MARKEY: Right.

SKILLING: I wouldn't be at all surprised if that's what triggered it. She certainly didn't confide her concerns with me. But as far as the relationship between Jeff McMahon moving from the finance group into the industrial products group, there was no connection whatsoever. It was a huge promotion for Jeff.

MARKEY: Huge promotion. Not viewed as such...

GREENWOOD: Gentleman's time has expired. The chair recognizes the gentleman from California, Mr. Waxman, for five minutes. Mr. Waxman, do you care to inquire? Five minutes, sir.

REP. HENRY WAXMAN (D), CALIFORNIA: Mr. Skilling, did you know -- you knew there were partnerships, didn't you?

SKILLING: Yes.

WAXMAN: Who came up with the idea of the partnerships?

SKILLING: Which partnerships in specific? I mean, Enron had literally thousands of partnerships, and they came from various operating business units.

WAXMAN: So you had thousands of partnerships. Did you know that -- you have said that to your knowledge you didn't have any idea that Enron was in a shaky financial situation and you don't think you have misled others, but in March 2001, Bethany McLean, a reporter with "Fortune" magazine first raised questions about Enron's financial condition. She wrote in "Fortune" magazine that the company's financial reports were missing crucial information. She asked a simple question in the article that no one could seem to answer: How exactly does Enron make its money?

Mr. Skilling, in response to this criticism, you reportedly called Ms. McLean unethical for not doing her research, three Enron executives flew to New York to try to convince "Fortune" editors that Ms. McLean was wrong. Kenneth Lay also called "Fortune's" managing editor to complain. Mr. Skilling, it is clear now that Ms. McLean was right and that you were wrong. She was asking all the right questions about how Enron made its money.

That's the case. It appears as if you were trying to bully someone who was asking very basic questions about Enron. How could it be that she would know basic questions about Enron and raise them, and you didn't seem to know about them? You got very upset with her, didn't you?

SKILLING: I very specifically remember the telephone conversation that I had with the "Fortune reporter." As a matter of fact, she had been working on a story, it was my understanding...

WOODRUFF: We have been -- we are listening to Jeffrey Skilling, former president and CEO of Enron, the highest-ranking Enron officer, former officer, executive to testify before the Congress. Unlike so many others, who have taken the Fifth amendment and exercised their right not to testify, he is testifying before the House Energy and Commerce Committee -- subcommittee.

Joining us now from our Washington studio, the House -- or rather, the Senate minority leader, Trent Lott.

Senator, I don't know how much of these hearings you have been able to listen to, but I know you are aware a number of committees of Congress have been looking into what happened to Enron. How useful do you believe, in the end, these hearings are?

SEN. TRENT LOTT (R-MS), MINORITY LEADER: Well, Judy, I haven't been able to hear much of the hearing today. There are other hearings going on on Capitol Hill. And the Senate is in session.

But I think they can be useful. If they are the typical congressional hearing, which can mean a lot of press and a lot of sound and fury, but not much results, or if it gets into just finger- pointing, blame game, then, OK, I'm not sure how much it is worth. But I think the Justice Department has an important job to do to see if criminal laws were violated here.

I think the Securities and Exchange Commission needs to take a serious look at how Enron got into this situation and what should they have done, if anything. And I think, in Congress, we should have these hearings. And it looks to me like, so far, the hearings have been responsible.

And the goal should be not just to fix blame, but to find out, as much we can, what happened here? Why were the employers able to do what they did? And why were employees and stockholders kept in the dark or kept from being able to sell stock? And then see what we can do legislatively to deal with that, that's our job.

(CROSSTALK)

WOODRUFF: I was just going to ask, do you think it is a good idea to have so many different committees looking at it, because right now you have got something like, I believe it is nine or more committees separately looking at this.

LOTT: Well, I'm not sure that is good. You know, as majority leader, I tried it both ways. I tried one time to try to get a focused committee, saying: You are the committee and the you other committees stay out of the way.

That didn't work too well. And, also, there are committees of jurisdiction that have expertise, both in terms of the members and also the staff that can do a good job. I know there is a lot of different hearings going on, but how do you cut the Judiciary Committee out of it? How do you stop the Banking Committee? And, again, the purpose is not just to have a bunch of hearings, but to decide: What do we need to do in terms of pension reform, try to protect people's rights in their 401(k)s?

What do we need to do to make sure that accounting firms are not getting themselves in a bind where they either appear to be unethical or are being unethical when they are both auditing and lobbying?

WOODRUFF: One of the reasons I'm asking is because two of your colleagues, I'm told, Senators Hollings and Stevens, are proposing that there be one committee, a select committee looking into all this now and apparently eliminating the rest of this.

LOTT: I don't know how you stop it right now. If that move had been made quickly, perhaps that could have been done. But now we have the House Committee of jurisdiction moving forward, I think and doing a good job. We've got some Senate committees that are trying to get involved. I'm not saying that I oppose it. I just think right now it would be very difficult to do that.

And we also have to try to find out what happened back on September 11. Why did we have the intelligence shortcomings there? So it is -- you know, to try to form commissions or select committees across the board, we may not be able to do that.

WOODRUFF: Well, do you think Enron is preventing other important business from getting done?

LOTT: It is drawing a lot of attention. But, quite frankly, Judy, I think it deserves it. I mean, this is a huge failure. And there is a lot of things that look very bad. And we need to find out not only who did it or why, but what are we doing to do about it? What legislative action is required?

We are moving forward in the Senate. For instance, we are voting and working right now on a farm bill. We need a farm bill for our country, for our farmers and ranchers and our consumers. We are going to an energy bill next week. We need a national energy policy. So, while the Senate is not moving forward very fast on some important issues, at least we are working on them.

So the House and the Senate will continue to work on the things that we have to do for sure while these hearings are under way.

WOODRUFF: But, meantime, you have some of your colleagues -- Democrat Fritz Hollings of South Carolina saying just the other day that the Bush administration is running an Enron government. We just heard Terry McAuliffe, the chairman of the Democratic National Committee. He was on with the Republican chairman, Marc Racicot.

But Mr. McAuliffe said, "We now know Enron had unparalleled access at the Bush White House," once again calling on the vice president to release those energy task force documents.

LOTT: Well, it looks to me like Terry McAuliffe has got enough problems of his own without being in a position of throwing stones at others.

See, but if this turns into just trying to smear the administration, or it turns into a partisan battle, I don't think the people are going to react well to that. I do think that there are problems here. I don't think that there is, you know, a lack of blame to go around all over the place. But, again, as we did last fall after a disaster, what you need to do is come together and produce results.

WOODRUFF: Campaign finance reform -- Senator, as you know, the House has agreed to -- the Republican leadership agreed to take this up next week. But the speaker, Dennis Hastert, is saying this is Armageddon. This is something Republicans must fight against. If it comes -- if it passes the House and it gets to the Senate, what will happen there? LOTT: Well, it depends on what happens in the House. I spoke briefly a couple days ago to Speaker Hastert. And he told me that they were going forward with the bill. There will be amendments. I presume there are going to be some very important substantive amendments that will be offered.

Some of them may pass. Some of them may not. And then, based on what they do, the Senate will have to decide what action we will take. I assume it is going to go to conference. And they will continue to work to try to come up with improvements. I assume, though, that a bill will get through the Congress, through conference, and go to the president for his signature.

I hope, though, that it is a fair bill, and that it is balanced and that some of the problems are resolved. We do need to see if we can make it constitutional. And some of the things I would like to see done are very hard to do constitutionally. I'm worried, for instance, about super wealthy individuals being able to buy a Senate seat or a House seat. I'm worried...

WOODRUFF: But it sounds like you're talking about a very different bill from what the House is -- the Shays-Meehan.

LOTT: Well, I'm not sure what all -- yes, I think there is no question that Shays-Meehan or McCain-Feingold needs a lot of improvement.

Some of the things that they want to try to do I even agree with. But I don't -- I think it is going to be stricken down in the courts. For instance, some of these spots that come on late in campaigns, I don't like that. But I don't think you could tell, in America, people you can't express your views on something like this.

But here is the main thing. And this is what does worry a lot of people. There is sort of a unilateral disarmament here, because it is evident from the bill that labor and the Sierra Club and trial lawyers and other groups will still be able to come in and run ads in the campaign. And without the party help, without the current system of getting the parties involved to help, there are going to be some candidates that are going to be significantly disadvantaged.

We've got to find a way to keep the field fair and balanced. It's not there yet, but maybe could it be.

WOODRUFF: All right, Senate Minority Leader Trent Lott on campaign finance reform.

LOTT: Thank you, Judy.

WOODRUFF: Senator, thank you very much for joining us. We appreciate it.

LOTT: All right.

WOODRUFF: Thank you.

And now we are going to take you back to the House Commerce -- Energy and Commerce, I should say, Subcommittee.

Again, Jeffrey Skilling, former Enron president and CEO.

SKILLING: ... that there is anything that is radically different in my recollection. What Jeff is saying here is that requests are options, got to do one or two things. One, I must know I have support from you, and there won't be compensation ramifications. And I do remember...

GREENWOOD: What (UNINTELLIGIBLE). He wanted your support because his integrity was at stake.

SKILLING: He wanted support.

(CROSSTALK)

GREENWOOD: ... it's wrong. How can we be in this situation...

SKILLING: Congressman, my assumption and my recollection of the meeting was that he wanted my support in the compensation review committee meetings, and I made it absolutely clear to him, in that session, absolutely clear to him that he should go with his conscience, he should do everything humanly possible to protect the interests of Enron shareholders and I would absolutely support him in that.

And I think it's somewhat telling that he would come to me and he would say, as long as I've got that commitment from you, I'm OK. And so...

(CROSSTALK)

SKILLING: He switched jobs -- it was totally, totally unrelated decision.

GREENWOOD: Guy comes to you and he says, whether I'm in this job or next guy is in this job, it's still a cesspool. Because this is crazy, having my boss negotiating with me. He is in charge of my salary, I have got to either represent the stockholders or do what he wants me to do. He says, this is a nutty way and a dishonest way to do business. You don't -- you don't walk out of that meeting saying I got to fix this?

SKILLING: Congressman, again -- your boss under our compensation system and our performance review system was not responsible for your compensation. It was a committee called the performance review committee, and if everyone in that room believed that you were sticking up for Enron's interests, and your boss was also in that room...

GREENWOOD: Bad question. I'm asking you why it was that when he came to you and said, "either get me out of this cesspool, or clean up the cesspool" that you didn't say, "I will clean up the cesspool. I will not let this stand. I will go to Andy and say this doesn't work. I will not only back you up if you happen to go to bat, I'm going to go to bat, because that's my job. I'm the boss." SKILLING: I think you are mischaracterizing what the decision was and what the options were that were put to me. It is my recollection that Andy said he wanted my support. He wanted my support. And he wanted -- if he got that support, he was comfortable.

GREENWOOD: The job that he ended up with he turned down. You know he didn't want that job. That wasn't his first choice. Earlier in the month, he had turned that job down.

SKILLING: I -- I have no recollection of that.

GREENWOOD: He came to you -- he came to you and said, "boss, this place stinks. It's wrong. It's not right for the shareholders. It's an untenable position that conflicts the integrity of anybody who sits in this seat."

SKILLING: I don't -- I don't recall...

GREENWOOD: You say to him, we'll get you another job.

SKILLING: I don't recall that he said anything about this being bad for the shareholders. He was concerned that it could become bad for the shareholders if he did not have my support for him sticking up for Enron and those discussions, and I gave him my unequivocal support. There is no time, no time that I have been in Enron corporation that I have engaged in any decision that was not in the interests of the shareholders of the company.

GREENWOOD: You said you'll fix it. And it seems me that there is a difference between saying, I'm right behind you, you go and cross swords, I will be behind you, and saying, give me the sword, that is my job, I will fix it.

SKILLING: I told Mr. McMahon, to the best of my recollection, that I totally supported him doing whatever necessary to protect the interests of Enron shareholders, and I believe that subsequent to that I also had some people check into this whole logistics issue, where people were sitting on the floor and all the rest of that to see if we could clean that up as well. The decision of Mr. McMahon to leave, the decision was totally separate. It was not in any way influencing. I have nothing but respect for Mr. McMahon, and there is absolutely no connection between those two activities.

GREENWOOD: So he comes to you and he says, the Titanic is headed for an iceberg. And you say, I'm going back to bed, but if you tell the guys to steer to the left, I will be right behind you.

TAUZIN: Mr. Chairman...

GREENWOOD: My time has...

TAUZIN: Mr. Chairman, before you leave this line of questioning, if you will yield a second, I think it's important to note and perhaps Skilling would like to comment upon it, that part of the fixing it was to bring in Mr. Glisan into that position, who not only was apparently willing to negotiate with Mr. Fastow, but later on actually invested in one of his deals, contrary to the board's policy, and turned a $6,000 investment into $1 million investment. Was that part of fixing it?

SKILLING: As I've said before, and I will absolutely conclusively tell you, I did not know that Mr. Glisan had any investment interests whatsoever in any of those partnerships.

TAUZIN: And it should be stated for the record, Mr. Chairman, as you continue to yield, that Mr. Glisan repeatedly declined an invitation to be interviewed by investigators or to give us any statements in the matter. So it's important to put this in context, Mr. Chairman, that when Mr. McMahon was found a new job, a guy brought in to replace him not only apparently felt that a lot easier to negotiate with Mr. Fastow, but actually got in bed with him, and invested in the partnerships. And in six weeks, turned a $6,000 investment into $1 million. That was fixing it. Thank you, Mr. Chairman.

GREENWOOD: Chair thanks gentlemen -- chair recognizes gentleman from Louisiana, Mr. John.

JOHN: Thank you, Mr. Chairman.

JOHN: Now, Mr. Jaedicke and Winokur, as board members, what did you know about the Southampton partnership?

JAEDICKE: Sir, we did not know about the Southampton partnership until we read about it in the paper.

JOHN: Mr...

WINOKUR: I agree with that.

JOHN: So let me -- let me refresh your memory of what the Powers report said about the Southampton partnership. Mr. Fastow invested $25,000 in this partnership, and received $4.5 million in approximately two months. Two others employees, Mrs. Morant (ph) and Mr. Glisan invested $5,800 into that same partnership, Southampton, and two months later they returned $1 million. You did, as the board of directors of this company, you didn't know anything about this?

JAEDICKE: No, sir, not until we read about it in the paper. Not to my recollection.

JOHN: Since you have discovered this in the Powers report, are your experience with being on the board of directors, you obviously should have had some say-so or some -- some knowledge of this. Who was responsible for notifying you, or bringing it in front of you, the board of directors?

JAEDICKE: Well, sir, the original transaction to buy out Calpers was represented to us as an unaffiliated third party. That was the arraignment to be engaged in. It was never, ever brought back to us that it was not an unaffiliated third party, and that there was a related party in it. The, certainly... WOODRUFF: As we continue to listen to testimony before the House Energy and Commerce Committee, we are hearing from the former chairman of the Enron board of directors audit committee.

I want to bring in two faces familiar to us on CNN: Jeff Greenfield, host of CNN's "GREENFIELD AT LARGE": and Bob Novak, who is with the "Chicago Sun-Times," a frequent commentator on INSIDE POLITICS.

Bob, there is no question that there was a business scandal here. But I think what many are asking is: Was there also a political scandal in what happened?

What are you taking away from this at this point?

ROBERT NOVAK, CNN POLITICAL ANALYST: That is the big political question.

And this hearing, which is a little -- some of this stuff is a little hard for the average person, perhaps even the average reporter, to follow. It is a complicated business scandal in which they did some very bad things. And I doubt many Americans can exactly explain what they did bad. They have not yet found the smoking gun, may never found the smoking gun. There may be no smoking gun connecting it with the Bush administration.

And Senator Fritz Hollings can rant and rave about the Enron connection, but they've got to find something more to turn it into a political story. Just saying it is a political story doesn't make it so.

WOODRUFF: Jeff Greenfield, could it backfire on the Democrats to be rushing to accuse the Bush administration of doing something it shouldn't have when, as Bob says, there is no proof yet?

JEFF GREENFIELD, CNN SR. ANALYST: Well, I think the lesson of 1998 and what happened to the Republicans in the midst of an impeachment inquiry that wound up with the Democrats actually picking up seats is instructive. I really think, particularly given the -- what you might call the wartime climate, there is not going to be a lot of patience for purely playing politics.

The one area that I think where I might suggest that there could be some political fallout is that this story, even if it doesn't reach into the White House, which it may well not, kind of underlines a basic Democratic constant theme: Rich people bend or break the rules. They make out like bandits. Ordinary working stiffs get the short end of the stick. And this particular story looks like it fits that. So, in that sense, it probably helps the Democrats.

I also have to point out to you, Judy, that, remember 11 years ago when Anita Hill introduced a particularly intimate subject into those hearings? It had to do with a body hair and a Coke can. Today, thanks to Henry Waxman, we have had a new entry into vocabulary that I doubt has been ever uttered in a congressional hearing, referring to a universal body part that I don't believe has ever been uttered in quite those terms. So there is history today.

WOODRUFF: All right, you want to tell me what you are referring to?

GREENFIELD: No.

(LAUGHTER)

WOODRUFF: OK.

GREENFIELD: It has to do with an epithet that Jeffrey Skilling allegedly called an investor who was skeptical about Enron. And Mr. -- Congressman Waxman actually referred to the specific epithet. Let's just say it is a part of the body that all of us possess.

WOODRUFF: All right, we'll find the transcript and try to figure out what you're talking about.

Bob Novak, what about Jeff's point here, though, that even if it doesn't reach to the White House, once again it is people of privilege who -- you know, who may have made off like bandits here? They have done very well, while, you know, it's the working people who suffer. And, in the last analysis, that hurts Republicans.

NOVAK: Well, that has been a theme of the Democratic Party, dating back to Andrew Jackson. I didn't cover Jackson exactly, but I knew about him.

(LAUGHTER)

NOVAK: And, sometimes, Judy, it works. Mostly it doesn't work. It is something that really interests journalists and it interests people inside the Beltway. Ordinary people, it's pretty far removed, all that stuff about, "This guy is making out and I'm not making out." Usually, the only people it appeals to are the losers, the economic losers in society, who are voting Democratic anyway. So it doesn't -- it doesn't change votes.

I would say there is one -- I think this is going to fall very flat -- but there is one weapon that the Democrats have which was placed in their hand by the Republicans. And that is the stubborn refusal by the administration to make a deal on this material that the General Accounting Office is demanding.

I was talking to a Justice Department lawyer today. And the Civil Division is working overtime. They are going to court. They don't want to settle on the steps of the courthouse. I think this is a huge mistake, because that is the one thing that gives it legs. Are these documents going to really uncover a Teapot Dome scandal or a Watergate scandal? I seriously doubt it.

But it keeps the story alive. And they say -- and they can ask: What have you got to hide? So I think it is a dumb political play by the administration.

WOODRUFF: But, of course, the administration is arguing executive privilege. They don't want to set a precedent of turning over information that they should have a right to keep.

NOVAK: Well, they're not calling executive privilege. They're just saying that there is no reason...

WOODRUFF: Well, almost.

NOVAK: There is no reason they have to turn over their documents.

WOODRUFF: You're right.

NOVAK: I think -- quite apart from the legalities, I think it is a political mistake.

WOODRUFF: All right.

And before we let both of you go, Jeff Greenfield, on "GREENFIELD AT LARGE" tonight, you are looking at Enron.

GREENFIELD: We are going to look at Enron, but we are going to look at whether or not the fallout from Enron might have a broader ripple in the business community and in the economic community, whether it will reach out to companies beyond Enron and maybe have some impact on long-term economics.

We are also going to be talking about Justice Scalia's comments earlier this week and last month that a Catholic judge who accepts the church's teaching that the death penalty is immoral might think about resigning. That is an interesting subject. And we're going to hear two sides to that one tonight.

WOODRUFF: All right. That is "GREENFIELD AT LARGE" at 11:00 Eastern.

Jeff Greenfield, thank you very much. Bob Novak, gentlemen, thank you both. We appreciate it.

NOVAK: Thank you.

GREENFIELD: Thank you.

WOODRUFF: And now back to the hearings of the Energy and Commerce Committee, subcommittee on the Hill.

Jeffrey Skilling, former Enron CEO, president, being questioned by Congressman Billy Tauzin of Louisiana.

TAUZIN: ... operations in Chewco or LJM?

SKILLING: It is my understanding -- and, actually, it was my understanding that the CEO of the corporation would have to approve a waiver from the conflict of interest.

TAUZIN: No, I just read what Mr. Jaedicke says is the policy, that the office of the chairman can authorize it if it's in interests of the company. SKILLING: We...

TAUZIN: Did you, if you knew that...

SKILLING: We didn't figure that out...

(CROSSTALK)

TAUZIN: ... Mr. Kopper was involved with Chewco and LJM? Did you, as a member of the office of the chairman, understand that he had to get that approval from you and from Mr. Lay?

SKILLING: It is, to me quite honest, Mr. Chairman, it is not clear -- I am not the person who makes the determination of whether there is a conflict of interest. We have lawyers, and our outside lawyers determine if there is a conflict.

TAUZIN: I'm not asking you about a conflict of interest. Let me try once again to take you through it very carefully because you are under oath and I don't want to get this wrong for you.

SKILLING: Neither do I.

TAUZIN: Read it carefully. "Code of conduct allows a senior officer to participate in a transaction in which he has a conflict."

SKILLING: Would you say that again?

TAUZIN: The code of conduct allows a senior officer to participate in a transaction in which he has a conflict of interest with Enron, if the office of the chairman determines this will not adversely affect the interests of the company. My question is, knowing that Mr. Kopper was involved with Chewco, knowing he was involved with LJM, did you make such a determination as a member of the office of the chairman?

SKILLING: I don't recall that any determination was made, because I don't recall that there was ever an issue that there was a conflict of interest involved.

TAUZIN: Did you inform Mr. Lay that Mr. Kopper was involved with Chewco and LJM?

SKILLING: I don't recall.

TAUZIN: Do you know whether Mr. Lay was aware if Mr. Kopper was involved?

SKILLING: I'm not aware of what Ken knew, but Mr. Kopper's participation was well-known throughout the company.

TAUZIN: Mr. Jaedicke, on page...

SKILLING: And by the way, was well-known by Vinson Elkins, who would have had responsibility...

TAUZIN: I'm sorry, I didn't hear that. Say that again.

SKILLING: His participation in Chewco was also known by Vinson Elkins, to my knowledge. It is my understanding that Vinson Elkins knew that he was involved, and I believe they would have identified, to the extent there was a conflict of interest, that there was a conflict of interest, that a waiver needed to be received.

TAUZIN: Did Vinson Elkins report to Mr. Lay or Mr. You -- or rather, to you after they had researched the issue following Mr. Watkins' letter? That Mr. Kopper might require such a waiver?

SKILLING: Mr. Chairman, I had left the company at that point.

TAUZIN: Let me go back to page 9, then, Mr. Jaedicke, on number seven of the controls that you say were instituted to protect the company in this extraordinary situation of these partnerships. On number seven, you're saying LJM approval process checklist was to be filled out to ensure compliance with the board's directive to transacting with LJM, including questions regarding alternative sales options, the determination that the transaction was conducted at arm's length. Any review of the transaction by Enron's office of the chairman? Now, you just heard Mr. Skilling define the office of the chairman.

JAEDICKE: Yes, sir.

TAUZIN: ... as being Mr. Lay and himself and another officer from time to time. Is that correct, sir?

JAEDICKE: Yes, sir.

TAUZIN: So it was the board's opinion that all of these transactions had to be approved by Mr. Lay and by Mr. Skilling, is that correct?

JAEDICKE: I think by the office of the chairman, sir, probably would mean either one of them. It could be Mr. Lay or Mr. Skilling.

TAUZIN: But in any event, the board's own controls required that you get the approval from one of these two top guys, right?

JAEDICKE: That was exactly our understanding, sir.

TAUZIN: Were you satisfied on every one of these transactions that either Mr. Skilling or Mr. Lay approved the transaction? And apparently, an approval process checklist was to be filled out. Did you ever ask for the approval process checklist to see whether either one of them had approved these transactions?

JAEDICKE: I did not -- I don't know that I ever saw the approval checklist, but we always inquired and had read -- had gone over, in the audits committee, for example, the controls that were in place.

TAUZIN: So in effect, you're telling us in all cases somebody told you Mr. Skilling or Mr. Lay has approved this?

JAEDICKE: We were told that the controls were in place, they were being followed, and they were working.

TAUZIN: Mr. Winokur, can you help us with this?

WINOKUR: Congressman, the finance committee also was told repeatedly by members of management that the controls were in place and were working effectively.

TAUZIN: Including this control number seven?

WINOKUR: I don't recall in the finance committee that the specific control was listed when we got our report -- I believe it was from Mr. Causey.

TAUZIN: Just as a general statement, I mean, help me here, you're members of the board, and the board has managers. It has a chairman, and a chief operating officer, all of these officials.

JAEDICKE: Sir, this particular control would have been one that was listed, identified as a specific control in the report to the audit committee. That was there.

TAUZIN: Right. Did you ever, ever in the conduct of all your business as a board member, ever believe that Mr. Lay or Mr. Skilling was not aware of in approving these transactions?

JAEDICKE: If your question is, did I think there was any misunderstanding on that, is that your?

TAUZIN: Yeah.

JAEDICKE: No, they knew the importance of these transactions. Must have been, had to be well-known throughout management.

TAUZIN: Certainly...

(CROSSTALK)

JAEDICKE: The board spent a lot of time on these controls, and it was alleged to us that they were being followed, that they were in place and they were working.

TAUZIN: How do you react to Mr. Skilling sitting there right next to you today saying he didn't know -- that -- didn't -- didn't approve -- knowing he had to approve, didn't know as part of the office of the chairman that he had to handle the potential conflict of Mr. Kopper? How do you handle that, knowing as a board member that common sense tells you that top officers of the corporation must know about these transactions, must know about who's a party to them, who's running them, who's negotiating for the company and on the other side of the table? How do you handle that? Is his testimony, in your opinion, correct, that he didn't know?

JAEDICKE: Sir, I can only tell you what the requirements were, what the audit committee and others heard about the controls working. It was -- we did not know that, to my knowledge, that these approval sheets were not being signed and not being reviewed as -- it was -- as these controls called for. I can only tell you what -- I cannot tell you why that happened.

TAUZIN: Now, in fact, in -- Mr. Winokur, in your testimony...

WOODRUFF: Some testy exchanges between members of the House Energy Subcommittee, you see Congressman Billy Tauzin there questioning members of this panel, all of whom were involved in Enron. Our coverage of this hearing will continue. But right now, we turn it over. I'm Judy Woodruff in New York, and my watch is ending. We turn it over now to "WOLF BLITZER REPORTS."

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