And they said it is one of a number of paths Skilling is considering in hopes of returning to the industry he knows best. But he abruptly resigned that August, citing personal reasons. By the fall of that year, the company fell into a death spiral sparked by the discovery of accounting irregularities, including questionable deals by Chief Financial Officer Andrew Fastow.
The company also suffered from a plummet in the value of its international assets, and market turmoil following the September 11 attacks. Once the seventh largest U. Congressional committees and a U. Justice Department task force set out to pinpoint blame — including investigating whether Skilling knew about problems at the company before his abrupt departure.
Skilling denied such knowledge. Nonetheless, a federal jury in convicted him on 19 out of 28 criminal counts including fraud, conspiracy, and insider trading. Skilling has steadfastly maintained his innocence — which the sources said remains the case today. Nonetheless, in he agreed to drop his remaining appeals in exchange for the government recommending his sentence be reduced to 14 years.
He ultimately served 12 years before his release in February. Enron Corp headquarters in Houston in Home energy upgrades are now more important than ever. Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber. The account details entered are not currently associated with an Irish Times subscription.
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Surveillance tools like Pegasus should not be for sale. Inside Business. Latest Business. Airbus secures mega-order for narrow-body jets at Dubai Airshow Conglomerates are dead, long live conglomerates But I didn't, and that was my failing — not Enron's failing, no one else's. Instead I embraced it, and I figured that I'd find ways to be good at it. FM: Interesting. So those were your impressions, but I'm also curious to know what you think they thought of you when you first came to the company, maybe initially and after these first deals.
AF: I can't tell you what was in their heads, but they kept giving me promotions and raises and bonuses. FM: So, then what led to the beginnings — the beginning of the end, I guess you could say?
What led to the beginning of the structured financing that you spoke about in your session? What led to the beginning of, I guess, the fraud itself?
AF: It's a little difficult to say when the fraud started because it's better described as the aggregation of all of these deals, which were each maybe technically correct but also misleading. We created something that was monstrously misleading, but any one of those deals alone wasn't necessarily considered fraudulent. The aggregation of the impact of the deals, however, was fraudulent, so I'm not sure at which point we crossed the line, where it became too big and too misleading.
It's a bit of a gray area, but I will say this, and maybe this helps answer the question: When I first started doing these structured financing deals, there was clear economic benefit in doing the deals for the company. It also may be that in addition to the economic benefit, there were financial reporting advantages to doing it. So, the accounting made the company look better, but the underlying transaction had an economic rationale; it made our financing less expensive.
It gave us greater access to capital — something like that. Eventually the deals morphed into transactions that didn't necessarily have economic substance, and that were being done just to be misleading. So, we devolved into doing deals where the intent — the whole purpose of doing the deals — was to be misleading.
Again, the deal technically may have been correct, but it really wasn't because the intent was wrong. And I can't pick the exact point when we crossed the threshold, but there are some deals that stand out as being worse than others in that regard. Now, all of the deals were technically approved by our attorneys and accountants, so if that's your definition of fraud then there was no fraud.
I will say to you that I believe there was fraud. It's oversimplifying, but if a fraud examiner is typically looking for compliance with the rules, the problem in Enron's case is that you had compliance with the rules yet you still had fraud. I think the first thing that happened is even though the deals were technically approved — because the attorneys and accountants said we were following the rules — they were nonetheless misleading.
FM: What was the aggregate impact? You say you could look at each individual deal and not see it, but on a bigger scale what was that? AF: A simple way to say it is that Enron was given an investment grade by credit rating agencies, but in my opinion it wasn't close to investment grade.
It was a junk credit. So, the aggregate impact of the compliant deals was that they were too misleading. The second issue is that we did these deals because there were economic reasons to do the deals: there was a lower cost of financing, or there were other reasons like preserving a tax credit or transferring risk … there was some good reason.
Eventually we were doing transactions just because they altered the financial reporting. So, while the deal may have been technically correct, the intent was not correct at all — that's fraud. FM: So, for a layperson like myself, or some of our fraud examiners who aren't accountants or auditors, can you explain a little bit of the machinations of structured financing and mark-to-market accounting? AF: Well, it's going to be impossible to capture that in an article. This is what I would say. I wouldn't expect the typical fraud examiner to have enough of an auditing or accounting background to be making determinations whether the accounting is correct.
And, in fact, you might conclude the accounting's correct and then where are you? You're back where Enron was. So, it should be other questions that they are thinking about. Like what is the intent of this transaction? Is the intent to be misleading? Or is there some true economic or business benefit for doing this transaction? What was the tone at the top like at Enron? The media painted executives as greedy and money hungry, but what was your impression of the corporate culture when you started at Enron or as you worked your way up?
AF: I think it was a bad corporate culture. People were incentivized to do the wrong things, and senior management, including myself, set very bad examples by the decisions we were making. At Enron, we had the best mission statement and code of conduct and all those things that look great. We had a great human resourcing department that churned this stuff out, but we had an incentive system that incentivized people to do transactions that were good for financial reporting purposes but bad for the long-term value of the company.
And we had senior executives, like myself, who were doing deals that sent a bad ethical message.
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