52, former CEO of Enron, now faces 24 years plus four months in prison for
fraud, conspiracy and insider trading. This as a decade ago he transformed an
unknown pipeline company into an energy-trading tsunami, driven by the
accounting scheme he signed off on hiding huge debt and cash flow problems. And
then the wave hit the wall.
Enron tumbled from
the once seventh-largest company in the US to the living nightmare that lost
billions of dollars in stock and retirement savings overnight. According to The New York Times, �the judge has also
to pay up to $45 million in restitution to Enron victims, $15.5 million to
his lawyers, and $5 million to Enron shareholders. This will pretty much wipe
out Skilling�s fortune.�
The judge gave the
higher sentence �because he found that Mr. Skilling had lied to the Securities
and Exchange Commission about the real reasons for his sales of Enron stock
before the company�s collapse in December 2001. Mr. Skilling said he sold the
stock only because of the impact on the market of the 9/11 terrorist attacks.�
U.S. District Court Judge Sim Lake said in sentencing Skilling, �As the many victims have testified, his
crimes have imposed on hundreds if not thousands a life sentence of poverty.�
Yet Skilling blamed it all on a �severe liquidity crisis,� not having �enough
dry powder� to cover the explosion that followed his swift resignation as chief
in August 2001, followed a month later by 9/11, an even greater disaster, with
relevance to Skilling�s Enron as we will see.
courtroom witness Dawn Powers Martin, a 22-year veteran at the company�s credit
union called him �a liar, a thief and a drunk� who �cheated me and my daughter
out of our retirement.�
California�s energy disaster also occurred thanks to Skilling�s Enron
�manipulating the power market to make extra money out of California�s energy
crisis . . ." See
the BBC article for the details, including how �wholesale power prices rose
by a factor of 10 and almost bankrupted three major utilities. The meltdown
followed a deregulation of wholesale power which left price caps on consumer
His past ringing in
his ears, Skilling left the court with an electric ankle bracelet under his
trousers to monitor his moves. That is, until the Bureau of Prisons can get him
a room behind bars. Skilling has asked to go to a medium security prison in
Butner, NC. But, after all is said and done, one wonders still, what made
Skilling (sounds like killing) run?
In a February 12,
2001 Business Week cover story,
Skilling presented a short-form �resume� to sum himself up . . .
Jeffrey K. Skilling
Nov. 25, 1953, Pittsburgh
B.S., applied science, Southern Methodist Univ., 1973; Harvard MBA, 1979
President and COO, Enron Corp.; becomes CEO on Feb. 12
At 13, was chief production director for an Aurora (Ill.) TV station
Joined McKinsey & Co. after Harvard and worked with Enron in '87 to create
the first forward market for natural gas
HOW HE'LL CHANGE AS
"I'll probably have to be a little less blunt"
Eight, including at least one from rock climbing. Broke his back while working
one summer on an Illinois highway, which helped him avoid the Vietnam draft
''I've never not been successful in business or work, ever''
Divorced; one daughter, 16, and two sons, 15 and 10.
Well, not exactly
heartwarming. The long-form resume in the Business
Week article noted that as Enron chief Skilling led execs and clients on a
1,000-mile dirt-bike trip through Mexico, returning home black and blue. Was he
crash-prone? Or did the picture of the devil-may-care entrepreneur
Skilling mask the controlling risk-manager who bumped Enron from $4
billion to purportedly $100 billion in revenues?
His Boy Wonder
stint at the Aurora Illinois TV station in a way set the life-scene. He was
hired to paint the walls after school. But, nascent tycoon that he was, he
learned how to run every piece of equipment at the station. One day when the
producer/director left in a huff, the 13-year old stepped in ready to do a
man�s job. In his words, �I liked being successful when I was working and was
smart.� And he wasn�t modest either.
After the Applied
Science degree from Southern Methodist University in Dallas, Skilling worked
for First City National Bank of Houston for two years, in operations then
liability management, portents of things to come. In fact, he had to leave the
bank when it went bust, that is when oil and real estate crashed and upset the
lives of many Skilling colleagues. He credits that catastrophe �for his intense
focus on risk controls at Enron.� The bank �had taken this enormous
concentrated risk and wasn�t able to lay it off.� Exactly what he did a couple
Top of the class,
graduating with his MBA from Harvard in 1979, Skilling joined McKinsey &
Co. in Houston. He alerted execs there to one of his energy clients,
Omaha-based pipeline company InterNorth, that had some overpriced gas contracts
that could mean trouble. With Skilling�s help they came up with the first U.S.
and Houston Natural Gas merged into the good ship Enron in 1985, CEO Ken Lay
hired McKinsey and Skilling to come up with some new products. In 1987,
Skilling offered up the �first forward contracts� in the gas business to nail
For the unanointed,
�first forward contracts� would be as Jim Davis describes in �Speculative Capital,�
pages 2-3, �like a farmer might agree to sell his or her wheat, even before it
is planted, for an agreed upon price, at harvest. The farmer knows the price of
the crop in advance, and is protected from the price of wheat rising or
falling. The farmer has transferred the risk of price changes in wheat to
another party.� In short, it�s a way of hedging (gambling on) price, in this
instance creating �gas futures.�
offered Skilling a job in the start-up trading business. Skilling took it.
He rose to CEO,
outperforming Enron�s asset-development group, which unfortunately for them
turned in smaller returns on expensive overseas power plants. From there, it
was all uphill. �I knew this was big,� he said, �and getting bigger all the
time.� Until it popped, one big gasbag.
But what did
Skilling learn from all this, even as Andy Fastow came to him with many ideas
to make money, mostly with offshore shell companies, to bury money, to make
believe there was money, and to charge it as profit or as liability, as the
wizards felt fit?
Pre-9/11 Insider Trading and Enron
The capper to
Skilling�s Enron schemes comes in a brilliant article by Tom Flocco, with
additional research by Kyle Hence: �Investment
Espionage And The White House�Bush Administration Links To Pre-9/11 Insider
The first thing of note was that �Central Intelligence
Agency (CIA) spokesman Tom Crispell denied that the CIA was monitoring
�real-time,� pre-September 11 stock trading activity within U.S. borders using
such software as the Prosecutor's Management Information System (PROMIS) or the
Echelon satellite monitoring system. However, when asked whether the CIA had
been scrutinizing world financial markets for national security purposes,
Crispell replied, �I have no way of knowing what operations are [being affected
by our assets] outside the country� . . ."
But more to the Enron point, �A January 23, 2002, Houston
Chronicle report revealed that Enron Corporation's top security team, including
four former CIA officers and an ex-FBI agent, left the company to form a
private firm, Secure Solutions International (SSI), while continuing with Enron
via a consulting contract. John W. Presley, the FBI agent now heading SSI could
not be reached for comment. But the team probed a �variety of allegations of
fraud and other kinds of rule-breaking by Enron workers,� according to the
In fact, �Team member and former CIA agent David M.
Cromley's business biography at Enron listed him as Enron's director of
business analysis,� the Chronicle reported, adding that Cromley gave Enron
executives �detailed and unique information� allowing them to make
�investments, sales of assets, joint ventures and [financial] products.�
�But no public information has been forthcoming as to
whether such �detailed and unique information� or sensitive CIA software was
used in conjunction with Enron's controversial off-shore investment products,
or whether their missing assets may have been employed in what former German
Minister of Technology, Andreas von Bulow, estimated at $15 billion in insider
trading profits . . ." Additionally, we find . . .
�An examination of SSI's website reveals that its corporate
members have �managed cutting-edge counterterrorism and counterproliferation
operations for the CIA, implemented advanced technical information and security
programs for the CIA, and conducted a wide range of investigations for the
FBI,� while also �overseeing all security arrangements for several large gas
pipeline companies.�� Looks like one big happy family. But . . .
�It is yet to be determined if Congress will publicly
question CIA Director George Tenent as to whether CIA and FBI employees were �loaned�
to Enron's corporate espionage program, involved in personal pre-9/11 insider
trading, or merely relaying sensitive insider political information to others
involved in prior knowledge of the attacks. . . .
�The fraud-racked Enron Corporation has had at least 20 CIA
agents on the payroll in the last eight years. But while the Houston Chronicle
reported the operatives as �former� CIA, a February 26, 2002, National Enquirer
story quoted a top Washington insider familiar with several secret investigations
into Enron, as reporting that they were given �leaves of absence without pay
and put on the Enron payroll.�� So, either Enron was paying the CIA to spy on
them, or the agency was helping Enron make a buck.
�The source added that Enron's CIA members used �info
gleaned from a satellite project called 'Echelon,' which intercepted emails,
phone calls and faxes with detailed business information,� adding that �pure
and simple, [taxpayer-funded] U.S. intelligence agents were involved in
corporate espionage.� Another Enquirer source with ties to the CIA revealed
that �the cozy deal between Enron and the CIA allowed the 'on-loan' undercover
operatives to return to the Agency's payroll before Enron's collapse.�"
How prescient of them.
Bottom line, it would seem the Skilling-led Enron had their
hands in 9/11 profiteering as well. If you were looking for a ray of redemption
in Skilling�s epitaph, fuhgeddaboudit. Maybe Ken Lay might have something good
to say about him. But excuse me, Lay�s dead. Especially now that his estate�s
been released to the family.
Jerry Mazza is a freelance writer living in New York
City. Reach him at email@example.com.