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By NYSSCPA.org E-zine Staff
Posted on 3/23/06
HOUSTON -- Ben Glisan, who was Enron Corp.'s treasurer, testified this week that former Chief Executive Jeffrey Skilling and former Enron Chief Executive Kenneth Lay approved the use of off-the-books financing to hide Enron Corp.'s losses from auditors and investors.
In testimony at the former executives’ trial on Wednesday, Glisan said Enron forewarned credit rating agency Moody's Inc. it would cut the value of some overvalued assets by $1 billion in October 2001, but Lay telephoned the agency to tell an analyst there the company had no other skeletons to hide, Reuters reported.
In fact, Glisan said, those asset write-downs should have been at least $3.5 billion, but he and Lay knew revealing such dramatically bad news would send the company into a death spiral.
"I and Mr. Lay provided assurances that there were would be no further write-downs," Glisan said. "We knew there were large embedded losses in several parts of the company."
Glisan came out of prison to testify against Lay and Skilling, who are on trial for conspiracy and fraud linked to the collapse of Enron in 2001. The trial began in late January. Both men have denied any wrongdoing at Enron. They could face decades in jail if found guilty.
Glisan later on Wednesday told jurors that he presented the deal, known as Raptor, to Skilling, then Enron's chief executive, and Lay, then the chairman, at a finance committee meeting in May 2000. Skilling endorsed the transaction, Bloomberg News reported.
"Mr. Skilling said this was not a deal that he would recommend except for the fact that it allowed him to circumvent the accounting rules," Glisan said. "Mr. Lay giggled."
Raptor was an off-the-books entity set up to pay Enron with its own stock to "fill holes" in the firm's balance sheet, Glisan testified. Prosecutors say Skilling used Raptor to protect Enron from having to report decreases in value in its assets.
"This is the most direct link tying Skilling to clear-cut criminality," said Robert Mintz, a former federal prosecutor now in private practice. "Other witnesses have taken Mr. Skilling up to the line when it came to knowledge about the fraud. This testimony ties Mr. Skilling directly to attempts to conceal Enron's true financial condition through improper, fraudulent accounting methods."
Glisan on Wednesday also said former Chief Financial Officer Andrew S. Fastow had told him that Skilling had signed off on "bear hug" side deals, guarantees that off-the-books partnerships would not lose money by investing in Enron assets -- deals that helped Enron meet its earnings targets, The New York Times reported.
Glisan also said Fastow had discussed with him a three-page "Global Galactic" document that supposedly recorded the side deals with Skilling and others.
Glisan also described one previously undisclosed meeting in which, he said, Lay had refused to accept his resignation when he admitted making a $1 million profit in a kickback scheme set up by a Fastow, The Times reported.
Lay's response, Glisan testified, had been that his participation in the scheme, known as the Southampton deal, was "OK" and that it would be the "worst" time for him to resign.
A few weeks later, Glisan was fired, along with another Enron employee who had participated in the scheme, The Times reported.
Glisan clearly angered former Lay at whom much of the day's testimony was directed, the Houston Chronicle reported.
"I've never heard so many lies in one day in my life," Lay said angrily as he and his wife Linda exited the courtroom during an afternoon break. "And you can quote me on that!"
On Thursday, Glisan said he couldn't recall any notes,
e-mails or other tangible proof that would support his testimony tying
Skilling to fraud and conspiracy at the failed energy giant, The Associated
Press reported.
Skilling lawyer Daniel Petrocelli noted that despite several volumes
of notes that Glisan kept during his days at Enron and entered into
evidence, there were only 11 references to Skilling. None suggested
any wrongdoing.
Petrocelli specifically mentioned a meeting of an Enron finance committee where the discussion focused on Raptors, the fraudulent financial structures Enron used to house poor assets and investments and to hide losses. Glisan said Skilling backed the idea as a way of circumventing accounting rules.
Under intense questioning, Glisan said he had no notes or e-mails to back up that claim. "The conversations were quite memorable," Glisan said, defending his recollection.
Asked if he had any other records where "you could capture with vivid recall conversations with Mr. Skilling," Glisan replied: "No." But he was undeterred in his assertions that Enron's management misled investors about the health of the company, the theme of the previous day's testimony, the AP reported.
Also on Wednesday, Sam Buell, a former prosecutor with the Justice Department's Enron Task Force who now teaches a course in corporate crime at the University of Texas School of Law, brought his students to sit in on the biggest fraud case to emerge from the recent era of corporate scandals, the AP reported.
"I feel like this is a distant memory in my life," Buell said, "but it continues on. It gives you a sense of how epic these cases are. They just go on for years."
Buell was assigned to the task force at its inception in January 2002 and joined the university as a visiting professor after he stepped down in March 2004. He secured the government's indictment against Skilling a month before. Skilling's co-defendant, Enron founder Kenneth Lay, was indicted in July 2004.
Buell helped prosecute Arthur Andersen in 2002 on an obstruction of justice charge for destroying tons of Enron-related documents in the fall of 2001 as regulators began investigating the energy company's finances. The U.S. Supreme Court overturned that conviction last year, citing vague jury instructions that allowed jurors to convict without finding criminal intent behind document destruction.
Late Tuesday, Glisan took the stand for the first time and accused Lay and Skilling of knowingly misleading investors about the condition of the company, The Wall Street Journal reported.
Glisan testified the company's senior executives were "manufacturing" earnings and misleading investors in 2001 to cover shortfalls and prop up the energy firm's falling stock price.
As of mid-August 2001, Lay and Skilling knew that the company was struggling financially, yet falsely told investors it was in excellent shape, he alleged. Glisan said that in the succeeding months Enron's condition became "significantly worse," yet Lay continued to assure investors to the contrary.
Among the problems he said were "billions of dollars of embedded losses" in Enron's international assets. The prosecution introduced an Enron chart that indicated Skilling estimated the company's international businesses carried a value of $4.5 billion less than the value shown on Enron's books. Glisan said the company didn't write down the assets because it would have required "a larger loss than we could have stomached" and have serious repercussions for Enron in financial markets.
In a brief news conference after Tuesday's court session, Lay's lead attorney, Michael Ramsey, described the testimony as "ventriloquism" and likened Glisan to "a performing monkey," the paper reported.
Anson on Monday. John R. Sult, who oversaw the books on Enron's Azurix water venture for Andersen, said Enron sought to avoid a write-down of hundreds of millions of dollars by promoting a $1 billion growth strategy for the unit instead, the AP reported.
Sult said that until the fall of 2001, Enron's financial statements consistently said the company planned no new growth for its water business. Sult also said during cross-examination that he and Lay never discussed Azurix or Wessex. Nor was Lay involved in accounting analyses related to a possible write-down, Sult said.
Sult, also said that later in October, Lay misled analysts during a conference call about the status of Andersen's review of the water issue, as reported by The Journal. Lay said that Andersen had concluded that an impairment on the water business wasn't necessary. At the time, Andersen's review of the issue was still "preliminary and incomplete," Sult said.
Also on Monday, another former Andersen accountant, Thomas Bauer, corroborated earlier testimony from a former senior Enron accountant, Wesley Colwell, that Enron wrongly dipped into reserves to pad earnings, Newsday reported.
Bauer, who oversaw the books of Enron's profitable trading operation, said companies could establish reserves for costs related to assets or liabilities -- like lawsuits -- but could not set aside income in good times to pad earnings in bad.
