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ENRON Investigation:

Today's Feature
Senate Governmental Affairs Cmte. - The Enron Collapse: How Did It Happen?
Watch from Thursday January 24

House Energy & Commerce Oversight & Investigations Subcmte. - Destruction of Enron Documents by Arthur Anderson.
Watch from Thursday January 24

Upcoming Hearings:
Senate Energy & Natural Resources Cmte. How Enron's Collapse Is Affecting the Energy Market. Tuesday, January 29 at 9:30am ET

House Energy & Commerce Cmte. Enron's Relationship with Arthur Anderson. Tuesday & Wednesday, January 29 & 30

Senate Commerce Cmte. Hearing on Enron Collapse. Monday, February 4 at 9:30am ET

House Financial Services Cmte. Hearing on Enron Collapse and Andersen's Accounting. Monday, February 4 at 2pm ET

Senate Health, Education & Pensions Cmte. Hearing on Enron Collapse & 401(k) plans. Thursday, February 7 at 9:30am ET

Senate Banking Cmte. Hearing on accounting and investor protection issues surrounding Enron Corporation collapse. Tuesday, February 12 at 10am ET

http://www.c-span.org/enron/index.asp

Complete Transcript House Subcommittee Hearings on the Collapse of Enron

 

 

 

 

 

 

 

 

 http://web.archive.org/web/20020617020702/www.truthout.org/docs_01/02.11A.Enron.Testimony.htm

t r u t h o u t | February 7, 2002

Complete Transcript House Subcommittee Hearings on the Collapse of Enron

Witnesses:
Andrew Fastow, former chief financial officer of Enron
Michael Kopper, former managing director of Enron
Richard Buy, chief risk officer, Enron
Richard A. Causey, chief accounting officer, Enron.
Jeffrey K. Skilling, former chief executive, Enron.
Herbert S. Winokur Jr., chairman and chief executive of Capricorn Holdings.
Robert K. Jaedicke, chairman of Enron's audit committee.

The committee is chaired by Rep. James Greenwood.

REP. GREENWOOD: (Sounds gavel.) Good morning. This hearing of the Oversight and Investigations Subcommittee of the House Energy and Commerce Committee will come to order. And the chair recognizes himself for purposes of an opening statement.

We hearing this morning will be a painful one. We have met to continue our investigation into the collapse of the Enron Corporation. And as our investigations show, and as was borne out by Dean Powers's testimony two days ago, a number of our witnesses today were members of the corporate leadership team at Enron who must bear the greatest weight for its collapse.

Four of the witnesses here today will appear only brief. Messrs. Fastow, Kopper, Causey and Buy will all seek the protection against the danger of self-incrimination guaranteed by the Constitution to every citizen in the Bill of Rights. The duty of this subcommittee is to investigate the facts of the matter surrounding the collapse of Enron to determine what went so horribly wrong that the nation's seventh largest corporation had to seek protection from its creditors by filing for bankruptcy.

And once we have established those facts, we have an obligation to determine how our financial laws and regulations can be improved, so that in the future publicly-traded companies faithfully and completely report their financial actions and their true financial health. This is the only way to ensure that our investor confidence is restored, and that future investors will not suffer the fate of the many thousands who watched with horror as the work of a lifetime was swallowed up, and their life savings disappeared.

The facts uncovered to date seem clear enough. Two days ago we heard extensive and informative testimony from William Powers, dean of the University of Texas School of Law, and chairman of the special investigative committee of Enron's board of directors, who joined the board this past October solely to investigate the transactions between Enron and various partnerships.

Our own investigations into these transactions, along with Dean Powers's illuminating report, carefully detail the complex workings of these related party entities, as they were called. As the workings of these entities and associated schemes, such as Chewco, LJM1, LJM2, the Raptor transactions and Jedi become clearer, they also become more disturbing. In Dean Powers' words, "What we have found is nothing short of appalling."

Mr. Fastow, aided by a number of those witnesses subpoenaed here today, shared in huge fees totaling tens of millions of dollars to arrange and participate in bizarre transactions that were at the least imprudent, and at worst contrary to the very interests of the company, shareholders and investors they were duty bound to serve, apparently plundering millions at the expense of the company and its shareholders. In furthering these transactions, we have also learned they failed to follow the most basic rules of accounting. They also failed to adhere to any of the business tenets designed to avoid conflicts of interests.

In putting numerous deals together, Mr. Fastow and his subordinates managed apparently to represent both sides to a transaction. The Powers report and the dean's personal testimony on Tuesday could not have been any clearer or more firm in conclusion that these transactions were not designed to improve Enron's economic health. On the contrary, these deals magnified Enron's risks, hastening the day of collapse.

Sadly, it is increasingly clear that this collapse was not brought about by the isolated acts of rogue employees. A disaster of this magnitude requires the complicity of far more than a few bad apples. From senior managers to corporate directors to outside counsel and accountants, almost no one who had the power to sound the alarm, correct the situation, or prevent this debacle, did so.

As I stated earlier, four of the individuals who are at the center of these schemes will not testify today. Andrew Fastow, who was Enron's former chief financial officer; Michael Kopper was the former managing director of Enron Global Finance. While both of these individuals have provided some documents to committee investigators, they refused to be interviewed or provide all of the documents in their possession. They also have refused to come before us this morning voluntarily. They have come here under subpoena.

Rick Causey was Enron's chief accounting officer and Rick Buy was Enron's chief risk officer. We received word yesterday that neither of these individuals will testify today. Fortunately, committee investigators have had the opportunity to interview both Mr. Causey and Mr. Buy about these matters over the last month.

But reluctant witnesses will not keep us from getting at the truth. Again, the facts are investigation and Dean Powers' report appear to confirm that Mr. Fastow essentially masterminded the transformation of this company into the derivatives trading giant it was. He devised the transactions that were ostensibly aimed at moving volatile holdings off of Enron's books -- deals we understand now to have been fraudulent.

Mr. Kopper served as his chief lieutenant. He became the general partner of Chewco, whose mysterious dealings accounted for the single largest portion of Enron's financial restatements last November. Mr. Kopper also served as general manager of Mr. Fastow's two LJM partnerships.

Even without the testimony of Fastow, Kopper, Causey and Buy, we will still be able to get some important answers today. To this end, other witnesses today will include Enron officials who had dealings with Fastow and Kopper, and who attempted to alert others in Enron's senior management about the danger these deals represented to the company. We will also hear from Tom Bauer, the Andersen audit partner who worked on the Chewco transactions, who is expected to describe what Enron did and did not disclose about this highly troubling transaction.

Our last panel is comprised of senior Enron officers and directors who approved these partnerships and transactions, and who were responsible for ensuring the fairness and the appropriateness of the transactions in question. Their role in this, for good or ill, also needs to be established, and we want to give them the opportunity to speak for themselves. We will hear much talk today of such things as derivatives, the practice of hedging, and why certain transactions go on the books and others remain undisclosed. We will also learn more than any congressional committee to date on the murkiest of dealings Enron operatives engaged in.

We have before Congress for the first time a collection of the senior Enron players who knew why decisions were made, why the company chose to pursue this ill-fated course, what the company knew about the risks involved, and why they chose to act or not act the way they did. What we learn today I am confident will help this committee continue to construct a full and accurate picture for the public of what happened to cause this financial personal and corporate tragedy.

One final note. Like many Americans, I have tried to keep some perspective on this whole tawdry affair, to provide some perspective as well. The truth is that this story of financial collapse and betrayal is of epoch proportions. It is almost biblical in scope. So perhaps we need to look beyond all the gritty details of avarice and appetite to a larger lesson that all of us can share. In the Eleventh Chapter of the Book of Proverbs, the authors offer these prophetic words: "He that troubleth his own house will inherit the wind, and the fool will be a servant to the wise in heart." Perhaps that is the true lesson of Enron's failure.

I now recognize the ranking member of this subcommittee, Mr. Deutsch, the gentleman from Florida, for an opening statement.

REP. PETER DEUTSCH (D-FL): Thank you, Mr. Chairman. You know, our work here I think all of us at this point have a sense is much more important than really the specifics of this transaction, because we have benefited everyone in this room, everyone in this country, everyone in the world, of a system of transportation in capital markets that has really gained incalculable results. And I think what we have learned -- and we know more than we did a week ago or two weeks ago -- is that Enron -- the system failed, Enron failed, but the system also failed, because stockholders, the public, did not know what was going on in the company. And the statements did not fairly represent what the company was doing. And it was absolutely certain that was done with intent.

We have had a number of staff -- maybe up to 20 staff people -- try to unravel Enron, and obviously the SEC is working on this as well as the Justice Department. And we had a members meeting with staff yesterday evening where we were briefed. And one of the things that I asked the staff -- apparently there are about 4,000 partnerships -- I'm sure many of the people here could know the exact number. But there were 4,000 partnerships that Enron did. And I asked the staff to try to explain one of them to us of the 4,000, that maybe we can understand one, and just understand what was there. So I am going to try -- and I asked them for a relatively easy one -- maybe the easiest one. All right, this is what they have described as maybe the easiest one.

It's the LJM Rhythms transaction structure. And it started out as a normal transaction. Enron made an investment, an IPO, with Rhythms Net, an initial investment of $10 million. That investment then grew to a value of about $400 million. Enron had a lock-out provision in the IPO that they could not sell the stock. So Enron had a reason to try to lock in the stock price. That's a legitimate business transaction. So they were attempting to buy a put at the strike price. But as opposed to going to Goldman Sachs, what Enron did, and, Mr. Fastow, what you did, is you set up LJM Limited Partnership to sell the put to Enron. And what happened was Enron capitalized LJM partnerships with a value of about $200 million of Enron stock. As soon as that occurred, Mr. Fastow, who won't testify today, took a $30 million management fee as a general partner of LJM Partnership, at the same time he was chief financial officer or management -- as part of the management of Enron.

Right? Now, what happened was actually that partnership then set up a subsidiary which sold the put to Enron. But what happened to the stock value is it kept going down. And as it was going down, Enron kept putting stock into the general partnership. Why we believe this is illegal is that as opposed to buying a derivative from Goldman Sachs, where it would be an arms-length transaction, and the risk would be borne by Goldman Sachs, and they would have a true fee between them, there was no risk for the partnership, because it was guaranteed by Enron stock. And so the $400 million in gain that was attempted to be locked in, that stayed on the books of Enron, so anyone who wanted to try to understand what was going on in Enron would look at the books and see a $400 million gain, but effectively there was no gain. I mean, this is a scam. This is one of 4,000 scams. It's one of the simpler scams. But, again, our understanding is it wasn't just smart, it wasn't just around the edges -- it was in fact fraud. It was a criminal violation.

And I think what we are learning as we learn more and more -- and hopefully Enron is the exception in America -- that the case of Enron -- and I hope someone is going to try to defend this today, because you know I think I want to understand maybe there's another story that we haven't heard from our staff. Maybe there's another explanation which we don't understand. But what -- you know, hopefully Enron is in fact the exception in corporate America, that this is -- the corporation that is doing this is not living on the edge, looking for the gray area, but engaging in illegal activity, is engaged in fraudulent transactions.

And one analogy that I have mentioned at at least one other hearing that I will mention again today -- I keep reminding myself of the scene in "The Godfather" movie where Tom Hogan, who is the attorney for the godfather has a meeting with the godfather, and the godfather tells him, "Just remember, you can always steal more with a briefcase than with a gun." And I think what we have here is a case where literally about $4 billion was stolen from people. And it was stolen, unfortunately, from people, from real people, thousands of whom are suffering. And, again, you know, I've read biographies of half the people on the panel who are going to testify and not testify today, and I am sure -- you know, you are going to have to live with yourselves, regardless of the consequences of what happens with all these investigations.

But I will tell you on a personal basis as I look at this is that I hope you, in the dark night of your own souls, think about some of the people who in fact throughout the country, but particularly in the area of Texas, who literally lost their entire life savings, and whose lives effectively in many ways is destroyed because of your actions. Thank you, Mr. Chairman.

REP. GREENWOOD: The chair thanks the gentleman, and recognizes the chairman of the full committee, the gentleman from Louisiana, Mr. Tauzin.

REP. BILLY TAUZIN (R-LA): Thank you, Chairman Greenwood. And once again, let me express my gratitude to you, Jim, and to you, Peter, for the extraordinary way in which the subcommittee has conducted its business and has gone about this investigation. And I would be remiss if I did not once again thank my good friend, Mr. Dingell, the ranking member of our committee, for the again extraordinary cooperation we are getting on both sides of the aisle in this investigation. Other committees may be proceeding in a partisan, political manner, looking at this manner. I hope Americans recognize the extraordinary way the Democrat and Republican investigative team on this committee and our members are working together to try to get to the truth here. And I thank you again, Mr. Dingell, for that cooperation and that effort.

REP. JOHN DINGELL (D-MI): Thank you, Mr. Chairman.

REP. TAUZIN: We're getting close to the bottom of this collapse and this mess, and I believe the solid progress this week will help us tremendously as we determine not only what happened but what we in turn can do to assure that something like this doesn't happen again. We look forward this morning, of course, to the second portion of our hearing into the fraudulent transactions that brought this corporation down.

This past Tuesday, we heard a devastating report from the inside of the corporation, from the chairman of Enron's on investigative committee. This report outlined the extraordinary story of self- dealing, of deception, of bogus statements, of irresponsible management, and indeed, I believe, of outright fraud. And I say outlined because Dean Powers, in his report, did not have the ability, as the committee does, to compel the production of documents or testimony, and it was limited in scope. But it certainly reinforced the very troubling information we've been unearthing in this investigation.

I think it's epitomized by one little line in the first memo that one of our witnesses, Jordan Mintz, wrote on January 4th. And I quote, "Nicole has advised that if there is a general theme or guideline to follow in the preparation process of all these deals, it is to be as innocuous as possible in terms of descriptions, details, et cetera."

Despite all the complicated dealings and cross-dealings and self-dealing we are learning about, I still believe what we have before us is a simple story -- the simple story of old fashioned theft and explicable acts -- inexplicable acts -- that allow the perps to get away and to destroy the company. We know that the senior Enron employees who controlled these transactions -- Chewco, LJM-I and LJM- II, the Raptors and so many others -- participated in self-enrichment schemes at the expense of the company, and the shareholders, and its own employees.

And yet these schemes could have been stopped with proper oversight by certain senior executives, a few of whom are with us today. Absent their taken action, matters could have been put right by Enron directors who were ultimately responsible for the health of the company and the interests of the shareholders, but that didn't happen.

They allowed the CFO to work both sides of the negotiating table. They enabled him to participate in his own risky high-return transactions by effectively insulated him from the risk, and this assured his ability to take away tens of millions of dollars, and ensure that Enron would be on even more shaky ground as it ensured more risk and even riskier proposals. They allowed sweetheart deals -- literally -- as we've recently discovered, to take place among senior employees. And they allowed a fraud to be perpetrated on the shareholders. And they told the shareholders that the company was making money that it was actually losing, so the stock price would remain high -- so senior officers could sell of their shares and make millions, while the vast majority of the workers would be left holding empty pocketbooks.

Be sure the accountants and legal advisors assisted, wittingly or unwittingly, in the sham transactions. And we will have the opportunity to see how we might resolve some of those perverse incentives that allowed that to happen.

This morning, however, we have the opportunity to question several of the principals that could have prevented this collapse. They have a lot to answer for. We also have a couple of senior officers who attempted to alert those charged with policing those deals to no avail. That's a good story. We'll hear from some good officers in the company who smelled a cancer growing inside and tried to do something about it. We'll be able to explore today why they failed.

For example, we'll have before us Jordan Mintz, the current general counsel for Enron Global Development. He attempted to get then Enron president and CEO Jeff Skilling to sign deal approval sheets as was required, but he couldn't get Mr. Skilling to sign them. We're going to ask Mr. Skilling today about that, and we'll find out why those sheets were not signed -- why they were signed by everybody else but him. We'll have Enron board members, and we can ask them about the oversight of these transactions.

And finally, we have former CFO Andrew Fastow, and former managing director of Enron Global Finance, Michael Kopper -- who, any way you look at it, stood at the very center of these schemes. Now, they make take the Fifth Amendment today, and they have the right to do so, and we certainly respect that, but as the chairman said, we have other means of getting to the bottom of this thing. Our investigators are doing that. We are doing it in a deliberative, bipartisan way, and we're going to make it available to the American public as we try to not only unravel what went wrong here, but try to make sure again that it doesn't happen again to any other American company or to its employees, or to those who believe in the system by which investors can trust information upon which they make the judgments when buying and selling stock in this country.

We've got a big job to do. Today's a big step. And Mr. Chairman, again I want to thank you for the diligent, extraordinary work you and your minority member are doing for the full committee. And again, I want to thank Mr. Dingell for his extraordinary cooperation.

Thank you.

REP. GREENWOOD: I thank the chairman. Mr. Dingell.

REP. DINGELL: Mr. Chairman, I thank you. And I want to reiterate the words of our chairman, Mr. Tauzin, that this is a bipartisan investigation, and in it we will work together to get to the bottom of this sorry mess. And I want to commend Mr. Tauzin, the chairman of the committee, and also the chairman of the subcommittee for their labors in this and the staff which has worked together splendidly to bring us to where we are today.

We had hoped today that for the first time in this long investigation of Enron and the sorry matters associated with it, that we would hear directly from the people who created the partnerships, that brought Enron crashing down while they made millions of dollars for themselves. We had hoped to hear how all this had happened. We had hoped to hear what these people thought about the loss of jobs of thousands of employees, and the wiping out of the savings and retirement of thousands of more employees, retirees and investors. Pension funds and general investors in the market all have suffered because of the deceit, this behavior, grasping self-dealing, wrongdoing in the most scoundrelly and improper fashion.

But I note with some distress that most of the key players are staying silent, for what appears to be good reason. We know from the Powers Report that key executives misbehaved and that others claim to have been clueless about the wrongdoing that was going on. This leaves them with the unfortunate choice as to whether they were incompetent or corrupt -- or perhaps both. Clearly there's room that we can come to all of the above judgments, and it's pretty hard to find anybody in this nasty mess to be a person of innocence and character.

For years, they at Enron had played fast and loose with their numbers, with their ethics, with their public representations, and with their fiduciary duty to the shareholders. As long as the earnings and the stock went up, everyone was happy and no one needed to know exactly how these numbers were created. Enron's culture, moreover, discouraged anyone from raising objections. For employees, bonuses and their very jobs depended on being team players. The infamous rank and yank system that got rid of the bottom 10 percent of all employees every year could be and was manipulated to get rid of anyone who caused trouble.

Enron's executive suite seemed to be the personal sandbox of a group of golden boys who had been clever enough to structure financial vehicles that would take debt and losing assets off the books and turn them miraculously into income. It is interesting to note that lawyers, accountants, officers of the company, and others all profited from this.

Mr. Fastow, who almost got yanked because of his inability to achieve real earnings in one of Enron's energy divisions, became a star by creating false earnings when he could not create real earnings. Favoritism and chaos reigned in his Global Finance division, where people with insider information and paychecks from Enron got their bonuses from LJM-II for negotiating contracts for Mr. Fastow's and Mr. Kopper's partnerships with other Enron employees. If the Enron negotiators were too tough, they sometimes got personal calls from Mr. Fastow. Two people who were engaged to be married were negotiating against each other. Picture that if you please. One of them actually got a $60,000 payment from one of Mr. Kopper's partnerships for structuring a deal.

Mr. Skilling, the company's president and chief executive officer, was warned about the problems these partnerships were causing in the office. He did nothing except to find another job for the complainer.

Why (?) did others in positions of authority distinguish themselves? There were very few innocent parties in the board rooms and the executive suites at Enron. The board of directors approved these related party transactions because they were fast and cheap. In other words, debt and assets could be moved around quickly and Enron wouldn't have to pay investment bank fees. Then senior management and the board gave transactions to the company's chief financial officer because he would know where to find investors. That, as a former Securities and Exchange Commissioner said recently, a CFO, of all people, has to have an undivided loyalty to the company. We will inquire, as this go forward, as to where the loyalty here lay.

Such a structure is a recipe for disaster, and a disaster is clearly what followed. Enron, the seventh largest company in the nation, a darling of Wall Street, a public held company, failed, taking with it the incomes, the savings, the hopes, the aspirations, the dreams of its employees and its retirees. This committee and this Congress has a duty to find out what happened and to take all necessary action to correct the situation and to prevent the repetition of such a sorry, stinking mess. We may find the scandal is not only what was illegal. A greater scandal may very well be what was legal.

Mr. Chairman, I thank you.

REP. GREENWOOD: I thank the ranking member of the full committee. The gentleman from Florida, Mr. Bilirakis.

REP. BILIRAKIS (R-FL): Thank you, Mr. Chairman. We have a vote on the floor. I won't take long. I do not have prepared remarks. And the others before me and those after me will have gone into many of the details, which --

REP. DINGELL: Mr. Chairman, could I just note --

REP. GREENWOOD: Yes.

REP. DINGELL: -- if you please, one thing. There are a group of Enron employees here, hoping for justice, looking to see what has transpired, and watching the debates and the considerations of this matter by the committee with considerable interest, and I thank you for that. They're back against the wall over here.

REP. GREENWOOD: And I thank the ranking member. The gentleman from Florida will continue.

REP. BILIRAKIS: Well, thank you. You know, we sit in these hearings, Mr. Chairman, and I just wonder if, particularly the executives of Enron and the executives of the auditors, realize what they have done -- what they have done to, certainly to people, to stockholders, to employees of Enron, to America -- to those of us, really, who have always believed in the system, as Mr. Tauzin said, in the business community, in the concept that it takes employers to have employees. You're really shattering the strength that you have always had among those of us who feel very strongly and believe very strongly in the system.

And I realize -- I can't imagine that you don't realize what you've done. And on the other hand, with the apparent type of mindsets that may many of you must possess to have done what you have, maybe you really don't realize what you have done. You know, it took terrorists from other countries to tear this country and really the world asunder, and yet we have fellow Americans who have accomplished something that's almost as bad when we take into consideration what it's doing to the stock markets, what it's doing in confidence and faith of the American people in the system and in auditors particularly, and in the corporate community. There's a lot of anger here. And I just hope that you all realize that, and you realize that you have brought about that anger.

Having said that, Mr. Chairman, I yield back. Thank you.

REP. GREENWOOD: I thank the gentleman. The chair would like to advise the visitors and the participants here today that a vote is occurring on the floor of the house, and members have had to move over to the House floor to make that vote, but we'll continue the process of the opening statements so we can get to the witnesses as rapidly as possible. The chair recognizes at this point the vice chairman of the full committee, the gentleman from North Carolina, the distinguished Mr. Burr.

REP. RICHARD BURR (R-NC): I thank the chair. The chairman, Mr. Greenwood, said earlier that this was a painful hearing. I agree totally with that. This is also a sick hearing. It's a sick hearing because of the individuals. It's a sick hearing because investors are sick of the lack of transparency that existed in the Enron books. America is sick that greed drove decisions with no regard for the human lives that were affected by it. And today's pain is magnified even greater by the decision of some to say nothing.

I believe that there are individuals that will be asked to testify in front of this committee and have testified in front of this committee that believe, by remaining silent, that the anger will die or that we will go away or that America will forget. For those who have chosen that route, let me assure you, the anger will not die, we will not go away, and America will not forget what has happened.

Mr. Chairman, in its heyday, Enron ran a television ad, and its commercial touted their innovative corporation. I now know what that meant. But the Enron ad went on to show the Enron logo at the end, and it said, "Why? Why? Why?" You know, today we're here with the same logo and the same question: Why? Why? Why?

Mr. Chairman, I want to commend you for not only the subcommittee but the full committee's commitment to get the answers to the question, why, why, why. I yield back.

REP. GREENWOOD: The chair will gladly yield the gentleman as much time as he chooses. But in the absence of other members prepared to make opening statements now, we're going to suspend for at least five minutes until the next member is with us.

(Recess.)

REP. GREENWOOD: The committee will come to order. The guests will please be seated. The chair recognizes the gentlelady from Colorado for five minutes for an opening statement.

REP. DIANA DEGETTE (D-CO): Thank you, Mr. Chairman. And I want to thank both you and the chairman of the full committee and Mr. Dingell also for these unprecedented last couple of weeks. We've received a crash course in corporate management, special-purpose entities and auditing and accounting practices.

This debacle has been a sobering revelation of the dark side of arrogance, greed and apparent disdain for legitimate public safeguards. I understand we have a number of Enron employees here today, and I will assure each and every one of you that we will get to the bottom of this. We will find what happened and we will make sure it never happens again, to the best of our ability.

By the time we finish this investigation, Enron may be the most analyzed, dissected and discussed corporation in history. I don't think any of us like what we've seen. I wonder about the mindset, for example, that allowed sketchy partnerships to be created, rife with conflicts of interest which are undisclosed. I've tried to conceptualize decisions that allowed lower-level employees, like the folks here today, to lose their life savings while senior executives walked away with millions of dollars without seemingly doing anything for that money.

I've come to realize that there are some people who think they are smarter than the system and are willing to risk what is not theirs for personal gain. And I'm shocked by the apparent ambivalence at best by a board of directors who somehow seems to feel that when employees and officers are self-dealing, that these same people, the fox is guarding the hen house, should somehow come to the board and independently give this information to the board rather than the board ferreting out, which I think is their fiduciary duty.

Mr. Chairman, I have a long opening statement here, but I think I'd rather get to what the witnesses have to say. And so I'd ask unanimous consent to submit the whole opening statement for the record, and I'll yield back the balance of my time.

REP. GREENWOOD: Without objection, the statement of the gentlelady in its entirety will be incorporated into the record.

The chair recognizes, for purposes of an opening statement, the gentleman from Florida, Mr. Stearns.

REP. CLIFF STEARNS (R-FL): Thank you, Mr. Chairman. And let me again compliment you and the staff for a very thorough job here investigating something that, as we look into it more deeply, gets worse and worse.

When you look at the presentation that Mr. Deutsch provided, it's probably a little complicated to most Americans. But I would give the analogy -- it's basically the analogy of these special-purpose entities; Enron was putting money in their right pocket of approximately, let's say, $10, and then pulling out a fictitious amount of $400 out of their left pocket and calling that income.

Obviously, this is a case of failure to disclose. It'll be up to the Justice Department to prosecute this and to ferret out all the details. What we can do today, though, is to bring attention to this type of operation. When the Securities Act of 1933 was passed, the whole intent was that these individuals would provide disclosure.

My colleagues, in capitalism, in a free market, unless there is a sense of compunction, a sense of consciousness, we can legislate till hell freezes over and we won't be successful. It's dependent upon men and women to put forth some honesty, and obviously it was not here.

I was alarmed to read in the Wall Street Journal that the top executives at Enron shielded their pension benefits. It wiped out the retirement saving of its workers. But they had the gall, the unmitigated gall, to have financial dealings where, for example, Enron Chairman Kenneth Lay used a private partnership to protect millions of dollars worth of executive pension benefits. So the more we look into this, the more appalling it gets.

I imagine we're going to encounter today from Mr. Skilling what's caused plausible deniability regarding his role or knowledge of these transactions. However, I believe you'll find this panel extremely skeptical, as our investigation has uncovered numerous warnings, some directly reporting -- that were reported to Mr. Skilling as to the problems with the various transactions. We have the Watkins memo to Ken Lay in August, which also mentioned former executive Cliff Baxter's conversation to Skilling regarding these transactions.

We also have before us Mr. McMahon, former treasurer, now president and COO of Enron, who also repeatedly raised concerns, and Jordan Mintz, former general counsel of Enron Global Finance and current general counsel of Enron Global Development, who also raised concerns. There are plenty of flags. People were just denying the facts.

Arthur Andersen, in its role, appeared to have acquiesced in these dealings, despite concerns raised internally in a February 2001 memo. And again, I'd like to quote, as the chairman has, both the chairman of the full committee and the chairman of the Oversight Committee, from the Powers report that these transactions consisted of, quote, "a flawed idea, self-enrichment by employees, inadequately- designed controls, poor implementation, inattentive oversight," end quote.

We are indeed uncovering more and more information. Unfortunately, many of the folks today will use the Fifth Amendment, which they're entitled to do. But that leaves a general impression that something occurred here which was wrong, and they're afraid to incriminate themselves.

I would close, Mr. Chairman, by saying that something is going on here in space and time and that we, as members of Congress, have a fiduciary responsibility to ferret out the details and facts for the American people, and it's an awesome responsibility. And I yield back.

REP. GREENWOOD: The chair thanks the gentleman and recognizes, for an opening statement, the gentleman from Louisiana, Mr. John.

REP. CHRIS JOHN (D-LA): Thank you, Mr. Chairman. On Tuesday, this committee had a real opportunity to review and discuss the Powers report. It provided the subcommittee with at least a little glimpse of the questionable and, more likely, criminal activity that contributed to Enron's financial collapse. Yesterday the full committee had an opportunity to hear from experts in the auditing and accounting fields about what can we learn from the lessons at Enron.

Today, however, is the main event. While it appears that most of us will learn from the first three panels at most their ability to recite the Fifth Amendment, I'm hoping that the remaining witnesses can shed a little more light in the numerous partnerships and transactions and businesses with Enron.

It is important to remember, from a committee standpoint, that we, the members, do not sit as prosecutors, judges, jury members, in determining the guilt or innocence of our panelists. I have confidence in the ability of the U.S. Department of Justice to pursue justice of what clearly to me appears to be securities fraud, insider trading and obstruction of justice.

Illegal and unethical conduct of Enron officers and managers is an important component in our congressional investigation. But it is the legal loopholes and business practices of companies, exemplified by Enron's use of, quote, "aggressive accounting" that I feel is our primary charge of this subcommittee.

We cannot protect against every bad actor in corporate America who decides to willfully break the law, although we can make sure that the tools are available to regulators so that we can catch them. We can, however, make sure that shareholders and investors are not misled by inadequate disclosure, conflicts of interest, or -- may I quote from the Powers report -- "walking conflicts of interest," and a lack of independence in the performance of auditing functions.

Mr. Chairman, I believe today that we have the architects of Enron's house of cards. And I'm eager to hear from Mr. Skilling, and others, their views and their roles in the eventual collapse. The Powers report concluded that many of the partnerships created by the first three witnesses were, from the very beginning, fraudulently created because they transferred no risk and were designed for the very sole purpose of shifting debts and liabilities off balance sheets.

Worse still, these related party transactions allowed Mr. Fastow and others to enrich themselves with extraordinary compensation packages, which hardly seemed to justify, since these are the very transactions that were created and that created the chain reaction that destroyed the company, the seventh-largest company and the largest bankruptcy in the history of America.

I do not wish to paint all of the witnesses with one and the same broad brush. Mr. Mintz, for example, had the good sense to recognize a conflict of interest by Enron employees serving in positions in both the company of Enron and the partnerships, one of which was LJM, and made efforts many times to raise these concerns. Perhaps he can explain -- and I am eager to hear from him -- to the subcommittee why so few others appear to have recognized or expressed the same interest.

Mr. Chairman, no one on this committee wants to see the repeat of the events that brought down Enron. Hindsight often gives us 20/20 vision in many things that we do. And our challenge is to use these lessons that we will learn to make sure that there is no repeat performance in corporate America.

Our efforts will not restore the retirement savings of Enron employees who watched their 401(k) plans evaporate, nor will it return investors billions of dollars in equity that disappeared in a very, very few short months. However, with your continued leadership, Mr. Chairman, and the chairmen of our subcommittees, we can get to the bottom of this mess and take legislative action that this will never happen again.

With that, I yield back the balance of my time so that we can hear from the people the Powers report identifies as largely responsible for this American corporate disaster. Thank you, Mr. Chairman.

REP. GREENWOOD: The chair thanks the gentleman and recognizes, for an opening statement, the gentleman from New Hampshire, Mr. Bass.

REP. CHARLES BASS (R-NH): Thank you, Mr. Chairman. And I will be brief. We've had a series of hearings on this issue. We've become educated. The more we learn, the more nauseating the whole story becomes. There are issues of insider trading, non-disclosure, potential obstruction of justice, irregular accounting practices, and the list goes on.

A number of the witnesses will take the First Amendment today -- Fifth Amendment today, which is understandable. One, Mr. Skilling, will testify. I suspect that, as he said in a December interview, that what happened to Enron was a, quote, "tragedy," but not one for which he was responsible. He said in this interview, quote, "I didn't do anything wrong."

Well, I don't know whether ethics or immorality or cruelty or inhumanity are really right or wrong. I think they are wrong. I hope that after we get beyond the question of who wrote what memo to who, who put whose signature on a memo, the complexity of all the transactions are finally bared, for the horrible truth becomes evident, we really ask as a committee how much illegality occurred, firstly; and, secondly, what we can do as a full committee to make sure that this tragedy perpetrated by these business cowboys never happens again. I appreciate this hearing process. I think it's going to be long -- difficult -- but ultimately I think the investment world will be better off and the capital markets will be more reliable and honest as a result of our efforts today and in the days to come.

I yield back.

REP. GREENWOOD: The chair thanks the gentleman and recognizes for an opening statement the gentleman from Illinois, Mr. Rush.

REP. BOBBY RUSH (D-IL): Thank you, Mr. Chairman, for what has been the third hearing this week on this particular matter.

Before I begin I want to call your attention and the attention of the members of this committee that present in the room today we have one of the world's most outstanding citizens, a man whom I have known for many, many years -- for decades even -- a man who has played a pivotal role in my life on more than one occasion -- a man who is now fighting for the Enron employee, the Reverend Jesse L. Jackson. So would you please acknowledge him, Mr. Chairman, that Reverend Jackson is in the room with us today.

REP. GREENWOOD: The chair welcomes the gentleman, Mr. Jackson, to our proceedings this morning.

REP. RUSH: Mr. Chairman, I want to thank you for holding this hearing -- and I intend to be brief.

I understand those of you who have come under the most public scrutiny intend to avoid questioning this morning. And for those of you who refuse to testify and know your guilt, I ask you, Was it worth it? Was the selling of your morals worth it? Was the selling of your souls worth it?

In my state alone, the state of Illinois, state pensions plans lost a total of $34 million out of total of $1.4 billion nationwide that was lost. This was money, hard-earned money, set aside to provide secure retirement for thousands of citizens who have dedicated their lives to public service. These are the teachers who help raise our children and educate our children. These are the police officers who patrol our streets and protect our families and our homes. These are public servants who keep our cities and our towns and our villages running on a day-to-day basis.

The money in these pensions were supposed to fulfill these workers' hopes and their dreams, and provide a secure retirement for them. This morning, millions of dreams have been deferred, if not lost. This very morning millions of dreams have been denied. Parents are anguishing over how they will afford their children's education. Elderly workers are being forced to put off retirement indefinitely. And America's sense of financial security has been shaken at its very core.

Mr. Chairman, more than having these men explain their actions to the nation, more than making sure that the guilty are punished, this hearing is about returning the financial stability and sense of economic interest and security to our nation.

Just as the World Trade Center bombers have shaken the sense of personal security for millions of Americans, the Enron catastrophe has left our public without a sense of economic security. At the center of this economic meltdown, we find a handful of economic terrorists. But unlike most terrorists who base their actions on twisted and perverse ideals of justice and righteousness, the economic terrorists at Enron had one cause: selfishness and greed.

So, as we begin today's hearing, I ask each of you who profited from the downfall of thousands whether it was worth it. I suspect that some of you may answer yes. However, I sincerely hope that you live long enough to regret that particular sentiment. Thank you, Mr. Chairman. I yield back the balance of my time.

REP. GREENWOOD: The chair thanks the gentleman and recognizes for purposes of an opening statement the gentleman from Oklahoma, Mr. Largent.

REP. STEVE LARGENT (R-OK): Thank you, Mr. Chairman. I too will be brief in an effort to move this hearing forward and try to bring a little perspective and balance to my comments here.

Mr. Chairman, as you know, last night we prepared for this subcommittee hearing. Our subcommittee and staff met about six o'clock last night, and I was particularly impressed by some comments that you made that I felt like really brought some focus for the purpose and intention of this hearing. It's not a time for us to demagogue, although there is a lot of that going on, or even to prosecute -- that's up to the Justice Department to figure out what laws currently on the books have been broken, and I am sure that they will do a competent job of that.

But, rather, the purpose for this hearing is to find out the laws that were not broken, but the things that were done in this Enron debacle that were legal but perhaps shouldn't be. And I think that is the purpose of this hearing. And I look forward to hearing the testimony of the folks who are on the panels today, so that we can find out and help prevent perhaps through the passage of additional laws that are not on the books but should be. And so, Mr. Chairman, with that, I thank you for holding this hearing and I look forward to the testimony and yield back my time.

REP. GREENWOOD: The chair thanks the gentleman and agrees with him, and recognizes for an opening statement the gentleman from Michigan, Mr. Stupak.

REP. BART STUPAK (D-MI): Thank you, Mr. Chairman. Over the past several weeks we have held numerous hearings to explore this house of cars that was once the muddy Enron Corporation. Yesterday we heard from a panel of experts who walked us through the accounting principles; the legal, ethical and moral principles that should be adhered to in corporate America.

In the past we have heard from Andersen employees about the shredding of documents and the destruction of e-mail that went on in an effort I am sure to cover up this whole mess. We have heard from Mr. Powers about his commission finding, and the actions of several Enron employees to set up special purpose entities to assist in cooking the books at Enron. We've heard and read about the totally lax oversight by Mr. Lay, Mr. Skilling and other executives on Enron's board of directors.

Enron's board of directors gave dangerous flexibility to Mr. Fastow in allowing him to establish several of these special purpose entities. They, the board of directors, supposedly put in a number of checks and balances in place when they waived their conflict of interests provisions. But thus far all the checks we have seen, tens and millions of dollars worth, went into bank accounts of Mr. Fastow and others.

There certainly were -- there certainly were no checks or balances in the equations, and no follow-up to make sure the company wasn't being bilked. We've learned new terms, like "aggressive accounting," which in this case translates, I believe, into making individuals richer while we stick it to the shareholders and the workers. I'm glad to see some of the Enron workers here today who gave so much and lost so much.

This new aggressive accounting I believe is a result of a new cavalier attitude in corporate America since the passage of the Securities Litigation Reform Act of 1995, or as some of us refer to it, "The Securities Rip-Off Litigation."

As I look at all that's happened, this new law, what it does -- it insulates corporations from legal actions by putting up roadblocks so employees and stockholders cannot take legal actions when the books have been stacked against them.

Mr. Chairman, it will be difficult, if not impossible, for Enron to reemerge as a credible company from bankruptcy without a comprehensive and complete purging of all Enron executives and board members who were at the helm during this whole debacle. They must be held accountable. And I hope the shareholders and the employees of Enron will do themselves a favor and get a true board of directors and new management team.

Mr. Chairman, I could go on with my statement, but I am going to yield back the balance of my time, because I am really interested to see who is going to testify, who is not going to, and look forward to the questioning and cross-examination. I appreciate your leadership in this whole matter. We spent a lot of time together in the last couple of weeks, and look forward to continuing on this Enron mess. Thank you.

REP. GREENWOOD: The chair thanks the gentleman. And we are almost there. The chair recognizes the gentleman from Ohio, Mr. Strickland, for an opening statement.

SEN. TED STRICKLAND (D-OH): Thank you, Mr. Chairman. Today we are taking an in-depth look at the corporate thievery and greed that resulted in the collapse of Enron. Thousands of people lost their jobs sand their retirement savings. Investors and shareholders lost billions in debt and equity. Plans and dreams of these people have gone up in smoke.

The American people have lost faith in the stock market, because they don't know if they can believe what publicly-held companies and their auditors are telling them about profits and losses. Enron's earnings weren't real, because they used financing and accounting sleights of hand so complex that even sophisticated analysts could not read them. Some of the people most responsible for this disaster are before us today and will take the Fifth Amendment. They are the ones who violated their fiduciary duty to Enron shareholders. But apparently they are seeking even more. According to the press yesterday, Mr. Causey and Mr. Buy are currently negotiating their severance packages from Enron, as is Kenneth Lay, the former president.

Let's review for a moment how some of these people have already benefited from their Enron stock, in addition to their most generous salaries. Mr. Causey, who was the chief accounting officer, has cashed out to the tune of $13.3 million. Mr. Buy received over $7 million in proceeds in 2001 alone. Kenneth Lay, Enron's former chairman and chief executive officer, made $18 million in salary and compensation in 2000, and received over $100 million in stock sale proceeds. He promised last year that he would give up his 60.6 million (dollars) severance package. But now he wants a severance package also it seems. Mr. Skilling, who took out 67 million in profits, plus his generous salary, got a consulting contract with Enron when he left. We will want to know more about his severance package today. Mr. Fastow got only 30 million (dollars) in stock proceeds from Enron, but he took another 30 million out with his side deals. Mr. Kopper got at least 10 million (dollars).

Over 4,000 former Enron employees who lost their jobs in the Enron debacle were given for the most part $4,500 in severance pay to get through the transition period. Some of them are in dire straits, as are a number of people with pension plans heavily invested in Enron stock. I think it would be appropriate to provide Mr. Lay, Mr. Causey and Mr. Buy each with $4,500 in severance pay to help them through the transition period. Any additional claims they may have should be part of the thousands of claims of the uninsured creditors that the bankruptcy court will handle. One cent on the dollar might be an appropriate recovery.

Whether the actions we've uncovered are illegal or legal will be determined. But we do know they were certainly unethical and immoral. Now, perhaps that's not important to the Enron business executives who have tried to walk away, embarrassed but rich. But it is important to the American people, and it must be important to those of us who were elected to represent the people. Consequently, we must do everything, Mr. Chairman, to see that whatever is necessary is done to see that such happenings never happen again. Thank you.

REP. GREENWOOD: The chair thanks the gentleman, and now calls forward our first witness. Our first witness is Mr. Andrew S. Fastow, former chief financial officer, Enron Corporation. Mr. Fastow is here pursuant to a subpoena served earlier this week. Mr. Fastow, if you will please be seated at the table. Mr. Fastow, you are aware that the committee is holding an investigative hearing, and when doing so has had the practice of taking testimony under oath. Do you have any objection to testifying under oath?

MR. FASTOW: No, sir, I do not.

REP. GREENWOOD: Thank you. The chair then also advises you that under the rules of the House and the rules of the committee you are entitled to be advised by counsel. Do you desire to be advised by counsel during your testimony today?

MR. FASTOW: Yes, Mr. Chairman. My counsel, Mr. John Keker, is seated next to me.

REP. GREENWOOD: Okay. For the record, could you spell Mr. Keker's name for us?

MR. KEKER: K-E-K-E-R.

REP. GREENWOOD: Thank you, Mr. Keker. In that case, would you please rise and raise your right hand, and I will swear you in? Do you swear that the testimony you are about to give is the truth, the whole truth and nothing but the truth?

MR. FASTOW: Yes, sir.

REP. GREENWOOD: In that case, will you please -- you are now under oath, and you may give a five-minute summary of your written statement. Do you have an opening statement, sir?

MR. FASTOW: No, sir, I do not.

REP. GREENWOOD: Okay. In that case the chair will then recognize himself for questions to the witness. Mr. Fastow, you are the CFO of a Fortune Ten company, a full-time job to be sure. Yet somehow you managed to also run two private equity funds, using your insider status at Enron to attract investors, and enrich yourself by tens of millions of dollars by doing deals, and highly questionable deals at that -- with your own company. You also, we have learned, used your power, position and influence to threaten and pressure Enron employees in an attempt to obtain favorable terms for your private partnerships. The question, Mr. Fastow, is how could you believe that your actions were in any way consistent with your fiduciary duties to Enron and its shareholders, or with common-sense notions of corporate ethics and propriety? How do you answer, sir?

MR. FASTOW: Mr. Chairman, I would like to answer the committee's questions, but on the advice of my counsel I respectfully decline to answer the question based on the protection afforded me under the Constitution of the United States.

REP. GREENWOOD: May we be clear, Mr. Fastow: Are you refusing to answer the question on the basis of the protections afforded you under the Fifth Amendment of the United States Constitution?

MR. FASTOW: Again, Mr. Chairman, on the advice of my counsel, I respectfully decline to answer the questions based on the protections afforded me under the United States Constitution.

REP. GREENWOOD: And will you invoke your Fifth Amendment rights in response to all of our questions here today?

MR. FASTOW: Yes, sir, Mr. Chairman.

REP. GREENWOOD: Okay, we regret that, but it is your right. It is therefore the chair's intention to dismiss the witness. But the committee of course reserves all of its rights to recall the witness at any time. Mr. Deutsch, do you agree with our decision?

REP. DEUTSCH: Mr. Chairman, you know, normally I would very easily. But I think that this might be the time that we are going to have any chance in a public setting to even attempt to ask Mr. Fastow questions. And I know that he is intending to invoke his Fifth Amendment prerogative, which I take very seriously. But at the same time, you know, within the restraints that he has -- and he has that right -- you know, I would ask him if there is any area that he feels he can discuss, any questions within the area of his -- you know, so our understanding -- I mean, I just go rebriefed by our staff on the Rhythms transaction, and still -- you know, and there will be some people who testify. But obviously this is a transaction that you set up, that you were the general partner of and CFO at the time.

REP. GREENWOOD: The chair must note that we would all of course like to question Mr. Fastow. But we have had our discussions with his attorney. We -- it is clear to Mr. Fastow and his attorney that should he invoke his Fifth Amendment, to which he is entitled, we would dismiss him. And we have not had this conversation up until this moment. So the decision of the chairman is firm, and Mr. Fastow, you are dismissed, and you may be on your way.

MR. FASTOW: Thank you, Mr. Chairman.

REP. GREENWOOD: The chair then would call forward our next witness, Mr. Michael J. Kopper, former managing director of Enron Global Finance. Good morning, Mr. Kopper.

MR. KOPPER: Good morning, Mr. Chairman.

REP. GREENWOOD: Mr. Kopper, do you have an opening statement?

MR. KOPPER: No, I do not.

REP. GREENWOOD: You are aware, Mr. Kopper, that this committee is holding an investigative hearing. And it is the custom and practice of this committee when holding an investigative hearing to take our testimony under oath. Do you have any objection to testifying this morning under oath?

MR. KOPPER: No, I do not.

REP. GREENWOOD: The chair should then advise you that under the rules of the House and the rules of the committee you are entitled to be advised by counsel. Do you desire to be advised by counsel during your testimony today?

MR. KOPPER: I do, and I am.

REP. GREENWOOD: And would you identify your counsel, please?

MR. KOPPER: I have Mr. Wallace Timmeny and Mr. David Howard here as my representatives.

REP. GREENWOOD: And could you, Mr. Kopper, please pull your microphone a little closer and make sure that we can hear you?

MR. KOPPER: Yes.

REP. GREENWOOD: And if your attorneys would spell their names, their last names for the record.

MR. TIMMENY: Timmeny is T-I-M-M-E-N-Y.

MR. HOWARD: And Howard is H-O-W-A-R-D.

REP. GREENWOOD: I thank the gentlemen. In that case, Mr. Fastow, would you rise and raise your right hand, and I'll swear you in? Mr. Kopper, do you swear that the testimony you are about to give is the truth, the whole truth and nothing but the truth?

MR. KOPPER: I do, so help me God.

REP. GREENWOOD: You have already indicated, Mr. Kopper, that you do not come with an opening statement. And so the chair would then recognize himself for questions. Mr. Kopper, according to the committee's investigation and the Powers report, you violated Enron's code of conduct by investing in partnerships, doing business with Enron without board approval, and corrupting others at Enron to join you in your dubious enterprises. You enriched yourself at Enron's expense to the tune of more than $10 million, and you used your power, position and influence within Enron to threaten and pressure Enron employees in an attempt to obtain favorable terms for your private partnerships. Can you sitting here under oath truly deny any of this?

MR. KOPPER: Mr. Chairman, I respectfully decline to answer the question based on my right under the Fifth Amendment to the United States Constitution not to be a witness against myself.

REP. GREENWOOD: Let me be clear, Mr. Kopper: Are you refusing to answer the question on the basis of the protections afforded to you under the Fifth Amendment to the U.S. Constitution?

MR. KOPPER: Yes, I am.

REP. GREENWOOD: Will you invoke your Fifth Amendment rights in response to all questions here today?

MR. KOPPER: Yes, I will.

REP. GREENWOOD: It is therefore the chair's intention to dismiss this witness, but the committee of course reserves all of its right to recall the witness at any time. Mr. Deutsch, would you concur in this?

REP. DEUTSCH: Yes.

REP. GREENWOOD: Okay. Mr. Kopper, you are dismissed.

MR. KOPPER: Thank you, Mr. Chairman.

REP. GREENWOOD: And the chair calls forward Mr. Richard B. Buy, chief risk officer of Enron Corporation, and Mr. Richard A. Causey, chief accounting officer, Enron Corporation. Good morning, Mr. Buy and Mr. Causey. You gentlemen are aware, I believe, that the committee is holding an investigative hearing. And, as you have heard, when doing so we have the practice of taking testimony under oath. Do either of you have any objection to testifying under oath?

MR. CAUSEY: No, sir.

MR. BUY: No.

REP. GREENWOOD: Hearing no, such response, the chair then advises you that under the rules of the House and the rules of the committee, you are entitled to be advised by counsel. Do you desire to be advised by counsel during your testimony?

MR. CAUSEY: I do.

REP. GREENWOOD: Mr. Causey, would you identify your attorney?

MR. CAUSEY: Yes, Mr. Reed Weingarten, sitting here beside me.

REP. GREENWOOD: Would you spell your last name for us, please?

MR. WEINGARTEN: W-E-I-N-G-A-R-T-E-N.

REP. GREENWOOD: Mr. Buy, do you choose to be represented by an attorney?

MR. BUY: Yes, I do.

REP. GREENWOOD: And would you identify your attorney for us, please?

MR. BUY: Mr. J.C. Nickens.

REP. GREENWOOD: Mr. Nickens, would you spell your last name, please?

MR. NICKENS: Yes, that's N-I-C-K-E-N-S.

REP. GREENWOOD: Okay. In that case, gentleman, if you would both rise I will administer the oath. Do you both swear that the testimony you are about to give is the truth, the whole truth and nothing but the truth?

MR. CAUSEY: I do.

MR. BUY: I do.

REP. GREENWOOD: You may be seated. You are both under oath. Mr. Buy, do you have an opening statement?

MR. BUY: No, I don't.

REP. GREENWOOD: Mr. Causey, do you have an opening statement?

MR. CAUSEY: Yes, sir, I do.

REP. GREENWOOD: Okay, the chair recognizes the gentleman Mr. Buy for five minutes for an opening statement.

MR. CAUSEY: Mr. Causey.

REP. GREENWOOD: I'm sorry, Mr. Causey. I apologize, Mr. Causey.

MR. CAUSEY: Mr. Chairman, members of the committee, I am appearing here today voluntarily at the request of the committee. As you may be aware, a few days ago I was advised by my Enron-provided counsel that he could no longer represent me. I immediately undertook a search for new counsel, and within the past 24 hours I retained the services of Steptoe and Johnson, and Collier and Shannon. My new counsel has been unable to provide me meaningful advice during this brief period. I therefore respectfully requested a brief delay. I was informed by the committee staff that, notwithstanding these facts, my presence today was desired by the committee. Out of respect for the committee, I voluntarily appear. However, without the benefit of meaningful opportunity to consult with counsel, I am respectfully unable to answer questions from the committee at this time. Therefore, on the advice of counsel, I will respectfully decline to answer questions of the committee. Thank you.

REP. GREENWOOD: I thank the gentleman for your statement. The chairman and the committee are disappointed that we will not be able to receive your testimony today. We know that you had prepared extensively for interviews with our staff, and we thought that would have sufficed. The facts have not changed. But we do understand the change in your legal representation, and we are pleased that you are here as well.

I am going to ask a question to both of you gentlemen. Both of you gentlemen were specifically charged by the board of directors with the responsibility to ensure that the transactions between Enron and LJM partnerships were truly arms-length transactions, beneficial to Enron and its shareholders. We now know that many of those transactions were anything but beneficial to Enron, and in fact contributed mightily to Enron's dramatic collapse. Do you believe, gentlemen, by your actions or your inactions, you failed Enron's employees and shareholders? Mr. Causey, would you respond to that question?

MR. CAUSEY: Mr. Chairman, on the advice of counsel, I will respectfully decline to answer that question.

REP. GREENWOOD: Let me be clear, Mr. Causey -- are you refusing to answer the question on the basis of the protections afforded to you under the Fifth Amendment to the U.S. Constitution?

MR. CAUSEY: Yes, sir, I am.

REP. GREENWOOD: Will you invoke your Fifth Amendment rights in response to all questions here today, Mr. Causey?

MR. CAUSEY: Yes, sir, I will.

REP. GREENWOOD: Mr. Buy, how do you respond to the question?

MR. BUY: For reasons outlined in a letter submitted to the committee last night, and on the advice of counsel, I -- I've lost my voice -- I respectfully decline to answer questions.

REP. GREENWOOD: Mr. Buy, let me be clear: Are you refusing to answer the question on the basis of the protections afforded to you under the Fifth Amendment of the U.S. Constitution?

MR. BUY: Yes.

REP. GREENWOOD: And will you invoke your Fifth Amendment rights in response to all of our questions here today, Mr. Buy?

MR. BUY: Yes, I will.

REP. GREENWOOD: In that case, it is the chairman's intention to dismiss both of these witnesses, but the committee of course reserves all of its rights to recall the witnesses at any time. Mr. Deutsch, do you concur in this decision? Gentlemen, you are and your attorneys are excused.

The chair then would call forward Mr. John Olson of Sanders, Morris, Harris, senior vice president and director of research; Mr. Thomas H. Bauer, a partner at Andersen LLP; Mr. Jeffrey McMahon, president and chief operating officer, Enron Corporation; Mr. Jordan Mintz, vice president and general counsel of corporate development.

Good morning, gentlemen. Gentlemen, I believe that you are aware that this committee is holding an investigative hearing, and that it is the practice of hearing, when holding -- this committee, when holding an investigative hearing, to take testimony under oath. Do any of you object to providing your testimony under oath?

Seeing no such objection, the chair would then advise you that under the rules of the House and the rules of this committee, you are entitled to be advised by counsel.

Do you desire to be advised by counsel during your testimony, Mr. Olson?

MR. JOHN OLSON: No.

REP. GREENWOOD: Mr. Bauer?

MR. THOMAS BAUER: Yes, I do.

REP. GREENWOOD: Would you identify your attorney, sir?

MR. BAUER: Mr. Scott Schreiber.

REP. GREENWOOD: Would you spell his last name?

MR. BAUER: S-C-H-R-E-I-B-E-R.

REP. GREENWOOD: Thank you. Mr. McMahon.

MR. JEFFREY MCMAHON: Yes, I do. And my counsel is Mr. Levy, L- E-V-Y.

REP. GREENWOOD: Thank you, sir. Mr. Mintz.

MR. JORDAN MINTZ: Mr. Chairman, also Mr. Levy is representing me.

REP. GREENWOOD: Okay. In that case, gentlemen, if you would rise and raise your right hands, I will swear you in.

Do you each swear that the testimony you are about to give is the truth, the whole truth, and nothing but the truth?

ALL: I do.

REP. GREENWOOD: You are now under oath. The chair would advise the witnesses and the audience that two votes have just been called on the floor of the House. And we know you've waited a good while already, but it will take at least 25 minutes for us to get over and make these two votes and come back, so we will adjourn -- we'll actually adjourn for 20 minutes and see if we cannot resume then.

This is hearing is suspended.

Hearing breaks and reconvenes.

REP. GREENWOOD: The committee will reconvene. Again, we thank the witnesses and apologize for the break there. There will not be any more for the afternoon, so we won't have those interruptions.

Mr. Olson, you are recognized for five minutes for your opening statement, sir.

MR. OLSON: Thank you very much, Mr. Chairman and members of the committee.

REP. DEGETTE (?): Excuse me, we can't see anything. Please sit down. Thank you.

MR. OLSON: I am a securities analyst from Houston, Texas, and I've been covering Enron since it was before Enron. I've had the distinction, I guess, of not having recommended it for the last 10- plus years, until the very end, when the company was sinking fast.

Thank you for the opportunity to discuss some very, very important credibility issues for Wall Street and the American public, which have been created by the collapse of Enron. I will be mercifully brief.

There has been tremendous collateral damage in the capital markets since Enron went down two months ago. It is still ongoing. You can help bring it to a stop. Your own confidence in the investing process must have already been sorely tested after all that you have heard. I hope my comments can provide a securities analyst's perspective on what went wrong and how we could fix it. With the help, perhaps, of 20/20 hindsight, let me try to answer.

Enron was good at some things, but it was great at gaming the system. It gamed us on Wall Street. It may have gamed its auditors and outside counsel, but it also seems some insiders were gaming Enron proper and they were gaming each other. The Wall Street gaming was principally from the partnerships or the special purpose entities. They involved marketing marginal assets with marginal accounting and marginal financial structures. All of these involved bankers, rating agencies and private placement people. What they did not involve, I might point out, were stock analysts like myself. We never saw or were never even aware of these deals. They were considered confidential or privileged by Enron, and obviously for Enron's particular reasons.

If you had asked me how many partnerships Enron had last October before this situation blew up, I would have told you maybe five or so -- I mean, just what they had disclosed in the annual report. Not hundreds, not thousands -- no one's quite sure of just what the number came to be. All of this was happening in something of a parallel universe. The revelations about these deals were what sank the Enron ship. Phony earnings and phony equity absolutely destroyed all investor confidence in a stock which had risen 40 percent annually for the last five years. Portfolio managers had loved the stock -- didn't like it, loved the stock. Despite numerous blunders and diversifications fiascos, it didn't matter, the stock was going up 40 percent a year. It was a tide lifting all the boats.

Then disaster struck. The wheels fell off in mid-October and in only six weeks time, the company was gone. It took long-term capital management five weeks. Where were the analysts then and were they compromised? Yes and no. Let me explain. Enron paid out lots of investment banking fees. The bankers loved Enron. Enron loved analysts' strong buy recommendations. Guess what happened? It got them. Lots of them. This is an abuse.

When the worm turned and Enron's stock price fell from 90 to 80 to 50 to 20 to 10 to 5 and so forth all the way down to zero, the opinions didn't really change until the very -- the bitter end. You know, analysts are typically smart people. My competitors especially are a lot smarter than I am. They can get out of the way of a freight train -- and this was a freight train. They didn't. Why not? I think it was the culture that was developed over the -- what I called the crescendo phase of the bull market over the last five years where again investment banking had a major influence in research.

Ladies and gentlemen, if you want to restore confidence in this system and restore the integrity of research to where it belongs, then you need to take away some of the marbles here. We will not miss them. In my filed testimony, I urged you to sharply restrict flaking accounting for energy contracts like mark-to-market accounting or fair value accounting for marginal assets. These do not pass the laugh test on Wall Street any more. You get no credit for them at all. I would urge you to consider de-leveraging these special purpose entities out there from their very absurd levels right not. This is clearly an abuse out there. Enron's deals were basically very shaky LBOs that were done at the equity investors' risk position. They were recourse to the parent there. And I would also urge you to review and reform the very highly compromised investment banking research conflicts, which have had such tragic investing consequences with not only Enron but in the stock market at large.

Thank you very much.

REP. GREENWOOD: The chair thanks the gentleman for your very excellent testimony.

Before I recognize Mr. Bauer, I want to inform the subcommittee of some important matters relating to his testimony. First, Mr. Bauer is here to discuss his knowledge of and involvement in the Chewco transaction for which he served as the principal Andersen audit partner. He was not involved in the LJM transactions, which are the foci of our investigation today, and thus he is not in the position to answer questions relating to those transactions on behalf of Andersen. Accordingly, I would encourage members to keep their questions to Mr. Bauer focused on Chewco rather than on LJM or any other broader accounting issues or policies that I know the members would like to ask about. We will address those issues at a later hearing.

Second, Mr. Bauer has cooperated fully and voluntarily with this committee with respect to the provision of documents and was interviewed by committee staff for more than three hours. Mr. Bauer is here pursuant to subpoena, however, because he is not in a position -- however, because he is not in a position to voluntarily testify about matters related to his client Enron without its consent.

We welcome him today and we thank him for his testimony. With that, Mr. Bauer, I will now recognize you for five minutes for an opening statement, sir.

MR. BAUER: Thank you, Mr. Chairman. Good morning Chairman Greenwood, Representative Deutsch, Chairman Tauzin, Representative Dingell, and members of the subcommittee and full committee. I am Tom Bauer. I am a partner at Andersen, where I have worked since 1974. I am appearing today at the request of this subcommittee to discuss the accounting issues associated with the Chewco transaction.

It recently has become clear that in 1997, when the Chewco transaction was conceived, Enron withheld information from me and misled me on the accounting issues related to Chewco. I knew nothing of this at the time. I was told that I had been provided with all relevant documentation in Enron's possession. Had the information that was withheld been timely provided to me in 1997 when I requested it, the accounting advice and opinion of Andersen would have been different. Let me describe the background.

In 1993, an Enron subsidiary and CalPers for the investment partnership known as JEDI. Because JEDI was a 50-50 partnership between Enron and CalPers, Enron appropriately did not consolidate JEDI for financial reporting purposes. In late 1997, Ben Glisson of Enron contacted me to discuss the accounting for a transaction that Enron was entering into. Mr. Glisson is an able accountant, who at the time was fairly familiar with the accounting rules governing special purpose entities. He told me CalPers' limited partnerships interest in JEDI would be acquired by an entity called Chewco Investments LLP. In our discussion, Mr. Glisson told me that Chewco would be structured as a special purpose entity so that it would qualify for non-consolidation. Mr. Glisson also told me that an Enron employee, who I later learned was Michael Kopper, would have a very small interest in Chewco. I reminded Mr. Glisson that for Chewco to qualify for non-consolidation as he proposed, two tests had to be met. First, at least three percent of its capitalization had to be at risk and attributable to entities independent of Enron. Second, neither Enron nor a related party of Enron, such as an employee, could control Chewco. Mr. Glisson assured me that Chewco would have three percent independent equity and would not be controlled by Enron or an Enron employee.

As the transaction unfolded, Mr. Glisson told me that Chewco's independent equity would come from two sources. First, he said that a large financial institution, independent of Enron, would make a large equity contribution. I later understood this was Barclays. According to Mr. Glisson, second component of Chewco's third-party equity would come from wealthy individual investors, who with the exception of Mr. Kopper, would be independent of Enron.

I requested that Mr. Glisson provide Andersen with all documentation in its possession relating to the transaction. He told me would do so, and he thereafter provided pertinent documents to me. Enron senior officials also confirmed in writing that I had been given all documents they had. In my written statement, I list some of the documents I received.

The transaction documents and Enron board minutes I reviewed corroborated the representations I received from Mr. Glisson and Enron. The documents described an $11.4 million independent equity infusion into Chewco, which represented 3 percent of Chewco's capitalization.

Also, the documents described and represented that Chewco was not affiliated with Enron. Thus in 1997, based on what I was told and what I reviewed, Chewco appeared to meet the criteria for a non- consolidated special-purpose entity.

Roughly four years later, on October 26, 2001, two Enron accounting employees called me to discuss concerns that had recently arisen about Chewco. On November 2nd, 2001, Andersen received a set of Chewco documents gathered by the special committee of Enron's board of directors.

When I reviewed these materials, I was appalled to discover a document I had never seen before, a two-page side agreement between JEDI and Chewco amending their 1997 loan agreement. The side agreement was dated December 30, the very same day the loan agreement between JEDI and Chewco was signed. As I mentioned previously, Enron gave me the loan agreement during the 1997 audit, but they did not reveal the existence of the contemporaneous side agreement.

The side agreement materially altered the accounting treatment of Chewco. By itself, it caused Chewco to fail to qualify as an unconsolidated special-purpose entity. Under the side agreement, JEDI was directed to deposit $6.58 million into reserve accounts created for Barclay's benefit at entities known as Big River and Little River. Barclay's $11.4 million equity infusion in Chewco appears to be conditions upon the receipt of the $6.58 million from JEDI. This means that the independent equity at risk in Chewco was not $11.4 million, as represented, but rather much less, and significantly below the 3 percent necessary for non-consolidations.

The undisclosed side agreement meant that Chewco's and JEDI's financial statements should have been consolidated with Enron's since 1997. I do not know why this critical side agreement was withheld from me in 1997. I do not know who made the apparent decision to mislead Andersen and me. Had Andersen in 1997 been provided the materials that I received in November 2001, there's no way I would have permitted Chewco to be treated as an unconsolidated special- purpose entity, and a significant portion of the November 2001 restatement would have been avoided.

Mr. Chairman, I hope the information I have provided is helpful to the committee's inquiry, and I'm here to answer any questions the committee may have. Thank you.

REP. GREENWOOD: That is very helpful, Mr. Bauer, and we thank you for being with us this morning for your testimony. Mr. McMahon, you're recognized for five minutes for an opening statement, sir.

MR. MCMAHON: Thank you, Mr. Chairman. Good afternoon. Mr. Chairman and members of the committee, my name is Jeff McMahon. I'm currently the president and chief operating officer of Enron Corp.

I've been an employee of Enron since 1994. From late October of last year until last week, I served as the chief financial officer of the company. Before that, I was president and chief executive officer of Enron Industrial Markets Group. From 1998 until March 2000, I was the treasurer of Enron Corp. Before that, I served as Enron's chief financial officer of its European operations.

As the committee knows, I was named president and chief operating officer just last week, at the same time that Stephen Cooper was named the new interim chief executive officer and chief restructuring officer of the company.

As part of the new management team of Enron, my focus is on the future -- the future of the business, the future of our nearly 20,000 existing employees worldwide who are looking for continued employment with the company, the future of our over 8,000 retirees who are looking for continued retirement benefits from the company, and various other stakeholders, including our creditors, who have an interest in Enron's future.

Working closely with the board of directors and the creditors committee, we are developing a restructuring plan designed to bring the company out of bankruptcy and preserve value for the company's creditors, its employees and its stakeholders. I believe that Enron can emerge from bankruptcy by returning to its roots. As Mr. Cooper has expressed last week, a reorganized business will be dedicated primarily to the transmission of natural gas and the generation of electricity.

With respect to the issues the committee is examining, as the chairman knows, I have been meeting and fully cooperating with the committee staff and welcome today's opportunity to answer, to the best of my ability, questions the committee may have about the past events at Enron or our future direction.

Thank you, Mr. Chairman.

REP. GREENWOOD: Thank you, Mr. McMahon. Mr. Mintz, good morning. You are recognized -- good afternoon -- for five minutes for your opening statement.

MR. MINTZ: Thank you, Mr. Chairman.

REP. GREENWOOD: You might want to pull that right up. It's very directional.

MR. MINTZ: Thank you. Good afternoon, Mr. Chairman and members of the committee. My name is Jordan Mintz. I've served as Enron's vice president and general counsel for corporate development since November of 2001. Between October 2000 and November 2001, I was vice president and general counsel for Global Finance. The four years prior, I served as vice president for tax for Enron North America, formerly known as Enron Capital and Trade Resources.

Mr. Chairman, as you know, I'm appearing this afternoon voluntarily and have to date fully and freely cooperated with the committee in its investigation. I intend to continue to do so. I welcome the opportunity this hearing presents for the committee to hear directly from me concerning the relevant facts related to my role at Enron.

Mr. Chairman, I'll be glad to answer any questions you or any of the other members of the committee may have. Thank you, Mr. Chairman.

REP. GREENWOOD: Thank you, Mr. Mintz. The chair recognizes himself for five minutes for purpose of inquiry. And let me start with you, Mr. McMahon, if I may.

In 1999, you were the treasurer of Enron's Global Finance Group. At that time, Andy Fastow, Michael Kopper, Ben Glisson, Ann Yeager, Trushar Patel and Kathy Lynn also worked there. Would you please explain why the Global Finance Group existed and what its top officers, particularly Fastow, Kopper and Glisson, what they did there, what their roles were?

MR. MCMAHON: At that point in time, the Global Finance department of Enron existed for several purposes. One portion of it, which I ran at the time as the treasurer, was to maintain adequate liquidity of the company for its ongoing businesses. A separate function -- and I reported at the time to Andrew Fastow, who was the CFO.

At the same time, there was a separate group also reporting to Mr. Fastow that was headed by Michael Kopper, which is essentially a special-projects group. And that group was responsible for various finance activities that were -- my understanding were at the direction of Mr. Fastow. And the individuals you named all fell under Mr. Kopper's organization at that point in time, I believe.

REP. GREENWOOD: Will you describe your efforts to develop a private equity fund at Enron and why Enron wanted to develop the fund?

MR. MCMAHON: Yes. In approximately mid-1999, we identified an area where we thought we could add some efficiency to the finance activities of the company by seeing if we could get third-party unrelated private equity funds to commit some capital to some future transactions that Enron may want to undertake with these third parties.

So at that point in time, we had engaged or hired some outside individual to come and join Enron for the purpose of trying to go into the private equity markets and see if we could create some private- equity liquidity for third parties.

REP. GREENWOOD: At some point, Andy Fastow told you that he was going to develop a private equity fund and that Michael Kopper was going to be the lead man on the project. When was that conversation? And tell the committee about that conversation.

MR. MCMAHON: I believe the timing of that was somewhere around mid-1999, maybe slightly before that. But the individual I just alluded to who we hired to bring to Enron to go do that, prior to his starting with the organization, Mr. Fastow informed me that he had changed his mind; he did not want this new employee to do that. In fact, he wanted Mr. Kopper to do that in his special-projects group.

REP. GREENWOOD: Now, ultimately Fastow's private equity group was formed under the name LJM. What does that name stand for?

MR. MCMAHON: I believe those are initials of his wife and two children.

REP. GREENWOOD: And when did you first learn that Fastow had a personal equity interest in the fund?

MR. MCMAHON: I learned of his ownership of the general partner of LJM, I believe, again, around mid-1999, when I was present at --

REP. GREENWOOD: How did you react to that when you learned that? How did you react to the fact that you hadn't known this all along?

MR. MCMAHON: I was -- well, I was at the finance committee meeting when it was presented to the finance committee.

REP. GREENWOOD: Right.

MR. MCMAHON: I was surprised at --

REP. GREENWOOD: By whom was it presented?

MR. MCMAHON: It was presented by Mr. Fastow.

REP. GREENWOOD: Mr. Fastow announced this.

MR. MCMAHON: Yes.

REP. GREENWOOD: And you were taken by surprise.

MR. MCMAHON: Well, I think at the time he announced it, I was taken by surprise, the fact that the board was ultimately recommending or was asked to recommend to waive their code of conduct.

REP. GREENWOOD: What was your reaction to that? Were you comfortable with that?

MR. MCMAHON: I'm sorry?

REP. GREENWOOD: Were you comfortable with that?

MR. MCMAHON: I don't know if that was a decision that I would have made at the time, but I was not party to the board deliberations.

REP. GREENWOOD: Did you think it was appropriate?

MR. MCMAHON: Again, I'm not so sure if that would be the same decision I would have made at the time.

REP. GREENWOOD: But did you think that it was -- did you see any problems with the chief financial officer having an equity interest in a privately-held fund that does business with his own company?

MR. MCMAHON: I think it's pretty clear that is an obvious conflict of interest for a senior officer.

REP. GREENWOOD: Was it clear to you at the time?

MR. MCMAHON: That there was a conflict of interest?

REP. GREENWOOD: Right.

MR. MCMAHON: Yes.

REP. GREENWOOD: So alarm bells went off in your head?

MR. MCMAHON: Well, at the time it was unclear exactly what this partnership would evolve into. So it was a conflict that clearly existed, and I think everyone who saw it realized --

REP. GREENWOOD: Did you say so at the time?

MR. MCMAHON: At the time I was at the board meeting and heard about the conflict, but I didn't realize the size of the partnership as it would evolve to.

REP. GREENWOOD: My time has expired. The chair recognizes the gentleman from Florida, Mr. Deutsch.

REP. DEUTSCH: Thank you, Mr. Chairman. And as I mentioned in my opening statement, I'm going to try to understand just one of, again, thousands of partnerships, the LJM Rhythms transaction. You know, you're in charge now. In looking at this partnership and what occurred in terms of -- basically you're buying the put from yourself -- is there any legitimate business purpose, in hindsight, that someone could defend this partnership?

MR. MCMAHON: You're asking me the question?

REP. DEUTSCH: I mean, any of you, but Mr. McMahon --

MR. MCMAHON: Frankly, I'm not very familiar with the details of that, so it's hard for me to tell you what the business reason was at the time.

REP. DEUTSCH: Well, again, I went through it in the opening statement. Enron had stock in Rhythms that they had bought at IPO for $10 million. The value after the IPO was, I guess, close to $400 million. So they wanted to lock in the gain, so they wanted to buy a put. Right? So they basically -- and Fastow was CFO at the time, was general partner of LJM, and basically Enron bought a put, actually not even from LJM but from a swap (sub?) that LJM created. All right, this was capitalized by shares of Enron stock.

And what happened was -- and this is, again, where -- I use the word, and I use it very seriously, on March 8th of last year, because these -- Rhythms -- basically the $400 million which -- when it was $400 million, when the put was bought, that $400 million gain was booked on Enron's balance statement as a gain. All right, so if someone was looking at Enron's balance statement, they would see a gain.

Well, first of all, where's the arm's length transaction? Could anyone reasonably assume that this entity could, in fact, ever make good on the put? In other words, this was Enron basically buying a put from itself. And again, as I had mentioned, Fastow immediately took a general partnership share (into?) millions of dollars from LJM.

Mr. Olson, do you want to respond? I mean, is there anyone who can defend what occurred here? I mean, this looks like fraud. And I guess -- let me just mention, on March 8th of last year, because the value had gone down so much, that Enron transferred 3.1 million shares without any consideration at all -- zip, nothing -- gave it at $150 million of Enron stock to the partnership, because the partnership at that point was undercapitalized.

What ended up happening in this whole -- and again, if you look at the transaction with the hindsight we have now, the only purpose was to lock in the gain on the balance sheet. And then, at that point, someone who wanted to -- and that's our whole point -- wanted to understand what was going to go on, could not.

And I look at this transaction, obviously in hindsight, that I cannot come up with any legitimate business purpose for this transaction; that it was, in fact, set up as a fraud, as a fraud for someone in here. And we still don't know who the limited partners are. We have not been able to obtain that information at this date.

Our staff does not -- when there's question, that $15 million, which is at 3 percent, which was transferred, then some other activity occurred, because actually this entity didn't have the 3 percent. But we don't even know if this $15 million ended up being lost. Mr. Olson?

MR. OLSON: In my opinion as a securities analyst, there is no meaningful business purpose behind this particular situation. I was obviously not aware -- this is the first time I have seen it described as such -- they were essentially gaming in their own stock.

I recall the word on the street, anecdotal evidence, it was that they had done fair value accounting on this in order to shield some other losses or reserves that they had taken in the prior year on their oil and gas loan portfolio. And they were trying to preserve this.

REP. DEUTSCH: Okay, is this fraud?

MR. OLSON: I'm not qualified to tell you. I am not a lawyer.

REP. DEUTSCH: If you were an analyst, and you knew that this was going on, what would have happened to the stock in the marketplace?

MR. OLSON: I think the stock would have cratered immediately.

REP. DEUTSCH: And that's what should have happened?

MR. OLSON: It was never disclosed.

REP. DEUTSCH: And that's the illegal activity to, because it was never disclosed. And this becomes an issue on the 8K. This is an extraordinary -- an extra-ordinary business event. Enron transferred $150 million to an entity without any consideration. That was on March 8th. On March 22nd, what Enron then did is basically they realized that this entity could never make good on the put, and so what they -- the deal was off. And at that point is when the restatement occurs. And maybe -- Mr. Bauer, you know, if -- why was that not recorded as an extraordinary event?

MR. BAUER: Congressman, I am not familiar with the transaction. That was not my area of the Enron audit. Sorry.

REP. DEUTSCH: I mean, I see my time is expired, but this is one of 4,000 partnerships.

REP. GREENWOOD: I thank the gentleman. The gentleman's time has expired. The full chairman of the committee, Mr. Tauzin, is recognized.

REP. TAUZIN: Thank you, Mr. Chairman. I think it's important to note that our investigators have discovered that while that was not being disclosed, while this deal was put together, Mr. Skilling, who will testify later, in the same period of time sold Enron stock at a price of between 2.3 and 2.7 million dollars. So while this deal was inflating the value of Enron stock, Mr. Skilling was profiting in the marketplace, when others who might have known about the problems with this deal might have recommended a sell.

Let me -- we are going to have limited time, but I want to try to take all of you through this quickly. One of the questions that has troubled me from the beginning of this investigation is why on earth investment bankers couldn't see what was going on. And, Mr. Olson, you kind of tell the story, don't you, that Enron is basically saying, You're either our friend or you're not. You rate us down, we don't do business with you. You got a call from a CEO of Enron -- who was that by the way?

MR. OLSON: That was Mr. Lay.

REP. TAUZIN: Mr. Lay called you?

MR. OLSON: Yes -- I had called him --

REP. TAUZIN: And he said, We are going to deal with our friends, right?

MR. OLSON: Yes.

REP. TAUZIN: Then he went through a litany of all the unfriendly comments you've made about Enron, right?

MR. OLSON: Well, the relative lack of enthusiasm --

REP. TAUZIN: The lack of friendship?

MR. OLSON: I should say, yeah.

REP. TAUZIN: And, Mr. McMahon, you actually gave us instances where -- surprise, surprise -- bankers called you up. Here we got a call from Rob Furst, managing director of Merrill Lynch, asking if it's okay for members of Merrill Lynch to invest in LJM too, whether you thought that was a conflict of interests -- you told them it was, right?

MR. MCMAHON: Correct.

REP. TAUZIN: Who called you to complain about that?

MR. MCMAHON: About my response to Mr. Furst (ph)?

REP. TAUZIN: Yeah.

MR. MCMAHON: Mr. Fastow.

REP. TAUZIN: Oh, yeah, what did he tell you -- you're messing up my deals here -- right?

MR. MCMAHON: He told me that I was jeopardizing the LJM2 fundraising exercise.

REP. TAUZIN: Yeah, he's trying to raise money for these bankers, and the bankers are calling you to find out if they can invest, and you're saying that's a conflict of interests. And Fastow is calling you saying, Don't you dare tell them that -- I want their money. And in fact you got a call from Paul Riddle (ph) with the First Union Bank, saying that he was told that he'd get the next bond deal if he invested, right?

MR. MCMAHON: Yes. The banks really had two different camps after the fundraising exercise. One was people who expected deals in the future because of investing, and others who were concerned that --

REP. TAUZIN: Right. And Mark DeVito with Merrill Lynch Bankers -- same kind of call, right?

MR. MCMAHON: That's correct.

REP. TAUZIN: Did that shock you, that they were being offered these special bond deals and the next bond deal if they made these investments? These are the people analyzing the stock and telling people whether to buy or not, and investing, right?

MR. MCMAHON: Well, the individuals I spoke to were typically on the bond side of the house --

REP. TAUZIN: I mean, the bond side investment side. But, Mr. Olson, this is what you are talking about. You are basically talking about the incestuous relationship between -- what do we call it now? Synergy. We call it synergy between the investment bankers who tell people whether or not this is a good place to invest, who invest themselves in it, and the deal they are getting, the good relationships they are getting with Enron, chances to invest in these partnerships -- is that right?

MR. OLSON: Investment bankers are not the friends of securities analysts.

REP. TAUZIN: I want to turn to you quickly. First of all, Mr. Bauer, let me make sure I understand what you are telling us. You are telling us that the deal that brought down the house of cards, the Chewco deal, did not meet accounting standards as you understood them. It didn't meet it because of the side agreement you were not shown. Is that correct?

MR. BAUER: Congressman, I don't know if that's the entity that brought down the house of cards. But in response to your question, I do believe that I was not in --

REP. TAUZIN: Well, let's see if it was. The failure of Chewco to meet the accounting standards, that three percent rule, investment rule, because of the Jedi investment --

MR. BAUER: Yes, sir?

REP. TAUZIN: That literally caused Enron to restate its earnings and to declare debt that had been off its books, right?

MR. BAUER: That's correct, sir.

REP. TAUZIN: That started the whole tumble, didn't it?

MR. BAUER: Yes, sir. In conjunction with some other --

REP. TAUZIN: Now, and you're telling us it was a side agreement not shown to you that literally made that deal a violation of accounting standards, right?

MR. BAUER: Yes, sir.

REP. TAUZIN: All right, I want to quickly turn to you, Mr. Mintz, and we'll come back later. But your story to us is a struggle. Your story to us is a -- just like Mr. McMahon who goes to Mr. Skilling and tells him, you know, I think there's conflicts of interests -- you have got all kinds of problems here -- you have got to reassign Mr. McMahon to a new job as a result of all that. You got some angry calls from Mr. Fastow, according to what you tell us.

Mr. Mintz, yours was a struggle to get Mr. Skilling to do a simple thing, and that was to sign the documents approving these deals. Why didn't he sign them?

MR. MINTZ: I don't know, Mr. Chairman.

REP. TAUZIN: How long did you try to get him to sign them?

MR. MINTZ: I sent him a memo in mid-May 2001, and gave him about a week to respond. I didn't hear from him. I asked my secretary to call his secretary, to see if I could get on his schedule. Within three days she didn't return the call. I asked -- maybe let another four or five days pass. I asked my secretary to make a call again, and --

REP. TAUZIN: Yours is a story of a constant struggle to force Enron to do what it should have done, and that is document fair arms- length transactions with these partnerships, offering these deals to other companies or other people first, to make sure it was in the best interests of Enron, to document the lack of conflict of interest, to document that the audit committee was reviewing this. And I am looking at one of those sheets that Mr. Skilling wouldn't sign. I am looking at the bottom. It's an interesting one. It says Mr. Kopper, employee of Enron who never got a waiver, is negotiating the deal for LJM2. It says that he has been cleared -- and I don't think he was -- that's a kind of interesting point. But at the very end of it, the very end of it, there's a question: Has the audit committee of Enron Corporation board of directors reviewed all Enron LJM transactions within the past 12 months? On that form you checked off no. Have all recommendations of the audit committee relative to Enron LJM transactions been taken to account in this transaction? The box is checked off no.

And then what follows is very interesting: The audit committee has not reviewed any transactions to date. Was that the reason Mr. Skilling wouldn't sign this document, you think, because it was admission that the audit committee was not asked to review -- had not reviewed any of these deals?

MR. BAUER: I don't know. I just don't know, Mr. Chairman.

REP. TAUZIN: You don't know. But he wouldn't sign it, would he? In fact, if we look at the last page, everybody signed -- on January the 5th, everybody signed -- except one person, the guy in charge -- the guy who should have been either approving or disapproving, the guy who should have been sure that the audit committee was reviewing these deals -- the guy you tried to get to sign who would never sign, who will be before this committee in just a little while -- is that correct, sir?

MR. BAUER: Yes.

REP. TAUZIN: Thank you, sir. I yield back, Mr. Chairman.

REP. GREENWOOD: The gentleman's time has expired. Mr. Stupak. Mr. Stupak is recognized.

REP. STUPAK: Thank you, Mr. Chairman. I want to pick up, Mr. Mintz, where Chairman Tauzin left off. Isn't it true in June of 2001 you hired a law firm of Fried Frank to investigate and evaluate the impropriety of the LJM transactions, and agreed to pay them as much as $620 an hour?

MR. MINTZ: Congressman, if I recall correctly, I engaged them the month before, in May, Fried Frank.

REP. STUPAK: So you hired an outside firm in May of 2001?

MR. MINTZ: Yes, sir.

REP. STUPAK: Why did you decide to go outside your corporate counsel -- was it Elkins or Vinson Elkins your law firm?

MR. MINTZ: One of the firms we use regularly, that's correct.

REP. STUPAK: Well, why did you decide to go outside the law firm? Isn't Fried Frank from New York? Fried Frank (correcting pronunciation), I guess? Is that right?

MR. MINTZ: New York office, with a large presence in Washington, D.C.

REP. STUPAK: But why did you go outside?

MR. MINTZ: I came into the job at -- in Global Finance in October of 2000. Prior to that, tax attorney for 18 years. I met with my predecessor for two days in making the transition. He brought me up to speed on what was going on, reviewed the employees in the legal department, et cetera, and never mentioned LJM. Got into the office, opened up the files, and a substantial amount of documentation -- deal approval sheets that Chairman Tauzin was referring to --

REP. STUPAK: Right, were all there?

MR. MINTZ: Were all there.

REP. STUPAK: Made you nervous.

MR. MINTZ: Well, very quickly, I was also down on the 20th floor where the Global Finance people were, and sort of meticulously, methodically as a lawyer may do, I wanted to get my arms around what was going on. And over a period of time, as I performed my due diligence, I brought to the attention to certain members, senior members of the company, concerns I had, and I went to Mr. Buy and Mr. Causey, and met with them regularly and wrote them a memo about some of the problems I saw in the process and procedures associated with the LJM approval. I started meeting with our general counsel, Mr. --

REP. STUPAK: Bottom line, you had some real concerns about the LJM transactions, right?

MR. MINTZ: In April 2001, Mr. Fastow announced that LJM was going to look to buy the Enron Wind Company, which was approximately a $600 million acquisition.

REP. STUPAK: We know all that. But, yes or no: You were uncomfortable with what you were seeing with LJM?

MR. MINTZ: I'm sorry, that's correct.

REP. STUPAK: All right, bottom line: You really distrust -- I'll take the word "really" out of there -- but did you distrust the service of the in-house counsel, and that's why you hired the outside counsel from New York to look at this, because you needed an objective opinion of what was going on?

MR. MINTZ: I wanted somebody who had no linkage, no connections with the company, and just to take a fresh look at everything.

REP. STUPAK: I take it that's a yes answer to my question, then?

MR. MINTZ: Yes, sir.

REP. STUPAK: Okay. Did they produce a report, anything in writing back to you, as to their investigation, the law firm?

MR. MINTZ: Yes, they did.

REP. STUPAK: Where is it now, that report?

MR. MINTZ: There are a number of copies in the company, and they have been turned over to a number of committees, as well as the SEC and the FBI.

REP. STUPAK: Okay. Let me just -- and then once again, why didn't you hire Vinson and Elkins to do this -- look at this work?

MR. MINTZ: I was just looking -- I was concerned about issues. I wanted to get somebody to look over my shoulders who just had no knowledge, no insight, no background regarding LJM.

REP. STUPAK: Okay, now, when you were looking LJM, you consulted Mr. Jeffrey McMahon, did you not?

MR. MINTZ: When I started my due diligence regarding LJM, I met with a number of different individuals who had some familiar with them, and Jeff was one of them.

REP. STUPAK: Okay. What was your impression -- did Mr. McMahon understand how Mr. Fastow could supervise Enron employees as chief financial officer while at the same time the same employees were negotiating against LJM on behalf of Enron -- did that issue come up?

MR. MINTZ: As soon as I got down to the 20th floor I saw a lot of dysfunctionality on that floor along the lines of what you are suggesting.

REP. STUPAK: Well, dysfunctionality because you had some people in Enron, like Mr. Fastow and others, wearing two hats, trying to look out for LJM, at the same time being with Enron, negotiating back and forth, basically wearing two hats, and causes real conflicts of interest and real ethical problems, does it not, within a corporation like Enron?

MR. MINTZ: I think that's a fair assessment.

REP. STUPAK: Okay, did Mr. McMahon voice these concerns to you, and did he voice them with Mr. Skilling, if you know?

MR. MINTZ: Jeff shared with me his concerns and his conversation with Mr. Skilling.

REP. STUPAK: Okay, is it true that Mr. Buy advised you not to stick your neck out by approaching Mr. Skilling with your concerns about LJM?

MR. MINTZ: Well, I got with Mr. Causey and Mr. Buy when I wanted to approach Mr. Skilling about reviewing the documentation and making sure they were executed, and finding out whether it was ministerial or not. And I also suggested, you know, maybe we should check with Mr. Skilling to make sure he's still comfortable with this arrangement. And, yes, Mr. Causey said, "I wouldn't stick my neck out."

REP. STUPAK: Mr. Causey said that or Mr. Buy said --

MR. MINTZ: Mr. Buy, I'm sorry --

REP. STUPAK: Mr. Buy said you wouldn't stick your neck out -- meaning if you went to Skilling you would be given a new job or something, like Mr. McMahon? Was that what they did at the corporation, when you didn't agree with the higher-ups, they moved you out?

MR. MINTZ: I can only speak for myself. I don't know what other people's experience was.

REP. STUPAK: Well, it sounds like maybe they put you down on the 20th floor, and you didn't want to go there -- it's so dysfunctional, you're telling me -- right?

REP. GREENWOOD: The time of the gentleman --

MR. MINTZ: Well, as a former tax attorney, I was looking forward to the opportunity of being a real attorney. (Laughter.)

REP. STUPAK: But you took it as -- as really sort of a threat -- if I went to Mr. Skilling, somehow there would be retribution -- right?

MR. MINTZ: It would -- both Ricks shared with me that Jeff was very fond of Andy -- don't go there.

REP. GREENWOOD: The time of the gentleman has expired.

REP. STUPAK: Mr. Chairman, thank you for your courtesy -- but could I place the Fried Frank report in the record?

REP. GREENWOOD: Without objection, that document will be incorporated in the record of the hearing. The chair recognizes for five minutes the gentleman from Florida, Mr. Stearns.

REP. STEARNS: Thank you, Mr. Chairman. Mr. Mintz, I'd like you to go to document number 22. It's a document that you wrote, and it's dated September 7, 2000, regarding the private placement memorandum for LJM3, new proposed -- Fastow's proposed new partnership that evidently ultimately never got off the ground. It seems that upon review of this PPM you were quite alarmed at some of the discussion in it about how Fastow's dual role at Enron and the partnership would accrue benefits to the partnership's investors -- particularly because of Fastow's insider status and knowledge of proprietary deals flows. What was your reaction to this PPM, and who did you discuss it with?

MR. MINTZ: Congressman, I wasn't a securities lawyer, but on its face, when I had the chance to review the PPM and I saw the language that was being used in order to attract investors, I was concerned.

REP. STEARNS: And what was your concern, just to give us a couple of sentences?

MR. MINTZ: It appeared that they were selling to investors inside information.

REP. STEARNS: They were selling to investors inside information?

MR. MINTZ: That this fund was effective because they had insight into particular assets of the company.

REP. STEARNS: Did you feel also that there was any transparency? Was there a problem with transparency too?

MR. MINTZ: I'm sorry, I'm not sure I understand --

REP. STEARNS: Well, was the information being concealed?

MR. MINTZ: I don't know.

REP. STEARNS: Okay. Did you raise your concerns with Enron's in-house and outside securities experts after you were aware of this, as you say that you felt that it was not up and up?

MR. MINTZ: I wanted to make sure that they were aware of it, and I wanted to get their guidance, because they were the experts.

REP. STEARNS: Now, Mr. Mintz, what did they say exactly to you when you went to them -- specifically?

MR. MINTZ: There were some comments made regarding the reference of whether -- how the board waived the conflict under the code of conduct, and I passed that on to LJM's outside counsel.

REP. STEARNS: You mentioned in your -- just previously you mentioned insider information was what concerned you.

MR. MINTZ: Well, it was the way --

REP. STEARNS: Did they say to you that they agreed with you that this was a case of insider information which you voiced your concern?

MR. MINTZ: Well, again, I wasn't a securities lawyer, so I was drawing on their assessment. Their assessment was that this was familiar -- it was similar to what was in LJM2 -- that was approved by the board, so they didn't take exception to it.

REP. STEARNS: I've got the PPM for LJM2 here, and document number 11, if you could just pull that up, page 3. Let me draw your attention to the opt of the page, "The ability to evaluate investments with full knowledge of the assets. Due to their active involvement in the investment activities at Enron, the principals will be in an advantageous position to analyze potential investments for LJM2." The principals. "That's senior financial officers of Enron will typically be familiar with the investment opportunities LJM2 considers." That's the key part. "The principals believe that their access to Enron's information pertaining to potential investments will contribute to superior returns."

Let me just go to page 7 here. Mr. Fastow says that -- at the bottom of the page -- "dual role advantages." "Mr. Fastow will continue to hold the titles and responsibilities of executive vice president and chief financial officers of Enron, and Messrs. Kopper and Glisson will continue to serve as senior financial officers of Enron, while acting as owners and managers of the general partner. As a result, investors in the partnership should benefit from Mr. Fastow's and the other principals' dual roles, which will facilitate the partnerships access to Enron's deal flow. The principals' dual roles in managing the partnership while remaining employed as senior official officers at Enron, however, raises certain conflicts of interests that could affect the partnership."

Now, what you raised in LJM3 was already in place in LJM2, wouldn't you agree?

MR. MINTZ: That's correct.

REP. STEARNS: So the concerns you had on this LJM3 which did not get off the ground were already replicated in the previous ones?

MR. MINTZ: That is correct.

REP. STEARNS: And yet everybody signed off on LJM2.

MR. MINTZ: That's my understanding.

REP. STEARNS: Mr. Olson, just maybe a quick comment on some of our discussion here in terms of -- I mean, even Mr. Mintz did indicate there was a problem. Would you mind giving your -- based upon what I read about LJM2 and based upon Mr. Mintz's memo on LJM3, was he right to ask the securities analysts to say, What's wrong with this?

MR. OLSON: I am not sure I understand that he was asking the securities analyst to say what's wrong with this. Or --

REP. STEARNS: Well, what he did is in his memo had some concern about LJM3. So he went to the securities lawyers and said, Here are my concerns, and they came back and sort of didn't agree with him. And my question is to you in your capacity, Did you agree with Mr. Mintz about this development of this partnership?

MR. OLSON: I would be very concerned again as a securities analyst. This is a blatant conflict of interests. Again, it would never have passed the smell test had it been publicly disclosed.

REP. STEARNS: So, Mr. Chairman, in conclusion, we have a blatant conflict of interests here on LJM3, and it is identical to LJM2. So what you say, Mr. Olson, would also apply to LJM2?

MR. OLSON: That's right.

REP. GREENWOOD: The time of the gentleman has expired. The chair recognizes the gentle lady from Colorado, Ms. DeGette, for five minutes.

REP. DEGETTE: Thank you, Mr. Chairman. Mr. Mintz, in Mr. Winokur's testimony, his written testimony, he talks about the transaction approval process for deal approval sheets, or the DASHes -- correct?

MR. MINTZ: I haven't seen --

REP. DEGETTE: You haven't seen it. Well, what he says is that the deal approval sheets set out the economic basis of significant transactions. It talks about the approvals at various levels. And it says that in the timeframe at issue for the LJM transactions, new businesses in an amount greater than $35 million required board approval -- correct? Do you know that that was the policy?

MR. MINTZ: That sounds generally like the policy. I know the threshold changes --

REP. DEGETTE: I mean, you wouldn't disagree that that was the policy, correct?

MR. MINTZ: The threshold would change from time to time.

REP. DEGETTE: Okay. If you take a look at Exhibit 26 in your notebook, that's the LJM approval sheets that we have been talking about -- Chairman Tauzin was about talking about them and Mr. Stearns. Those are the LJM approval sheets which were not signed, most of them, by Jeff Skilling -- correct?

MR. MINTZ: The first one I'm looking at, that's correct.

REP. DEGETTE: Now, you were very concerned that Mr. Skilling had not signed those sheets -- correct?

MR. MINTZ: From the beginning of the job, I was very concerned as I did my due diligence that the policies and procedures that the board had put in place aren't being --

REP. DEGETTE: Now, wait a minute -- you were concerned that Mr. Skilling had not signed the sheets, and in fact you tried to get him to sign the sheets from time to time, even writing him a memo.

MR. MINTZ: That requirement was part of the policies and procedures.

REP. DEGETTE: And you tried to get him to do that, yes or no?

MR. MINTZ: That is correct.

REP. DEGETTE: Thank you. And did Mr. Skilling ever sign the sheets, that you know of?

MR. MINTZ: I don't think so.

REP. DEGETTE: And do you know why he didn't sign the sheets?

MR. MINTZ: I don't know.

REP. DEGETTE: And did you ever go to any of the board members -- Mr. Winokur or others, and tell them of your concerns that Mr. Skilling had not signed these sheets?

MR. MINTZ: I didn't, congresswoman.

REP. DEGETTE: Why not?

MR. MINTZ: In an organization like Enron, I try to work within the system and report to people who are senior to me who I felt had the direct responsibilities with the board --

REP. DEGETTE: Okay, did you ever report to your people who were senior to you of your concerns that Mr. Skilling had not signed these sheets?

MR. MINTZ: I did.

REP. DEGETTE: Who was that?

MR. MINTZ: It was Mr. Buy and Mr. Causey.

REP. DEGETTE: Mr. Buy and Mr. Causey. You said, I'm concerned Mr. Skilling has not signed these sheets?

MR. MINTZ: That's correct.

REP. DEGETTE: What did they tell you they would do?

MR. MINTZ: They told me to send a memo or get with Mr. Skilling and see if he wanted to get a whole packet of documents, or --

REP. DEGETTE: And you did send a memo, right?

MR. MINTZ: Yes, congresswoman.

REP. DEGETTE: Did you get with Mr. Skilling?

MR. MINTZ: I did not.

REP. DEGETTE: Why not?

MR. MINTZ: Mr. Skilling didn't respond to my memo. I then asked my assistant to call his secretary to see if I could get on his schedule, and --

REP. DEGETTE: And you never got on his schedule. Did you then go back to your superiors and tell them, Mr. Skilling never met with you, or did you just drop it?

MR. MINTZ: I just dropped it. I told --

REP. DEGETTE: Thank you. Now, you started in your current position of October --

REP. GREENWOOD: Mr. Mintz, did you want to -- did you feel like you didn't get a chance to respond to that?

MR. MINTZ: Yeah. I had --

REP. DEGETTE: Mr. Chairman, I would ask unanimous consent for an additional 30 seconds in that case, and finish my questioning.

REP. GREENWOOD: You'll have it.

REP. DEGETTE: Thank you.

MR. MINTZ: I did mention it to Mr. Causey and Mr. Buy.

REP. DEGETTE: And what did they say they would --

MR. MINTZ: Generally said you tried --

REP. DEGETTE: They said they would try to get him?

MR. MINTZ: No, no. They said you tried, and leave it at that.

REP. DEGETTE: So they said you tried and oh well, and you took nothing further with it?

MR. MINTZ: That's correct.

REP. DEGETTE: Okay. Now, you started with your current position in October of 2000, correct?

MR. MINTZ: Yes.

REP. DEGETTE: And in December of 2000, you sent a memo to Rick Buy and to Mr. Causey about the LJM's three limited partnerships, kind of outlining the different criteria you thought would be important, right?

MR. MINTZ: Well, I summarized what I -- what I had seen in the PPM for them.

REP. DEGETTE: And you were concerned, weren't you, about issues of conflict of interest with --

MR. MINTZ: I --

REP. DEGETTE: Go ahead.

MR. MINTZ: Again, I wasn't a securities attorney. I didn't deal with PPMs that often, but there were issues here that caught my eye that I thought people should be aware of.

REP. DEGETTE: And those issues were what?

MR. MINTZ: The sales pitch.

REP. DEGETTE: And that was in December of 2000, right?

MR. MINTZ: That's correct.

REP. DEGETTE: And on March 8 of 2000, exhibit 13 in your notebook, you sent another memo to Mr. Buy and Mr. Causey talking about the LJM approval process, and talking about issues regarding Jeff Skilling and others -- well, I'm sorry, Mr. Fastow and Mr. Kopper having conflicts, correct?

MR. MINTZ: I summarized my due diligence for Mr. Buy and Mr. Causey regarding --

REP. DEGETTE: So, during that period, October through say June when you hired Fried Frank, you were concerned about conflicts of interest that Mr. Fastow and Kopper would have had?

MR. MINTZ: I was concerned that the process and the procedures that had been put in place by the board weren't being adhered to at the level that I thought would substantiate arm's length dealing and fairness.

REP. DEGETTE: And you talked -- and you -- you talked to Mr. Buy and Mr. Causey about those concerns, correct?

MR. MINTZ: That's correct.

REP. DEGETTE: Did you ever bring those concerns to anyone on the board?

MR. MINTZ: No, I didn't.

REP. GREENWOOD: The time of the gentle lady has expired.

REP. DEGETTE: Thank you.

REP. GREENWOOD: The chair recognizes the gentleman from North Carolina, Mr. Burr.

REP. BURR: Mr. McMahon, Mr. Mintz, let me ask you a couple of quick questions -- just yes or no.

Are either of you aware of any direction of Enron management for document destruction within Enron at any point?

MR. MCMAHON: If I understand your question, any direction related to document destruction --

REP. BURR: Did any person within management at Enron instruct employees to destruct documents.

MR. MCMAHON: No. Quite the opposite. There were several e- mails sent out from our general counsel's office requesting people not to destruct certain types of documents, and ultimately not to destruct any documents.

REP. BURR: Mr. Mintz, you were general counsel. What actions did you take?

MR. MINTZ: I made sure that the people in the Global Finance Group had received the e-mails that were sent out of our -- from our general counsel's office.

REP. BURR: Those e-mails were dated 10/25, the first one, if I am correct. The SEC inquiry actually took place on October 17th. Can either of you fill in what transpired within Enron management in those eight days between the SEC inquiry and this decision to put out a document preservation memo?

MR. MCMAHON: At the time, that would have been handled by the general counsel's office prior to my becoming CFO of the company, so I am not aware of what went on at that point in time.

REP. BURR: Any light you can shed on that, Mr. Mintz?

MR. MINTZ: No, Congressman.

REP. BURR: Mr. Mintz, let me go back to your decision to hire outside counsel. I just need some clarification.

MR. MINTZ: Yes sir.

REP. BURR: You -- Enron hired outside counsel through you, or you personally hired outside legal counsel?

MR. MINTZ: I hired outside legal counsel on behalf of the company as its client.

REP. BURR: On behalf of the company as its client. And your primary reason for that was what?

MR. MINTZ: As I mentioned before, the Enron win (?) deal concerned me because of the magnitude, and it was different than apparently the transactions that were engaged in before LJM. Also, the issues regarding some of our disclosures continued to gnaw at me, and I wanted somebody to take a fresh look at that.

REP. BURR: Who above you in Enron management did you share with the fact that you had hired outside counsel to look into this?

MR. MINTZ: At that time nobody, Mr. Congressman.

REP. BURR: Your -- you would have answered to Mr. Derrick at that time?

MR. MINTZ: On the legal side, that's correct.

REP. BURR: And did any conversations that took place between you and Mr. Derrick prior to your decision to hire outside counsel lead you to believe you needed to hire outside counsel?

MR. MINTZ: Mr. Derrick is a gentleman of the highest ethics and integrity, but I had brought -- I was down on the 20th floor, Jim was on the 50th floor --

REP. BURR: Am I safe to assume from that answer that the points that you might have raised with Mr. Derrick were upon deaf ears?

MR. MINTZ: I don't think he appreciated the dysfunctionality that I observed on a regular basis.

REP. BURR: You're still extremely too kind. (Laughter.) Mr. McMahon, you were involved in the Chewco buyout, weren't you?

MR. MCMAHON: Not directly because it --

REP. BURR: You had knowledge of it.

MR. MCMAHON: I had knowledge of the proposal to actually buyout Chewco in early 2000. My understanding is it actually got bought out in 2001.

REP. BURR: You had originally signed off on a deal that would have profited some one million dollars to the -- to Chewco, correct?

MR. MCMAHON: My group actually proposed the transaction to Mr. Fastow in order to essentially unwind the JEDI partnership where Chewco was the other investor. We proposed the transaction to simplify the capital structure of the company. And yes, the proposal to Mr. Fastow was that we would recommend to spend $1 million to buy out the Chewco equity in JEDI.

REP. BURR: And in fact when that deal came back, it was over $10 million, was it not?

MR. MCMAHON: That's how I understand it from the special committee report. It happened approximately a year after I left -- moved out of the treasurer role.

REP. BURR: Can you shed any light on who it would take within Enron during that period to approve such a large difference between the proposal that you apparently had some financial basis to come up with, and in fact a number that was ten times larger?

MR. MCMAHON: Well, I wasn't a party to the actual negotiations that Mr. Fastow had with the Chewco investors. But as far as the approval goes, I actually am not certain within the company who would have that authority.

REP. BURR: Well, would it take Mr. Skilling?

MR. MCMAHON: I don't know.

REP. BURR: At what level does a decision to execute a buyout like this require?

MR. MCMAHON: That would go through our capital expenditure policy. And this is a $10 million payment, so I'm unfamiliar with --

REP. BURR: So could -- could this transaction have taken place and Mr. Skilling not have known?

MR. MCMAHON: I don't know.

REP. BURR: Was Mr. Fastow involved?

MR. MCMAHON: Well, the discussions I had in 2000 about a recommendation to buy out Chewco, Mr. Fastow was very involved. He listened to our recommendation, understood the proposal of a million dollar buyout. Then he said he would personally handle the negotiations with Mr. Kopper.

REP. GREENWOOD: The time of the gentleman has expired. The chair recognizes --

REP. BURR: Not that that's significantly different than what he suggests his involvement was, which was not -- I thank the chair.

REP. GREENWOOD: The chair recognizes the gentleman from Illinois, Mr. Rush, for purposes of inquiry.

REP. RUSH: Thank you, Mr. Chairman. Mr. McMahon, I want to determine -- are you currently -- you are still currently affiliated with Enron, is that right?

MR. MCMAHON: Yes. I've -- as of last week, I am the president and chief operating officer of the company.

REP. RUSH: President and chief operating (sic) of the company. Well then let me ask you this question. This week is was mentioned, noted that Mr. Buy and Mr. Causey would leave Enron. Is that the case?

MR. MCMAHON: I believe right now the -- Mr. Buy and Mr. Causey are both current employees of Enron. The board convenes next week to deliberate on any type of actions they plan to take with respect to the results of the special committee report.

REP. RUSH: And so, are they in fact, as was indicated earlier, are they negotiating some kind of severance packages?

MR. MCMAHON: As of -- currently, I believe where it stands, Congressman, is no action has been taken either way. Neither employee to date has resigned as of today. The company has not terminated them, to the best of my knowledge. The decision is really being undertaken by the board on what action to take, which will, as I understand it, they will meet next week to talk about that.

REP. RUSH: Well, can you describe for the committee any severance packages that they might be eligible for?

MR. MCMAHON: I think basically, due to the bankruptcy, I don't believe, as of right now, they're eligible for any severance package that was any different than any other severed employee. But again, that's a matter for the board, not for myself.

REP. RUSH: Okay, so are you saying that Enron does have an existing policy that would determine severance packages in the event of bankruptcy?

MR. MCMAHON: That's actually a little bit -- technically a little bit different. We had an existing policy that, as I understand it, was terminated as a result of the bankruptcy, and therefore we're limited to severance payments that are sanctioned by the bankruptcy court.

REP. RUSH: Well, then, does Enron have a policy that officers who have breached their fiduciary responsibility to the company or are being terminated for cause, that they must forfeit their severance pay -- severance package?

MR. MCMAHON: I am not aware of a policy one way or the other with respect to that.

REP. RUSH: So, would you -- do you have any role in terms of making recommendations to the committee?

MR. MCMAHON: No. This will -- this is a matter that's -- these are two senior officers of the company that were elected by the board of directors, and the board of directors will take the appropriate action they deem necessary.

REP. RUSH: Mr. Olson, yesterday we heard some lengthy testimony from Mr. Chanos about short sellers, that for some time they had concern regarding Enron's overstated stock value. These analysts noted Enron's confusing disclosures and related party transactions. They also noted the constant selling of stock by insiders. Give us a panoramic view of the industry. Is this a common -- is this common in the industry?

MR. OLSON: I'd be glad to. In my opinion, Enron, way back when, when Mr. Chanos presumably was referring to it when the stock was 80 or 90, it was gloriously over-valued in my opinion. You had a -- an era of really good feelings. The stock was up 88 percent in the year 2000, and everybody seemed to be out there recommending it, but no one had really been out there connecting all the dots. There was always a reason that some of the selling was going on, that one person was going to retire and move to Colorado. One person was going to go off and do something else. But I think over 18 months it turns out that about 68 members of top management left by September 30th of 2001. We didn't have all the different pieces to put together. We did not have the off-balance sheet financings. Those really became apparent with the Wall Street Journal got a hold of these partnerships documents on LJM, I think on October 17th or so, or somewhere around that time, and revealed just some of the shenanigans going on.

There was a great fan club of Enron on Wall Street because of its tremendous stock market success. Everybody sensed, in my opinion, that they didn't understand it. I know that I didn't understand the company very well. I had been covering it for its 15-year horizon, but you couldn't really get past the cosmetics. This company had gone from $13 billion of assets in 1994 to $65 billion five-and-a-half years later. It had taken its revenue base from 95 billion in the year 2000 and it was headed towards 200 billion in 2001, by most measures, it was a great success. But on the other hand, Mr. Chanos and the short sellers were quite right. The stock was way over-valued and it was coming down. With all due credit to him, I would tell you I think he was as lucky as he was smart.

REP. GREENWOOD: The time of the gentleman from Illinois has expired. The chair recognizes the gentleman from New Hampshire, Mr. Bass, for five minutes.

REP. BASS: Thank you, Mr. Chairman. Mr. Burr ask you -- Mr. Mintz, Mr. Burr asked you a minute ago about meeting with Jim Derrick who is Enron's general counsel, and you responded, as I recall, that you met with him several times about your concerns over LJM, correct?

MR. MINTZ: I started a process in meeting with Jim after I had completed my due diligence to keep him abreast of what was going on related to LJM. I didn't feel that he had an appreciation up on the 50th floor.

REP. BASS: Was there a situation where Fastow and Kopper came to you to complain about Enron's attorneys negotiating on behalf of Enron about LJM? Was there a discourse there that you are aware of?

MR. MINTZ: There was a situation just when I began the job in October that almost immediately one of the senior attorneys brought to my attention that the buzz on the floor was that one of our attorneys was being fired. When, I started the job, Mr. Kopper and Mr. Glisson came to me and told me that they wanted me to fire a particular attorney. I said, "You just hired me. Let me do my job and let me make my own assessment."

REP. BASS: Why was that? Why was that?

MR. MINTZ: That they felt that he was unresponsive on a transaction.

REP. BASS: Involving LJM?

MR. MINTZ: That's correct.

REP. BASS: Did -- is it your understanding that Mr. Fastow left this lawyer a voicemail message or any kind of communication that -- and what was the nature of that?

MR. MINTZ: I wanted to understand the facts that triggered all of this. I met with my colleague and he told me his view of what happened, and he had told me during the process of the negotiations that he did receive a voicemail from Andy, from Mr. Fastow.

REP. BASS: Did you describe the nature of that voicemail message?

MR. MINTZ: What I read in the papers I think was accurate is -- expletive laced.

REP. BASS: I see. All right. I have one quick question for you, Mr. Olson, and then I'd like to yield the balance of my time to the chairman of the committee.

Just in general -- it may be self -- I mean, the answer may be obvious, but in your opinion, would any investor -- anybody -- even a brokerage firm that was not an -- is not inside the corporation, be able to determine if there was any problem with Enron's accounting practices in the partnerships and generally the whole discussion that we've been having today?

MR. OLSON: I'm afraid to say that that is correct. There was, from the outside looking in, you could not go beyond the accounting cosmetics. You'd like to, but how do you when they had $7.5 billion in global assets out there -- assets in India, Turkey, Sicily -- you had no idea that there were 2,500 subsidiaries. And again, it was almost impenetrable. And I think that Enron was able to game us in that sense. They -- increasingly -- we were increasingly reliant upon their judgment as to where their earnings trends were going.

REP. BASS: Thank you.

REP. GREENWOOD: The chair thanks the gentleman for yielding.

Mr. McMahon, would you turn in your document folder to tab 10. And while you're doing that, let me indicate that the entire binder of documents that have been distributed to the members without objection will be made a part of the record. Tab 10, Mr. McMahon, is the March 2000, April 2000 -- your -- your account -- do you have that document?

MR. MCMAHON: Yes, I do.

REP. GREENWOOD: Okay. Let me ask you this question: Did you ever discuss your concerns regarding the LJM situation with other officers at Enron?

MR. MCMAHON: Yes. I had frequent conversations -- you say, "other officers" -- beginning with Mr. Fastow.

REP. GREENWOOD: And looking at your calendar, perhaps you could help us develop a chronology --

MR. MCMAHON: Oh, sure.

REP. GREENWOOD: -- and we'll come back to this.

MR. MCMAHON: On March 6th, there was a social event where I met with Mr. Baxter that evening, who is the --

REP. GREENWOOD: Mr. Baxter, identify him, please.

MR. MCMAHON: Cliff Baxter was at the time the vice chairman of the -- one of the vice chairman of the company. We had a conversation about the variety of conflicts that the LJM matters were --

REP. GREENWOOD: And how did Mr. Baxter react to your concerns?

MR. MCMAHON: He was aware of the conflicts as well as I was. He encouraged me to go see Mr. Skilling directly.

REP. GREENWOOD: Was he -- you said he was aware. Did he say -- did he indicate to you -- this is bad, this is wrong, we need to do something about this -- or did he just say, hey, if that's bothering you, go see Skilling?

MR. MCMAHON: Well, there's a little bit of -- acknowledgment of, I think -- I think it was widely known that the conflict existed. I mean, again --

REP. GREENWOOD: This was like a big dead elephant in the center of the room, right?

MR. MCMAHON: I think it was widely known among, frankly, all -- several layers of management about the conflicts. I explained to him personally how they manifested within my group. And he -- his suggestion to me was that nothing probably will get resolved unless --

REP. GREENWOOD: You took -- I'm going to run out of time -- you took your concerns to Skilling?

MR. MCMAHON: Correct. And I --

REP. GREENWOOD: Can you show us on the calendar when you did that?

MR. MCMAHON: Yes. On the calendar there is a meeting with Mr. Skilling on March 16th, but actually the day before that, on March 15th, you see a meeting with Mr. Fastow where I --

REP. GREENWOOD: Let's go -- let's go one day before that to the 14th, with Mr. Greg Whalley -- Whalley --

MR. MCMAHON: Right. Mr. Whalley.

REP. GREENWOOD: What was that about?

MR. MCMAHON: At that point in time, Mr. Whalley had approached me about moving internally. He was also one of the senior members of management I had spoken to about my concern, and he knew I was unhappy in my current role, so he suggested that I move into the group he was now heading up.

REP. GREENWOOD: Did you turn him down?

MR. MCMAHON: I ultimately did turn him down. It was probably several days from that meeting, but it was not an internal move at the time I was willing to make.

REP. GREENWOOD: And then -- I'll yield after this, but on the 16th, you met with Skilling in his office, according to your calendar, at 11:30. Could you describe that meeting for us?

MR. MCMAHON: Yes. That meeting was about a 30-minute meeting where I sat down with Mr. Skilling and --

REP. GREENWOOD: Did you make notes at that meeting?

MR. MCMAHON: I did make notes at the meeting -- actually, prior to going into the meeting.

REP. GREENWOOD: Does tab nine reflect the notes from that meeting?

MR. MCMAHON: Yes. These are the two pages of an outline, a talking outline that I took into the meeting with me.

REP. GREENWOOD: Tell us what those notes -- what we can -- this committee can learn from your notes.

MR. MCMAHON: Essentially, the meeting -- the notes on the meeting, which was really, again, my talking points, were that the LJM situation had gotten to basically a point that was just untenable for myself and my group. We found ourselves negotiating against people who represented LJM. They were Enron employees. Andy Fastow was the ultimate senior person that all those people reported to. He set compensation and promotion --

REP. GREENWOOD: I'm out of time. With respect for my colleagues --

REP. DEGETTE: Mr. Chairman? I'd ask unanimous consent that you grant two additional minutes to the gentleman and yield to me to follow up on your questions about these notes. I think this is an important line of questioning, and I've got the notes in my hand.

REP. BASS: I have no objection to that, Mr. Chairman.

REP. GREENWOOD: Actually --

REP. BASS: My time has expired, though.

REP. GREENWOOD: Well, I would yield the gentleman two additional minutes with unanimous consent, and I would be happy to have you yield them to me and I'll finish the line of inquiry. (Laughter.)

REP. BASS: Fine. I'll yield to the distinguished chairman.

REP. GREENWOOD: I will be generous with the time of the gentlelady from Colorado as well. Now, your notes, sir, do they reflect, in fact, what you discussed with Mr. Skilling, or did they reflect what you intended to discuss with Mr. Skilling? Did you, in fact, discuss the points that are reflected in your notes?

MR. MCMAHON: Yes. I would characterize that my notes reflect both. This was what I intended to discuss when I --

REP. GREENWOOD: You made these notes before you entered the meeting or during the meeting?

MR. MCMAHON: Before I walked in the meeting, these notes were made as a talking outline for me.

REP. GREENWOOD: And what was Mr. Skilling's reaction to your discussion with him?

MR. MCMAHON: Mr. Skilling listened to my concerns. I went through a variety of conflict matters and asked him to do one of two things -- either remedy the --

REP. GREENWOOD: What were the conflicts that you raised? How did you phrase it?

MR. MCMAHON: I said there were several conflicts that I thought he needed to be aware of that were going on because of this. Enron employees were negotiating against LJM representatives, and yet they all reported to Mr. Fastow. I saw that as a major conflict. Mr. Kopper --

REP. GREENWOOD: How did he react to that?

MR. MCMAHON: Throughout the meeting, he pretty much listened; not a lot of --

REP. GREENWOOD: Do you read body language pretty well, do you? Facial language? Did he look like, "Oh, horrors," that he didn't know this? (Laughter.)

MR. MCMAHON: No. He --

REP. GREENWOOD: Or did he look like, "Yeah, yeah, I know"?

MR. MCMAHON: He didn't have much of a reaction, frankly.

REP. GREENWOOD: He was kind of stone-faced about this; you couldn't read him.

MR. MCMAHON: I could not read him. That's a fair assessment.

REP. GREENWOOD: You walked out of the room and you thought to yourself, "Hmm." What did you think? Did you think -- what did you think? You couldn't read him, but what did you think?

MR. MCMAHON: Well, his parting words to me were that he understood all my concerns and that he would remedy the situation.

REP. GREENWOOD: My time has expired. The chair recognizes the gentleman from Louisiana, Mr. John.

REP. JOHN: Thank you, Mr. Chairman. I'm going to get back to that point here real quick. A lot of my questions have been answered, except something sticks in my mind. It's very fascinating, with Mr. Mintz's situation. It is fascinating to me that you, as the general counsel of Enron, would go outside your department, and I assume you paid a nice little fee to Vinson & Elkins to be your in-house attorneys.

And to go outside, it's fascinating to me. A, why would you do that? And I think you shed a little bit of light, but I don't think you went far enough to satisfy at least some of my curiosities. Did Vinson & Elkins in any way have anything to do with the structuring of these partnerships?

MR. MINTZ: Congressman John, I think they were involved in many of the transactions.

REP. JOHN: Actually setting them up or providing obviously legal advice on how to structure them, or --

MR. MINTZ: I think it really related to legal advice regarding whether Trusal's (sp) opinions needed to be obtained; not so much the structure but rather what were the requirements, from a legal perspective, in order to reach the accounting objective.

REP. JOHN: And that's what concerned you about the conflicts of interest.

MR. MINTZ: Well, not so much the substantive aspects of the transaction. I was just concerned with something larger about the whole LJM relationship, and I wanted somebody to help me think through it.

REP. JOHN: So in June 2001, you hired Fried Frank, correct?

MR. MINTZ: Congressman, I think it might have been the month before, but that is correct.

REP. JOHN: Okay. Yeah, you had answered that earlier. And during the line of questioning with one of my colleagues, we were getting to the fact of what came out of their investigation. How long -- two-sided question: Give us a little synopsis of what their findings were, A. And then, B, it seems like, in your conversation and in my notes, that the relationship stopped all of a sudden with you and Fareed Frank. Give us a little input about, A, what their findings were, and why did they stop?

MR. MINTZ: If I may take even a step further back. When I approached --

REP. JOHN: You can put the microphone a little bit closer.

MR. MINTZ: When I approached (Fareed Frank?), it was really to focus on two different issues; one, this larger issue of the relationship, the related-party relationship with LJM, and what were their views about it; and then, secondly, I had lingering concerns about the disclosures that we had made in the proxy, and I asked them to review our disclosures.

Almost immediately we had phone conversations, thinking about the process. They were telling me the type of research that they were going to do, and we had an ongoing dialogue. I provided them with some additional documentation along the way.

About a week or 10 days into their research and their review, Mr. Fastow, Andy, brought to my attention that he was working with his law firm, Kirkland & Ellis, to try to restructure his interest, to reduce it below the threshold that it would no longer constitute a related- party transaction. I think Arthur Andersen at that time told him that if he had any interest at all in the partnership, he would still be considered to be a related party and they would have to disclose it.

He came back and told me that he was going to sell his entire interest in the partnership. So I was sort of elated by that news, because it was going to go away and presumably a lot of the dysfunctionality was going to go away. So when I brought that to (Fareed Frank's?) attention, I asked them, could they change the focus somewhat and help me think through about what's the best way to terminate the interest and to clean things up, if you will?

REP. JOHN: When and with whom did you share any of this information about bringing in an outside --

MR. MINTZ: I think I --

REP. JOHN: Did any of the top management know, or did you, at any point in time after this, share with them what you were doing?

MR. MINTZ: I did. The most important thing that I gleaned from the advice from (Fareed Frank?) was, "Although the disclosures probably passed muster, here's an opportunity to sort of clean things up. So in the quarter that Mr. Fastow sells his interest, why don't you expand your disclosures in the 10-Q, and then when you go ahead and file your proxy in the following year, why don't you make a more expansive disclosure at that time?"

And I had -- I think it was sometime in August, when we were starting to think about -- well, the problem was, Mr. Fastow lingered until he sold his interest, so instead of it being the second quarter, it turned out to be the third quarter. As we started getting ready to think about preparation of the Q, I had discussions with one of our senior securities attorneys about making a fuller disclosure.

REP. JOHN: Okay. My time is running out.

REP. GREENWOOD: The chair would ask unanimous consent for the gentleman to have an additional two minutes of time. And we would note that if he would like to yield that to his colleague, Ms. DeGette, that would be consistent with --

REP. JOHN: I'll be glad to. I've got two more very, very quick questions. First of all, Mr. Mintz, another fascinating aspect of this is the signing of this document. Is there any doubt in your mind that Mr. Skilling was never aware of these transactions? Is that why maybe he didn't want to sign it?

MR. MINTZ: No, I don't think that's the case.

REP. JOHN: You think he knew all about it.

MR. MINTZ: Certainly the majority of them, I did.

REP. JOHN: Okay. And finally, we were getting down to Mr. McMahon's -- to maybe the crescendo of this meeting he had with Mr. Skilling about what all happened. And as you walked out, you know, he said that he's going to try to fix this. But isn't it true that you also shared a lot of the concerns with Mr. Causey, Mr. Buy, Mr. Lay and Mr. Sutton, and not one of them helped you or gave you advice, other than maybe "Just get out of the way"? In fact, you even told some of the committees that you told Mr. Sutton that Mr. Fastow could make as much as $15 million. Is that true?

MR. MCMAHON: Yes. When I met with Mr. Sutton, which actually was after Mr. Skilling's meeting, apparently, according to Mr. Sutton, Mr. Skilling delegated the responsibility to Mr. Sutton, who was also a vice chairman of the company, to deal with my issue that I had raised in the previous meeting. And at that point in time, Mr. Sutton was asking me about what type of compensation one could get from this type of fund, and I explained to him, based on the math as I knew it, which is that a standard private equity could be somewhere, $10 million to $20 million per year.

REP. JOHN: And final -- maybe a comment, maybe not. When you finally -- when things got so bad, you finally gave Mr. Skilling an ultimatum; he either had to fix this or get a new job. And it was very fortunate for you that there was another job waiting for you. And Mr. -- as you left Mr. Skilling's office, not much time had passed before Mr. Fastow had called you and said -- maybe I can paraphrase it -- "We've got a new job for you. The pay is the same, but you have a new job." Can you comment on that?

MR. MCMAHON: Actually, the process was a little bit different. I had actually a long discussion with my wife before I even walked into Mr. Skilling's office, because I knew the potential ramifications. Mr. Fastow actually did not suggest I take a new job; in fact, quite the opposite. About a week or two later, he called me in and suggested that he was unclear whether he and I could continue to work together.

REP. JOHN: Mr. Fastow.

MR. MCMAHON: Mr. Fastow, who was my boss. It was hours after that meeting when Mr. Skilling advised me that he thought there was a much better job in the company for me and that I should seriously consider taking it.

REP. JOHN: And I'll yield the balance of my time to the lady --

REP. GREENWOOD: The gentleman has consumed all three of the two minutes that was yielded -- (laughter). The chair asks unanimous consent that the chair be granted an additional two minutes and then yield that to the gentlelady from Colorado.

REP. DEGETTE: Thank you for your comity, Mr. Chairman. Let me follow up, Mr. McMahon, on Mr. John's questions. Why did you think you were being transferred within the company?

MR. MCMAHON: Maybe naively at the time, I certainly believed Mr. Skilling when he told me that he thought I would be -- a better use of my skill sets in my organization at a new start-up group related to (e-commerce?).

REP. DEGETTE: Now, in March and April of 2000, what was your title with the company?

MR. MCMAHON: In March of 2000, I was treasurer of Enron Corp.

REP. DEGETTE: You were treasurer of Enron Corp. As such, you owed a fiduciary duty to Enron Corp. at that point, correct?

MR. MCMAHON: I believe that's correct.

REP. DEGETTE: And as we've been discussing here, you had this meeting with Mr. Skilling. These are notes; Exhibit 9. I think it bears hearing, some of the things you said. "Untenable situation, LJM situation where AF wears two hats." "I find myself negotiating with Andy" -- I assume that was Fastow --

MR. MCMAHON: That's correct.

REP. DEGETTE: -- "on Enron matters and am pressured to do" -- I can't read the -- do you have those in front of you?

MR. MCMAHON: I do.

REP. DEGETTE: -- and am pressured to do" --

MR. MCMAHON: A deal.

REP. DEGETTE: -- "a deal that I do not believe is in the best interest of the shareholders." That's what you wrote in your notes in March of 2000, right?

MR. MCMAHON: That's correct.

REP. DEGETTE: And did you talk about that with Mr. Skilling in the meeting?

MR. MCMAHON: I did talk about that with Mr. Skilling.

REP. DEGETTE: And what was his response?

MR. MCMAHON: Again, he was -- as I said earlier, he was hard to read. He actually didn't have a response.

REP. DEGETTE: So he didn't say anything when you said, "I do not believe it is in the interest of the shareholders," right?

MR. MCMAHON: That's correct.

REP. DEGETTE: And then you have here, "Request options. My integrity forces me to continue to negotiate the way I believe is correct." Right?

MR. MCMAHON: Correct.

REP. DEGETTE: And then you said, "In order to continue to do this, I must know I have support from you." Did you say all that to Mr. Skilling?

MR. MCMAHON: I did say that to Mr. Skilling.

REP. DEGETTE: Now, after that meeting, in March 2000, nothing really changed, did it?

MR. MCMAHON: The structure of my job changed.

REP. DEGETTE: Yeah, okay. They moved you to another job. But as far as you know, the LJM situation that you were so concerned about never changed, did it?

MR. MCMAHON: As far as I know. I really don't know what happened. My new job took me away --

REP. DEGETTE: Well, were you worried about the LJM situation after that? I mean, you were a fiduciary of the corporation at that point.

MR. MCMAHON: That's correct. And I spoke to Mr. Skilling, who was a board member, as well as Mr. Sutton, after that -- the vice chairman -- who both indicated to me that they would resolve these problems.

REP. DEGETTE: So you never took any further duty to see if the problems were resolved, did you?

MR. MCMAHON: Well, after that, I had different responsibilities within the company.

REP. DEGETTE: Okay, but the answer is no; you didn't take any additional duty. You just said, "Well, I'm transferred, so it's not my problem anymore," right?

MR. MCMAHON: I don't think that's a fair characterization, frankly.

REP. DEGETTE: Did you ever talk to any board members about this?

REP. GREENWOOD: The time of the gentlelady has expired.

MR. MCMAHON: Yes. Mr. Skilling is a board member.

REP. DEGETTE: Oh, okay. Thank you.

REP. GREENWOOD: The gentleman from Oklahoma has waited three and half hours patiently for a question, and the chair yields him five minutes.

REP. STEVE LARGENT (R-OK): Thank you, Mr. Chairman. Mr. Bauer, I wanted to address my first question to you. In your opening statement, you talked about special-purpose entities and some of the accounting parameters that have to apply to those. And some of those parameters dealt with the relationship between the parent company and the SPE.

MR. BAUER: Yes, sir.

REP. LARGENT: What are those parameters that have to be in place --

MR. BAUER: I identified --

REP. LARGENT: -- to qualify as an SPE?

MR. BAUER: Yes, sir. I identified in my comments two specific matters; one, that the 3 percent equity needed to be independent of Enron or independent of the sponsor of the SPE, and then also that the sponsor could not control the SPE.

REP. LARGENT: Okay. Given that definition, Mr. Mintz, I wanted to go -- this issue is checked with -- it's under tab 26. It's been referred to as you gathered several signatures, minus Mr. Skilling's. Is that an issues check list that you compiled, or was that an Enron document that was just a standard blank document?

MR. MINTZ: Congressman Largent, when I started my job in October 2000 at GLobal Finance, that LJM approval sheet and the issues check list was already in place.

REP. LARGENT: Okay. Well, that leaves me with this question. Question 4-C -- that's on the second page of this document -- says, "Have all Enron employees' involvement in this transaction on behalf of LJM been waived by Enron's office of the chairman in accordance with Enron's conduct of business affairs policy? Yes or no?"

It seems to me that the very question is stating that it's violating one of the parameters that has to be in place to qualify as a special-purpose entity, is it not? I mean, Enron just routinely waived this arm's length understanding to qualify for an SPE. It's on a standard form. This isn't a handwritten note. This is a standardized form saying that "We waive that parameter, that restriction."

MR. MINTZ: Congressman Largent, I was very troubled with the check list when I came into the job, and shared that with Mr. Buy and Mr. Causey in a memo that I wrote to them a couple of months into the job.

REP. LARGENT: Mr. McMahon, I want to ask you and a couple of other members -- and this is my last question; a question -- this is an opinion. This is a subjective question; I understand that. But as I mentioned in my opening statement, the issue before this committee -- we should not be, although I think that it's carrying a tone of being prosecutorial -- that's the Justice Department's responsibility, not Congress's. We're trying to figure out, are there some things that we need to do to ensure that this doesn't happen again?

My question, Mr. McMahon, in your opinion, are other businesses practicing in this way? Enron has been the subject of this hearing. Are other businesses participating in this same sort of practices, the accounting gymnastics and all of the things that were going on with SPEs in an effort to fool Wall Street and analysts? Is that commonplace?

MR. MCMAHON: Congressman, I am really unable to respond how other businesses operate.

REP. LARGENT: I'm asking for your opinion. I mean, you talked to people that work at Dynegy or other companies, you know, whether it's -- whoever it is. Are other businesses conducting themselves, in your opinion -- this is an opinion, it's subjective -- are they doing the same thing that you all were doing?

MR. MCMAHON: I am afraid I really can't give you an opinion on that, because I don't know --

REP. LARGENT: How about Mr. Mintz? Do you have an opinion? Do you think this is commonplace, or this an anomaly?

MR. MINTZ: He's the president of the company. I think I'm going to have to defer to him. (Laughter.)

REP. LARGENT: Okay. Mr. Olson, how about you? Your business is to look at these companies inside and out. Is this a common practice, or is Enron an anomaly?

MR. OLSON: Congressman, the conventional asset structures that Enron used are very commonplace -- General Electric, banks, credit card companies and so forth use these kinds of structures very conventionally. What Enron did was to mutate that structure into something virtually unrecognizable, and use this SPE capital structure of 97 percent debt, 3 percent equity. Corporate America for the last 10 years has been about a 50/50 debt/equity capital structure. And in essence Enron put a lot of basically LBOs with the stockholders at risk -- put a lot of paper on their off-balance-sheet financings, I want to say, this way. We are about to find out, I am sure, about some of the other companies out there. I don't know if any others among Enron's competitors went anywhere to this degree. I have to say when you deal with derivatives they are like hand grenades or land mines or something, and JP Morgan Chase has just found out about that the hard way.

So there's more to come, but that's my opinion.

REP. LARGENT: Okay, Mr. Olson, let me just -- just one final question. I guess the issue that is before us, and I think most people -- the question is: Is this a case -- and this is important for this Congress to understand too -- is this a case where we just got a bunch of bad actors that were bending the laws, if not breaking the laws? Is this a case where we need additional laws to tighten this up, to make sure that this thing does not happen, without breaking the law? Or is it a combination of both?

MR. OLSON: In my very unvarnished opinion you definitely need to institute regulations at the SEC level or at the accounting level. Some of the SPE accounting and the capital structure for instance is highly, highly borderline from an equity investor point of view. The accounting, as I mentioned in my speech or testimony earlier, is as flaky as one could ever see. Enron, as the saying goes, you know, they rode the edge, they crossed the line, and they paid the price, and it's a terrible price.

REP. LARGENT: Thank you, Mr. Olson. Thank you, Mr. Chairman.

REP. GREENWOOD: The chair thanks the gentleman. The chair recognizes the gentleman from Ohio, Mr. Strickland, for five minutes.

REP. STRICKLAND: Thank you, Mr. Chairman. One of the things that I find fascinating about this particular committee is that people who appear before us take an oath. And I find it incredulous that there could be a meeting like the one that occurred between Mr. McMahon and Mr. Skilling, with such important issues being discussed, and that there would be no dialogue. We have been told that he said nothing. And that seems like a rather strange meeting. Now, I think to say, "I don't remember what he may have said" may be believable to me, but it is difficult for me to believe that you had this exchange with him, you shared these very important matters with him, and that there was no response. Is that what this committee should believe, or did he say something in response?

MR. MCMAHON: As I mentioned earlier, he let me walk through my talking points -- notes. At the end of the meeting Mr. Skilling indicated to me that he understood my concerns and he would try to remedy the situation.

REP. STRICKLAND: So he did say something in response?

MR. MCMAHON: Yes, I said that earlier.

REP. STRICKLAND: And what he said, as you related to us at this point, is that he understood or comprehended what your concerns were --

MR. MCMAHON: That's correct.

REP. STRICKLAND: And that he would l--

MR. MCMAHON: That he would remedy the situation.

REP. STRICKLAND: So he told you he understood the situation, he understood your concerns, and that he would remedy the situation?

MR. MCMAHON: That is correct.

REP. STRICKLAND: You know, in all due respect, I think that's a different kind of response than perhaps we were led to believe that he gave before. What does a remedy mean, sir, in your judgment?

MR. MCMAHON: I took that to mean that he would -- well, let me step back. Part of this solution here, I felt, a fairly easy mitigant to these conflict matters internally, was just some pretty simple restructuring. Take Mr. Fastow under the performance review process, move some of these LJM representatives off the floor so they didn't have the proprietary information, et cetera, et cetera. So I thought they were fairly simple structural changes that could be made to mitigate this. And I took the remedy of the situation to be that he would investigate these and try to make those changes.

REP. STRICKLAND: So you left the meeting with a personal conviction that you had been heard, that your concerns were understood, and that there was a commitment to do something about them?

MR. MCMAHON: And I was even, further than that, encouraged by the next day when the vice chairman of the company called me and said that he had be relayed the meeting information and that he was now responsible for solving the problem.

REP. STRICKLAND: Thank you. Mr. Olson, I think the question -- maybe the most basic question facing the country and perhaps this committee is who knew what and when did they know it. And many of the senior officers have told the staff in interviews that they didn't know the train wreck was coming until October. And I'm asking for your belief here now, understanding that you may not be able to back it up factually. But is it your belief that senior officers in this company knew that trouble was coming prior to October?

MR. OLSON: In a word, yes.

REP. STRICKLAND: If so, do you have any estimate as when they may have known that this was going to happen?

MR. OLSON: In a word, no. But, if I may qualify that, the turnover, the departures, the stock sales and the like all were pointing to something was happening. This is why this stock lost so much of its credibility going from $90 a share down to 40s when Mr. Skilling resigned, when the stock was around 42.

REP. STRICKLAND: What were some of the signs that these supper- management folks may have been aware of?

MR. OLSON: I think that they were continuing to provide very bullish forecasts of the future. Mr. Lay was out there saying that the future was never better. Mr. Skilling made similar kinds of comments -- even at his departure.

REP. STRICKLAND: But isn't it true that these individuals were dumping their stock? And is there any reasonable explanation for why someone would sell off so much stock at the same time they were painting a rosy picture and encouraging others to buy it? Can you think of any reasonable explanation for that?

MR. OLSON: No, in effect. I mean, we were massaged, if you will, by saying, well, these people are going through a life cycle change, or someone is going to retire, or leave and the like. But, again, it was a matter of connecting all the dots. We really didn't know that so-and-so was cashing in $353 million. I mean, we were just too busy to ever add these kind of numbers up. And, lo and behold, when someone did that kind of dirty work, it was stunning. But no one really had connected the dots.

REP. STRICKLAND: Which officers do you think may have had information that was unavailable to the board members and the stockholders?

MR. OLSON: I would say that the rogue financing, rogue accounting operation that was underway there -- there may have been -- I am not qualified to tell you just how many people there were. This company had 245 lawyers. And you would think that we would have these checks and balances in there. But I would imagine anybody in the Fastow organization was directly reporting to him, or in these special projects kinds of things had to know that they were using border-line accounting and highly leveraged transactions.

REP. GREENWOOD: The time of the gentleman has expired. The gentleman from California, Mr. Waxman, while not a member of the oversight committee, is a member of the full committee, and is recognized for five minutes for inquiry.

REP. WAXMAN: Thank you very much, Mr. Chairman. Over the past two months, investigators on my staff have interviewed numerous former Enron employees. These interviews have given us a glimpse of how the company was run. The picture that emerges is one in which executives profited handsomely while the employees suffered. I'd like to ask maybe Mr. McMahon this question. We have been told that many -- this is in response to some of the allegations we picked up from former Enron employees. We have been told that many Enron executives cashed in their deferred compensation plans last November, after Dynegy made a $1.5 billion cash infusion into Enron, at the time the two companies were discussing a merger. The allegation is that the Enron executives cashed out, because they would have lost all their deferred compensation money if the company went into bankruptcy. According to information we have been told, the Enron executives were draining the company's coffers right before the company went under. And even though these executives received less in deferred compensation than they were entitled, they got a lot more than thousands of average employees who lost their jobs and were given minuscule severance payments.

Suspicion has been raised by others about how Dynegy's money was spent. Dynegy CEO Chuck Watson was quoted in the New York Times as saying Enron had burned through over $1.5 billion in less than three weeks. Neither the treasurer nor the CEO could explain where the cash went. I would like to substantiate whether this was a significant activity in the deferred compensation plan. Did you know, or did you personally -- did you personally withdraw any or all of your deferred compensation funds?

MR. MCMAHON: No, I did not withdraw any -- nor do I have any. The matter you are talking about I am not 100 percent familiar with. I -- during that time period -- I was appointed CFO late October. That matter would have been handled by our human resources department. So, unfortunately, I don't have the facts with me on the deferred comp plan, but would be happy to get back to the committee --

REP. WAXMAN: Do you know whether there were executives that were cashing out their deferred compensation plans?

MR. MCMAHON: My understanding is that during that timeframe there were deferred compensation payment requests. I am not familiar with who or how much was --

REP. WAXMAN: Now, who at Enron would keep the records of deferred compensation withdrawals?

MR. MCMAHON: That would be our human resource department.

REP. WAXMAN: And I'd like to ask the question to the chairman, that he be sure to subpoena copies of these records to see if there were these deferred compensations at the time we were told.

I understand that companies keep track of the stock options owned and exercised by its employees, while Enron is required by the SEC to report all stock transactions involving officers, directors and major shareholder. It is not required to report transactions of other senior executives. Who at Enron keeps record of stock options and when they are exercised?

MR. MCMAHON: Again, that would be our human resource department.

REP. WAXMAN: Well, I think it's important for this committee to determine whether senior executives profited from insider knowledge about Enron's financial situation. And I would also like to request that the chairman issue a subpoena, if that's necessary, for al the records of employee stock sales or purchases, including any exercise in stock options of over 1,000 shares that occurred during 2000.

REP. GREENWOOD: The chair will take the gentleman's request into consideration.

REP. WAXMAN: Last fall, as Enron was unraveling, Enron reportedly made millions of dollars in payments to a number of Enron executives. In press accounts, Enron characterized these payments as "retention payments." We have heard, however, that payments amounting to hundreds of thousands of dollars were made to executives of non- core Enron businesses, or to Enron businesses that are now essentially defunct. We have also heard that some of those who received such payments did not remain at Enron. Mr. McMahon, who at Enron would have records of the names, positions and current employment status of all the Enron employees who received significant retention payments through October and December of 2001?

MR. MCMAHON: Again, that would be in our human resource department.

REP. WAXMAN: And, Mr. Chairman, I'd like to make a request for you to consider subpoenaing those records as well.

Mr. Olson, you answered the question about SPEs with Mr. Largent. These are the special purpose entities. And you say it's not just Enron, but other corporations who are using these ways that may be for the same purpose, but maybe not -- but it was the way that Enron was able to move debt off its balance sheets and inflate the company's revenues. And you indicated you thought Congress ought to deal with this issue. I do want to point out that in the late 1980s the Securities and Exchange Commission raised concerns about SPEs, and they asked the Financial Accounting Standards Board to establish rules for SPEs. And FASB, a private organization, in charge of establishing standards for financial accounting and reporting, is funded and overseen by accounting firms and their clients. The result has been a weak set of rules that continued to mask from investors many off- balance-sheet transactions. Congress should have done more, shouldn't it?

MR. OLSON: Absolutely, either at the SEC level or at the FASB level. Someone is asleep at the switch.

REP. GREENWOOD: The time of the gentleman has --

MR. OLSON: To put the equity owners of a company at such risk with recourse to the company, and to threaten its credit ratings and the like is -- with this kind of capital structure and marginal assets -- is unconscionable.

REP. WAXMAN: I think there are a lot of areas where Congress was asleep at the switch, and that this whole debacle is an indictment of our political system as well.

REP. GREENWOOD: The chair thanks the gentleman. The chair also recognizes the gentleman from Texas, Mr. Green, who while not a member of the oversight committee is a member of the full committee, and has been very assiduously participating in these hearings, and is recognized for five minutes.

REP. GREEN: Thank you, Mr. Chairman. Again, thank you for your courtesy to those of us who are members of the full committee. And, again, I don't want to reiterate the interests I have being a member of Congress from Houston in this situation. Mr. McMahon, did you just tell Mr. Waxman that you didn't have stock options with Enron?

MR. MCMAHON: No, I believe Mr. Waxman was talking about deferred compensation programs and withdrawals.

REP. GREEN: Okay. But you had stock options?

MR. MCMAHON: Yes.

REP. GREEN: And were those cashed in within the last year with Enron?

MR. MCMAHON: I believe the last stock options -- you are talking about myself personally? The last stock option I exercised was in March of 2001.

REP. GREEN: Okay. In the Powers report -- and I'd like you to outline some of the transactions relating to the decision on -- to have Jedi buy out Chewco. On page 60 and 61 of the Powers report, it outlines how Mr. Fastow and Mr. Kopper negotiated with you on the rate of investment return to the Chewco investors. The report states that you wanted to offer the Chewco investors a million dollar rate of return. But after discussions were held between Mr. Fastow and Mr. Kopper, that rate was increased to $10 million. What kind of justification did Mr. Fastow have for increasing the rate of return by nearly tenfold?

MR. MCMAHON: Mr. Fastow indicated to me that in a liquidation analysis of the partnership -- if you were to liquidate all of the assets within the partnership at the time, which actually my group agreed with, that the value of that interest to Chewco would be in excess of $20 million. So he felt -- or he indicated to me that based on that the negotiations -- the million dollars was unacceptable to the Chewco partners. So he negotiated a settlement of $10 million.

REP. GREEN: Where did you come up with a million dollars?

MR. MCMAHON: I -- what - the way that we had looked at it was -- my group did look at that liquidation analysis of the partnerships, and saw that in fact there could be a scenario where that equity could be worth in excess of $20 million. However, the partnership had 10 or 15 years more to run on it. So our notion was as a commercial transaction that you should be able to approach the equity holder say, Do you really want to wait 10 or 15 years and take the risk of the value, or do you want to take a million dollars now and have a nice return? So we felt a million dollars was a reasonable enough return on their equity, but it was substantially less than the value of share liquidation.

REP. GREEN: Did Mr. Fastow directly benefit from that particular transaction?

MR. MCMAHON: Not that I'm aware of.

REP. GREEN: It does seem like though the partnership and the fiduciary relationship -- you started with a million, and you're -- if the 10 million that went to the partnership -- obviously if it had been a million, that money would have stayed in Enron?

MR. MCMAHON: That's correct.

REP. GREEN: Okay. So the fiduciary relationship that maybe Mr. Fastow had with Enron, he was more interested in the partnership?

MR. MCMAHON: It's hard to say, Congressman. I mean, there was a commercial negotiation that underwent that I wasn't part of --

REP. GREEN: But he was negotiating for the partnership, and not for Enron?

MR. MCMAHON: No, he actually was negotiating on behalf of Enron, with Mr. Kopper, who was negotiating for the partnership.

REP. GREEN: I have a question concerning Enron's 401(k) that was offered to your employees. And, again, I know most of your responses have been human resources. But let me ask if you have the knowledge about it. In the copy of Enron's corporation saving plan, I'd like you to define a term found in Article 15. Article 15 deals with the company's fiduciary relationship to manage the plan, and states that the committee shall have final say over decisions impacting the savings plan. And I flip back to Article 1 of the savings plan to examine the definitions. And when I found the defined term of the committee, it's the administrative committee appointed by Enron Corp to administer the plan. This definition doesn't seem to shed light on who was responsible for administering the 401(k), which as we know devastated the employees. Can you tell me, do you have knowledge of who was on that committee and who supposedly managed the Enron savings plan?

MR. MCMAHON: Unfortunately, I do not have knowledge of who was on that committee. I was not on that committee, and as I testified earlier my responsibilities are fairly new here. But I'll be happy to get those facts and get them back to the chairman --

REP. GREENWOOD: The time of the gentleman has expired.

REP. GREEN: Thank you, Mr. Chairman. We would love to have that information for the committee. One last question --

REP. GREENWOOD: The time of the gentleman has expired. There will be a second round.

REP. GREEN: Okay, thank you, Mr. Chairman.

REP. GREENWOOD: The chair recognizes the gentleman from Massachusetts, Mr. Markey, who also is not a member of the subcommittee -- he's a member of the full committee -- we are happy to have his presence. You're recognized for five minutes.

REP. MARKEY: Thank you, Mr. Chairman, for your courtesy. Mr. McMahon, you have Enron's CFO since last October, and Enron's president and chief operating officer since last week. So I am going to ask you a set of questions now which will determine whether or not what we are hearing here today is the iceberg or just the tip of the iceberg.

In addition to Raptor, Chewco, and LJM entities, how many other special purpose entities has Enron created?

MR. MCMAHON: I don't know the answer to that.

REP. MARKEY: You don't know. Were any of the other SPEs set up with current or former Enron employees, officers, directors or their relatives, either as general partners, limited partners, or as investors or beneficiaries?

MR. MCMAHON: I am not aware of any of those.

REP. MARKEY: You are not aware of any. Have you looked at that issue yet?

MR. MCMAHON: In my current capacity as president, I have not.

REP. MARKEY: How about in your capacity as chief financial officer since October, the navigator of the financial well-being of the company? Did you look at that issue from October through last week?

MR. MCMAHON: No, I have not, because my focus as the chief financial officer in late October was to try to keep the company's liquidity in place. We had a special committee of the board -- was looking for investigative work, looking backwards.

REP. MARKEY: You didn't think that was your job as the chief financial officer?

MR. MCMAHON: That's not quite what I said, congressman. What I said was I was trying to keep the liquidity within the company, and I felt that was a higher priority.

REP. MARKEY: I understand. But necessarily you have had five months to look at it, as these other questions which relate to the liquidity of the company in fact. How much has Enron invested in other SPEs, do you know?

MR. MCMAHON: I do not know.

REP. MARKEY: Do you know if any of these other SPEs have been used to remove debt from Enron's books, conceal investment losses, or inflate Enron's earnings?

MR. MCMAHON: I believe several of these SPEs are related to debt transactions, but I don't know what they all have been.

REP. MARKEY: How many?

MR. MCMAHON: I do not know.

MR. MCMAHON: I do not know.

REP. MARKEY: How much debt?

MR. MCMAHON: I don't know the answer to that.

REP. MARKEY: You don't know the answer to that. Has Enron provided any guarantees to any of these other SPEs against investment losses?

MR. MCMAHON: I'm not aware of any, but I don't know.

REP. MARKEY: You don't know the answer to that. Do any of these other SPEs have any contract, agreement or understanding with Enron that if it loses money, Enron will issue it Enron stock or options, warrants, or other rights to obtain such stock?

MR. MCMAHON: There are a two that I am aware of that have that feature.

REP. MARKEY: They are?

MR. MCMAHON: There's a transaction called Marlin (sp), and there's a transaction called Osprey or White Wing.

REP. MARKEY: Okay. And what happened in those? What is the arrangement there?

MR. MCMAHON: The arrangement there, as I understand it, is if there is a shortfall in the asset values within the vehicles, that the company is required to issue sufficient amount of shares to satisfy the deficiency between the asset value and the debt obligations of the vehicle.

REP. MARKEY: Now, Sherron Watkins' August 14th memo to Ken Lay warned about, quote, "MTM problems" -- mark-to-market problems -- "in Enron energy services and Enron international investments." What problems was she alluding to?

MR. MCMAHON: I do not know.

REP. MARKEY: You've been chief financial officer since October. There's a memo there saying there's big financial problems there and you haven't looked at it yet?

MR. MCMAHON: The special committee was charged with that responsibility.

REP. MARKEY: Beginning in October?

MR. MCMAHON: Yes.

REP. MARKEY: So you have never looked at it? In fact, on page one of the Powers Report, it says many questions currently part of the public discussion, such as questions related to Enron's international businesses and commercial electricity ventures, broadband, et cetera, transactions in Enron's securities by insiders and beyond -- are beyond the scope we were given by the board. So they did not have authority to look at it. Did you look at it? The board was not given authority. As the chief financial officer, did you look at it in your fiduciary responsibility?

MR. MCMAHON: I have not looked at that at this point in time. We -- again, we were focused on liquidity, then, of course, the bankruptcy. These are matters that are all related to ultimately looking back and determining what the audited -- ultimately get an audited set of financial statements.

REP. MARKEY: I understand that. But you're the chief financial officer.

MR. MCMAHON: No, actually I'm the president of the company.

REP. MARKEY: You were. Have you conducted any investigations or inquiries to determine where there is false or misleading mark-to- market accounting treatment of any of Enron's energy services?

MR. MCMAHON: Not at this point.

REP. MARKEY: You have not. Have you, as chief financial officer or as chief operations officer, conducted any investigations or inquiries into any of the other SPEs to determine whether any of them raise accounting or disclosure issues which might be material to investors?

MR. MCMAHON: We are currently, as part of the bankruptcy process, trying to understand all these other SPEs, and so that work is ongoing as we speak.

REP. MARKEY: You are conducting an investigation of each of those matters?

MR. MCMAHON: We are looking through every special purpose entity that the company has at this point in time with respect to our bankruptcy and determining who our creditors are and how much they are owed.

REP. GREENWOOD: The time of the gentleman from Massachusetts has --

REP. MARKEY: If I may just finish this --

REP. GREENWOOD: -- expired.

REP. MARKEY: If I may just finish -- I'd just say, Mr. McMahon, I think what your testimony is telling us is that all we know so far is the tip of the iceberg, that the iceberg is yet to be discovered because thus far you, as the chief financial officer since all of this became public, did not look for the rest of the iceberg, and that's why the Congress and other investigators are going to have to do the work that in my opinion you and others inside the firm should have done as soon as you were put on notice that there were problems, especially with these SPEs after the letters that -- the documents that came from Ms. Watkins. Thank you, Mr. Chairman.

REP. GREENWOOD: The time of the gentleman has expired. The chair would inform the subcommittee members, the full committee members, and the witnesses that we do intend to undertake another round, a second round of questioning. It should not take as long as the first one. If -- do any of the witnesses need to take a five- minute convenience break at this point? They're all good strong men.

In that case, the chair recognizes the chairman of the committee, Mr. Tauzin, for five minutes.

REP. TAUZIN: I thank the chairman.

Let me turn, Mr. McMahon, to some questions that continue to puzzle the dickens out of me. And I first of all want to lay a ground work for something. You -- you did know Sherron Watkins, did you not?

MR. MCMAHON: That's correct.

REP. TAUZIN: Did you know her before her work at Enron?

MR. MCMAHON: Yes. I've known Sherron for several years.

REP. TAUZIN: Did you know about her August 14th and 15th memo to Mr. Ken Lay describing what she considered to be problems that might amount to an implosion of the company in a wave of accounting scandals?

MR. MCMAHON: She sent me a copy of that one-page letter after she had delivered it to Mr. Lay, and then she came by and we spoke about it.

REP. TAUZIN: Did you speak to Mr. Lay about the -- about Sherron Watkins and her letter?

MR. MCMAHON: I did. When Sherron came by to see me, I encouraged her to actually take authorship of that letter and see Mr. Lay directly.

REP. TAUZIN: That is to not do it anonymously, but to let him know it was she who was writing it. Did you recommend her to Mr. Lay?

MR. MCMAHON: I did. I called Mr. Lay and explained to him that although I was unaware of any of the facts that in her letter, whether they had merit or not, I did validate that Ms. Watkins was in fact a reputable source and employee and that she should be listened to with, you know --

REP. TAUZIN: So you did vouch for her to Mr. Lay?

MR. MCMAHON: That's a fair assessment.

REP. TAUZIN: In the letter, she says that Skilling is resigning for personal reasons, but I think he wasn't having, looked down the road and knew this stuff was un-fixable and would rather abandon ship now than resign in shame in two years. Do you concur with that analysis?

MR. MCMAHON: First off, I'm not sure that was in her one-page letter.

REP. TAUZIN: It's in a memo. You did --

MR. MCMAHON: Which I did not see. She shared with me her one- page letter, and I don't know -- (inaudible) --

REP. TAUZIN: Here's what's confusing to me, and I want you to tell me what you know about who knew this stuff. We learned from the Powers Report and our own investigation that there were numerous -- rather a healthy number of employees of Enron who were investing in these deals. Ms. Ann Yeager, while still employed with Enron, was invested in South Hampton to the tune of a $2,900 investment that turned into $500,000 in six weeks. Mr. Glisson, Mr. Murdoch (sp), Ms. Murdoch (sp), invested each $5,800 -- they got a million dollars in six weeks. They were employees of Enron. Mr. Kopper is an employee of Enron. Mr. Fastow -- not just an employee -- he's the guy in charge of making recommendations of who is going to move up the ladder. He does the peer review, doesn't he? Pretty irresponsible.

MR. MCMAHON: That's correct.

REP. TAUZIN: In fact, you complained to Mr. Skilling, you were worried about your bonuses --

MR. MCMAHON: That's correct.

REP. TAUZIN: -- because of your problems with questioning Mr. Fastow's dealings, is that correct?

MR. MCMAHON: Yes. The conflict of interest that was presented by Mr. Fastow sitting on top of the entire financial organization and having an interest in the general partner was problematic on many fronts.

REP. TAUZIN: What -- what's confusing to me, I mean amazing, I think to all of us as we examine this is who knew that all these employees -- did Mr. Skilling know that Mr. Fastow was in a position where he could, in fact was, threatening to punish people because they were negotiating too well for Enron against him and his partnerships, when he himself was an officer, a fiduciary capacity with Enron. Did Mr. Skilling know that?

MR. MCMAHON: Certainly Mr. Skilling knew the structure of the organization --

REP. TAUZIN: Did Mr. Lay know that?

MR. MCMAHON: I don't know what Mr. Lay's knowledge was.

REP. TAUZIN: Did Mr. Lay know about all of these employees investing in these partnerships and making these outrageous returns?

MR. MCMAHON: Again, I don't know what Mr. Lay knew, but I for one was certainly surprised about the -- (inaudible) -- employees.

REP. TAUZIN: Mr. Mintz, maybe you can help me here, but did either one of you catch some heat for attempting to disclose to other people in the corporation the kind of monies these people were making while they were still members of the -- of the Enron family, working for the company?

MR. MINTZ: I caught some heat from Mr. Kopper when I sent that March memo to Mr. Buy and Mr. Causey.

REP. TAUZIN: And in fact, didn't Mr. Kopper contact one of you about the Enron-Wynn deal?

MR. MINTZ: Yes.

REP. TAUZIN: Was it you, Mr. Mintz?

MR. MINTZ: Yes, Mr. Chairman.

REP. TAUZIN: And Mr. Kopper, what was he trying to get from you? You -- apparently Enron-Wynn, you were negotiating with someone else, right?

MR. MINTZ: That's correct.

REP. TAUZIN: What was he trying to learn from you?

MR. MINTZ: The company was negotiating with a third party, and a colleague of mine was representing the company, and Mr. Kopper came to me and asked me if I could find out some information as to the status of the negotiation with the third party.

REP. TAUZIN: On behalf of whom?

MR. MINTZ: On behalf of LJM.

REP. TAUZIN: On behalf of the partnership?

MR. MINTZ: That's correct.

REP. TAUZIN: So he was trying to get you to give him inside information about the third party transactions so he could be better positioned to negotiate his deal for himself? Is that the deal?

MR. MINTZ: One could draw that conclusion.

REP. TAUZIN: What did you tell him?

MR. MINTZ: I told him a couple of things. I told him, one, I was an employee of Enron and Enron was my client, and two, that the transaction was being represented by one of the finest lawyers in the company, Lance Shuler (sp), and that if he wanted to talk with anybody, he should talk with Lance.

REP. TAUZIN: And in one case -- at one point, you went to Jim Derrick, didn't you, the general counsel for Enron, to talk about the dysfunctionality of this arrangement, where you had Enron employees negotiating on both sides of the table. In fact, with Ms. Yeager, it's really strange here, she's negotiating on one side of the table, and her fiancee is on the other side of the table, is that right?

MR. MINTZ: That's correct.

REP. TAUZIN: And they eventually signed one document as husband and wife later on, on either side of the table, right?

MR. MINTZ: That's my understanding.

REP. TAUZIN: You complained about that dysfunctionality to Jim Derrick, the general counsel from Enron. Did you get any help?

MR. MINTZ: Again, Mr. Chairman, as I said before, yes, I saw this dysfunctionality on a regular basis and I wanted to bring it to Mr. Derrick's attention because he didn't see it on a day-to-day basis.

REP. TAUZIN: So, is -- where's the disconnect? Where would -- why were you having such a great deal of trouble getting this information to the right people who might could do something about it? Was there people blocking you in the middle? Is Mr. Lay correct that he was being deceived by someone? He didn't know this was going on? I mean, that's basically what he told the Powers investigators in his interviews, that he was deceived by his own managers, his own people in the corporation. He didn't know what was going on. He didn't understand all this dysfunctionality and these conflicts of interest. Is that correct?

MR. MINTZ: Mr. Lay's statement?

REP. TAUZIN: Yes.

MR. MINTZ: I don't know.

REP. TAUZIN: But you talked to -- Mr. McMahon, you talked to Mr. Lay personally, did you know, and you vouched for Ms. Watkins and you told him to pay attention to her concerns, did you not?

MR. MCMAHON: I did. As far as Ms. Watkins' allegations, I did speak to Mr. Lay personally about that, although that was the first time I had heard of any of those allegations.

REP. TAUZIN: Did Andy Fastow know about the -- about the letter that Sherron Watkins sent to Mr. Lay?

MR. MCMAHON: He -- I don't know when he found out about it, but at some point he did find out about it.

REP. TAUZIN: Did he talk to you about it?

MR. MCMAHON: At a very high decibel level he spoke to me about. (Laughter.)

REP. TAUZIN: High decibel levels. What was his problem with it?

MR. MCMAHON: He accused me of being the ghostwriter of that letter. And when I found that out, I had a fairly, again, loud exchange with him about that.

REP. TAUZIN: In fact, when you went to complain to Mr. Skilling about the whole deal, did you get a call from Mr. Fastow right after that?

MR. MCMAHON: I did. About two weeks later, Mr. Fastow called me into his office and, as I testified earlier, said -- he indicated that he was unsure at this point in time whether we could continue to work together because he said that "you should assume everything you say to Mr. Skilling gets to me."

REP. TAUZIN: In other words, it doesn't help you to complain to Mr. Skilling because he comes right to me with the complaint.

MR. MCMAHON: Everything -- his comment was everything Mr. Skilling says I hear about.

REP. TAUZIN: So, the message was -- go get another job, because you can't work with us, you're messing in our deals, and everything you tell him is going to come to me anyhow, so it's not going to do you any good to go report on me. Right?

MR. MCMAHON: Again, I don't know what his intent of the message was, but he clearly was telling me he was very aware of the conversation I had --

REP. TAUZIN: And you got bumped. You're not treasurer anymore. Who took your place?

MR. MCMAHON: Mr. Glisson took my place.

REP. TAUZIN: Mr. Glisson? Who did he report to?

MR. MCMAHON: At the time, I believe he reported to Mr. Kopper.

REP. TAUZIN: And Mr. Kopper is working Chewco.

MR. MCMAHON: As I've come to determine now, apparently Mr. Kopper has an investment in Chewco.

REP. TAUZIN: So, is it fair to say that your complaining and giving him trouble, they move you over to another spot and put somebody in who is working with him?

MR. MCMAHON: Certainly Mr. Glisson was working with Mr. Kopper when he took that role.

REP. TAUZIN: Is he the same person that did not give the side agreement to Arthur Andersen? Mr. Bauer?

MR. BAUER: The side agreement was withheld. Mr. Glisson gave us the document that the side agreement would have been appended to.

REP. TAUZIN: So, Mr. Glisson gave you the document without the side agreement. He's the guy -- he gets the job as soon as Mr. McMahon is moved out of the way, right? That's the picture we get. I think we're beginning to understand this.

Thank you very much, Mr. Chairman.

REP. GREENWOOD: The chair thanks the gentleman. The chair recognizes the gentleman from Michigan, Mr. Stupak, for five minutes.

REP. STUPAK: Thank you, Mr. Chairman. Mr. McMahon, as COO, chief operating officer, what are you duties and responsibilities?

MR. MCMAHON: A week into it, my duties right now are predominantly focused on attempting the company to reorganize.

REP. STUPAK: Okay. Without -- if we didn't have this mess, as COO, what would you be doing? What's your responsibilities as a COO of Enron? Not right now -- I mean --

MR. MCMAHON: But right now is pretty important; facing bankruptcy.

REP. STUPAK: (Inaudible.)

MR. MCMAHON: The majority of my responsibilities right now are working with the creditors' committee and reorganize the company to emerge from bankruptcy.

REP. STUPAK: Let me ask it this way -- is there a written description of a COO for Enron?

MR. MCMAHON: Not that I'm aware of.

REP. STUPAK: In Sherron Watkins' memo, she states, "Cliff Baxter complained mightily to Skilling and all those who would listen about the inappropriateness of our transactions with LJM." Did any of you -- Mr. Bauer, Mr. McMahon, Mr. Mintz -- talk to Cliff Baxter about his complaints? And is there any documentation of those conversations -- any written documentation or oral preservation through recording or anything like that? We'll start with you, Mr. Bauer.

MR. BAUER: I was unaware of Mr. Baxter's concerns about LJM.

REP. STUPAK: Mr. McMahon?

MR. MCMAHON: As I testified earlier, I had a conversation with Mr. Baxter about my concerns, but -- and he was -- he acknowledged the conflicts, but I was not aware of the conversations he had with Mr. Skilling.

REP. STUPAK: So, he acknowledge that the conflicts, but what else did he say -- Mr. Baxter?

MR. MCMAHON: Our discussion was mostly focused on -- this was right before I met with Mr. Skilling, the concerns I had as they manifested themselves in the finance department. He acknowledge that he -- there were conflicts. When I expressed my concerns, he understood them. And he is the one, actually, who encouraged me directly to go -- or to go see Jeff directly to try and get them resolved -- Mr. Skilling.

REP. STUPAK: Mr. Mintz?

MR. MINTZ: I had lunch with Mr. Baxter about a month before he had left the company, and we talked about LJM and I shared with him my concern about the dysfunctionality. And Mr. Baxter was concerned about it and made the comment to me that he didn't understand why the board was allowing Andy to do this.

REP. STUPAK: Did Mr. Baxter --

MR. MINTZ: It was never memorialized.

REP. STUPAK: Pardon?

MR. MINTZ: It was never memorialized.

REP. STUPAK: Did -- any memos from Mr. Baxter or anything like this to either one of you gentlemen about the meetings, or anything at all about his concerns, in writing?

MR. MINTZ: Not that I'm aware.

REP. STUPAK: Mr. McMahon, you told us all about the people that you contacted about your concerns about Mr. Fastow's conflict of interest. You took personal abuse from Mr. Fastow, and no one -- not Mr. Skilling, Mr. Causey, Mr. Buy, Mr. Lay, Mr. Sutton -- not one lifted a finger to do anything to get you out of the way. You even told Mr. Sutton that Mr. Fastow would be making as much as $15 million, did you not?

MR. MCMAHON: I think that's -- it was $10- to $20 million per year, that's correct.

REP. STUPAK: Okay. And as Chairman Tauzin pointed out, it basically got so bad that you gave Mr. Skilling an ultimatum -- either he had to fix it, or you would get a new job, is that right?

MR. MCMAHON: That's correct. I asked him either to remedy the situation or move me within the company.

REP. STUPAK: And that's when, shortly thereafter, Mr. Fastow called you in and said you couldn't work together any longer?

MR. MCMAHON: That's correct.

REP. STUPAK: Okay. And then, shortly thereafter, then Mr. Skilling offered you a new job, is that correct?

MR. MCMAHON: Correct. Yes.

REP. STUPAK: And that new job was what?

MR. MCMAHON: It was chief operating officer of a new e-commerce group that we had set up called Enron Networks.

REP. STUPAK: Mr. Bax -- I'm sorry, Mr. Mintz, if I can go back with your lunch with Mr. Baxter, was that an attorney-client privilege type lunch, or was it a free-flowing discussion? Do you feel some of this was privileged, the conversation?

MR. MINTZ: I looked at it as two friends getting together for lunch.

REP. STUPAK: And can you explain any more of what was discussed in any detail? Can you give me any more details about what was discussed over this lunch? It was about a month before he left, you said.

MR. MINTZ: That's correct. We touched upon that top. Clearly we had the conversation, but we talked about a number of different things, and the majority of the lunch didn't dwell on the LJM issue.

REP. STUPAK: Okay. It was mostly LJM, Chewco, JEDI, or mostly LJM?

MR. MINTZ: It was more focused on Andy running a private equity fund that was transacting with Enron.

REP. STUPAK: And I take it he was very concerned about this private transaction that being placed with Enron?

MR. MINTZ: He expressed just, you know, bewilderment about why -- why the board was allowing this to happen -- why they were allowing Andy to do it.

REP. STUPAK: Thank you.

REP. GREENWOOD: The time of the gentleman has expired. The chair recognizes himself for five minutes.

Mr. McMahon, it appears that Lee Fastow, Andy Fastow's wife, performed certain management tasks for Chewco. We're going to hand you a document -- the staff is bringing a document that is not in the binder. If you take a look at -- and I would ask unanimous consent that the document, two documents, be placed in the record -- if you take a look at the two documents we are about to distribute to you, you will see a facsimile letter dated October 13th, 1998 from Lee Fastow to Michael Kopper regarding bank-account balances for the various partnerships and corporations that made up the Chewco partnership and an e-mail dated April 10th, '98 from Bill Dodson, Kopper's domestic partner and business partner in the Chewco partnerships, where he provides certain bank-account information. And he writes, quote, "Send lots of" -- and then that's followed by seven dollar signs. Do you know what compensation Mr. Fastow received -- Mrs. Fastow received for her services to Chewco?

MR. MCMAHON: I do not know that.

REP. GREENWOOD: Mr. Mintz, do you know that?

MR. MINTZ: No, Mr. Chairman.

REP. GREENWOOD: Okay. Enron made a $2.6 million tax indemnity payment to Chewco in September 2001. The Powers report states that there is credible evidence that Fastow approved this payment to Chewco even though Enron's in-house counsel advised him unequivocally that there was no basis in the original 1997 purchase agreement for the payment and that Enron had no legal obligation to make that payment. That's from page 65 in your binder. Do you know which in-house counsel advised Fastow that Enron did not have to make the payment?

MR. MCMAHON: I am not aware which counsel Mr. Powers was referring to.

REP. GREENWOOD: Do you know why Fastow would ignore his attorney's advice and authorize an unnecessary $2.6 million payment?

MR. MCMAHON: No, I do not.

REP. GREENWOOD: Do you have any -- I would assume you can't conclude, then, whether this was in Enron's interest for this payment. You don't know anything about this.

MR. MCMAHON: I really don't know anything about it, Congressman.

REP. GREENWOOD: All right. Look on page --

MR. MINTZ: Mr. Chairman, sorry to interrupt you, but I've got some insight into that, because I was that in-house counsel.

REP. GREENWOOD: I'm delighted to hear from you, sir, Mr. Mintz.

MR. MINTZ: I had worked on the original tax indemnification back in 1997, which was not unusual when you had a partner and there was a disconnect between income and cash distributions. What that indemnification agreement provided for was that if there was income without the attendant cash, there would be a cash distribution made to the partner. However, when that particular partner was able to claim tax benefits, that cash would be paid back. So in tax parlance, it just took care of a timing issue, not a permanent issue.

REP. GREENWOOD: So does this appear proper to you, appropriate to you?

MR. MINTZ: When the Chewco was being bought out, the transaction closed. And shortly thereafter, Michael Kopper came to me -- no, I'm sorry, his accountant called me and said that Chewco was looking for an indemnification payment. And I said, "Well, if there's any money being paid, it should go back to Enron," because there were some small payments before that time.

And, in fact, I lost my temper with his accountant because I said, "You know how the indemnification agreement read. Educate your client and leave me alone." It didn't go away. And Michael was insistent that the indemnification agreement was written incorrectly.

I consulted with counsel from Vinson & Elkins, who I worked with on the indemnification. They confirmed my reading and understanding of it. And I reported back to Michael's accountant about that. Shortly thereafter, I got a call from Mr. Fastow. He said, "I understand there's a problem on the tax indemnification agreement." I said, "Andy, there's no problem. You know, it reads correctly." And this was supposed to take care of a timing issue.

So Andy said, "Well, I really don't have any insight into the Chewco deal. Mr. Skilling does. Jeff does. And I'll go talk to Jeff about it." A couple of days later, Andy called me back and said, "I spoke to Jeff, and Jeff said the economics of the transaction with Chewco were to provide an after-tax return," and therefore the tax (gross?) payment, if you will, was supposed to be made. I said, "Andy, my understanding from the accountants on this is that it would have a cost to the company of a million or two million dollars." And Andy said, "Well, that's what the arrangement was." And, you know --

REP. GREENWOOD: Would you consider this to be more dysfunctionality? If you saw a man come into a bank with a hood over his head and a gun and take out a bag of money, would you call that dysfunctionality? (Laughter.)

MR. MINTZ: I was very frustrated and disappointed.

REP. GREENWOOD: Quickly, Mr. McMahon, as you may know, many officers and directors of Enron have now professed utter shock at Mr. Fastow's compensation from these partnerships. Despite his role as general managing partner, tell us about how these private equity funds normally work and what your own estimate was of Mr. Fastow's compensation without ever being told about the number specifically.

MR. MCMAHON: The compensation of general partners in private equity funds, I think, are fairly standardized across the industry, the private equity fund industry. And that's essentially whereby the general partner gets -- the rule of thumb is a 2 percent annual fee on the total funds raised; and then a 20 percent promote or carried interest related to earnings of the fund above some certain benchmark.

REP. GREENWOOD: Do the math. What did that amount to for Mr. Fastow?

MR. MCMAHON: Based on my understanding of LJM2, which was about a $300 (million) fund, 2 percent of that is $6 million a year for the GP fee. And then if they -- standard private equity returns, which are typically in excess of 30 percent, there could be another $15 million or so earned for the general partner.

REP. GREENWOOD: Is it reasonable to have expected Mr. Skilling to have a good idea of Fastow's compensation in LJM2? Not of LJM2?

MR. MCMAHON: I don't know how familiar Mr. Skilling was with private equity compensation or not. But it is pretty standardized in the industry.

REP. GREENWOOD: My time has expired. The chair recognizes the gentlelady from Colorado, Ms. DeGette.

REP. DEGETTE: Thank you, Mr. Chairman. Mr. Bauer, you said in your testimony that Enron withheld the information from you about the side agreement, you were later horrified to find. Who was it that withheld that information from you?

MR. BAUER: Congressman, I don't know who withheld --

REP. DEGETTE: Well, who was responsible for giving you the information?

MR. BAUER: Mr. Glisson was responsible for giving us the documentation related to that.

REP. DEGETTE: So as far as you're concerned, it was Mr. Glisson who didn't give it to you.

MR. BAUER: That's fair to say, but we did ask him for all the documentation.

REP. DEGETTE: How many of these SPEs did you deal with in your role?

MR. BAUER: None of the Raptor, LJM1 transactions or things like that. But I've seen --

REP. DEGETTE: Do you have an estimate? Ten, 20?

MR. BAUER: Yeah, a dozen, 20, something like that.

REP. DEGETTE: A dozen? Okay, 20, something.

MR. BAUER: Yeah.

REP. DEGETTE: And how did you go about collecting information for these various entities?

MR. BAUER: The typical process that I employed was to have a discussion with the transaction support person at Enron, who would describe the transaction. We would provide accounting advice --

REP. DEGETTE: And they would give you the documentation?

MR. BAUER: And they would give us the documentation on it.

REP. DEGETTE: And so you would assume you were getting the correct documentation.

MR. BAUER: That's correct. And we were typically asked for the executed copies at the completion of the transaction.

REP. DEGETTE: Okay. Mr. McMahon, I believe you told Chairman Tauzin that you had discussed the Sherron Watkins memo with Mr. Lay. Is that correct?

MR. MCMAHON: Not quite accurate. I discussed Ms. Watkins' credibility.

REP. DEGETTE: You discussed Sherron Watkins and her credibility with Mr. Lay.

MR. MCMAHON: That's correct.

REP. DEGETTE: And I assume that was after Mr. Lay had received her memo.

MR. MCMAHON: That's correct.

REP. DEGETTE: So when was that?

MR. MCMAHON: I'm not quite certain of the dates, but it was a day or two after Ms. Watkins claimed authorship of the letter with Mr. Lay.

REP. DEGETTE: Did Mr. Lay tell you or had you seen Ms. Watkins' memo? Did you know what was in her memo?

MR. MCMAHON: I saw the one-page letter that she had written anonymously to Mr. Lay.

REP. DEGETTE: Okay. And so you were aware of the allegations in general that she was making.

MR. MCMAHON: Yeah, what was in that letter. I was aware of --

REP. DEGETTE: Right, okay. Now, did you take that opportunity, when you were meeting with Mr. Lay a day or two after the Watkins letter, to tell him about your conversation in March of 2000 with Mr. Skilling that we've been talking about here today, where you said, "It's not in the best interest of the shareholders to be doing these kind of deals"?

MR. MCMAHON: At the time --

REP. DEGETTE: Sir, yes or no? Did you?

MR. MCMAHON: Did I have the conversation with Mr. --

REP. DEGETTE: Yeah, did you talk to him about your concerns about these deals?

MR. MCMAHON: I did not talk to Mr. Lay of the concerns. It was with a meeting I had with Mr. Skilling a year and a half earlier.

REP. DEGETTE: Okay. Did you talk to him about your concerns in general about these --

MR. MCMAHON: I was not aware -- I'm not aware of any of the allegations Ms. Watkins made in her letter.

REP. DEGETTE: No, but you had concerns way back in March of 2000. In fact, you said that you would -- that you thought it was a potential breach of your fiduciary duty to have to work on both sides of these deals.

MR. MCMAHON: Well, the allegations that Ms. Watkins made in her --

REP. DEGETTE: No, I know, but I'm talking about you, because you had concerns in March of 2000. And now here's Sherron Watkins coming forward with concerns over a year later, well over a year later. Did you take the opportunity then to say to Mr. Lay, "You know, back a year and a half ago, before I got transferred, I also had some concerns about the company's financial structures"? Did you talk to him about it?

MR. MCMAHON: No, Ms. Watkins' and my concerns were radically different. Mine were about structural management issues on conflicts. Hers were about specific --

REP. DEGETTE: Right. Well, okay, but I'm just saying, because you had the bully pulpit -- here you are talking to Mr. Lay -- did you ever talk to Mr. Lay ever about your concerns about these financial matters?

MR. MCMAHON: No, the matters I spoke with Mr. Skilling about and Mr. Sutton about were with those --

REP. DEGETTE: Now, did you ever prepare an analysis of Chewco's distributions purchase interest in JEDI on behalf of -- let's see, who would it have been on the -- to Mr. Fastow?

MR. MCMAHON: I'm not so sure if I personally did that, but someone in my group prepared an analysis when we were considering the Chewco buyout.

REP. DEGETTE: Okay. If you'll look at Exhibit 28 in your notebook, that's a memo that says, "Andy, here is my analysis of the distributions purchase of Chewco's interest in JEDI. I'm showing you the numbers Jeff M. gave you." I assume that's you. Is that you?

MR. MCMAHON: This is not my memo, so I --

REP. DEGETTE: Well, did you give them numbers?

MR. MCMAHON: I did give him an analysis of the Chewco buyout.

REP. DEGETTE: Okay. Did you ever find out what happened with your analysis after that time?

MR. MCMAHON: You mean, did I ever find out what ultimately got executed?

REP. DEGETTE: Yeah.

MR. MCMAHON: I found out when the special committee report came out last week.

REP. DEGETTE: So you didn't find out the result of this till last week. Okay.

MR. MCMAHON: No, I -- I had moved out of the treasurer apparently when (that happened ?).

REP. DEGETTE: Okay, I just have one last question for you, Mr. Mintz, and that is, your supervisor, Mr. Derrick, had been a former partner at Vinson & Elkins, correct?

MR. MINTZ: That's correct.

REP. DEGETTE: And you went to Mr. Derrick and you told him about the concerns you were seeing, correct?

MR. MINTZ: I was bringing -- I advised him on what was going on on the 20th floor.

REP. DEGETTE: When was that?

MR. MINTZ: I think our first formal meeting was in March of 2001.

REP. DEGETTE: Okay. And you told our committee staff that when you told him about all this, he was just sort of poker-faced; didn't say anything, right?

MR. MINTZ: That's correct.

REP. DEGETTE: And so it was after you expressed those concerns to him that you went out and hired outside counsel, going around your supervisor.

MR. MINTZ: We had a subsequent meeting. And then, after that time -- you're correct, Congresswoman -- I did hire at Fried, Frank.

REP. DEGETTE: You had a couple of meetings with him. You didn't get a satisfaction. You went out of the line, really. And instead of hiring Vinson & Elkins, which was Enron's attorney, you went and got independent counsel. Correct?

MR. MINTZ: That's correct.

REP. DEGETTE: And just to finish, Vinson & Elkins was the law firm that prepared the response to the Sherron Watkins memo, was the -- (inaudible) -- memo, correct?

MR. MINTZ: Correct.

REP. DEGETTE: Thank you, Mr. Chairman.

REP. GREENWOOD: I thank the gentlelady. Mr. Mintz, where was your office? You were the general counsel. Where was your office in this building relative to Mr. Fastow?

MR. MINTZ: Mr. Fastow was on the 50th floor, where many of the executives were, and I was on the 20th floor, where a number of the Global Finance employees were.

REP. GREENWOOD: Okay. I just call your attention to document number 23 and document number 2 in the notebook. These are quite detailed documents, memoranda, inter-office memoranda. And it appears you have had several conversations with Mr. Fastow about issues relating to disclosure of his interest, Mr. Fastow's interest, and compensation from these LJM partnerships. And then you wrote these memos, which are quite detailed.

You know, it seems like you could also get up on the elevator and talk to him. And I wonder, you know, about these memos. In these conversations you had, is it fair to say Mr. Fastow was interested in trying to minimize his disclosure to the greatest extent possible?

MR. MINTZ: I think that's a fair description.

REP. GREENWOOD: And, you know, I look at some of your memos here. You sort of point out to him some of the steps taken to minimize any related party and proxy disclosure; document number 2 and document number 23. "The decision not to disclose in this instance was a close call," you said. "Arguably, the more conservative approach would have been to disclose the amount of your interest."

So obviously these memos seem to be a memorandum for the record, plus you've had conversations. Did Mr. Fastow ever suggest a reason for wanting to keep the disclosure of his compensation, how much money he was making, (and?) interest, a secret, particularly from Mr. Skilling?

MR. MINTZ: He did.

REP. GREENWOOD: And what did he say to you?

MR. MINTZ: He said that if Jeff ever knew how much he made from the Rhythms Net transaction, he'd have no choice but to shut down LJM.

REP. GREENWOOD: Hmm. In fact, did Enron ever disclose Mr. Fastow's economic interest or compensation from these partnerships and the transactions prior to October 2001, when it fired him?

MR. MINTZ: No monetary figure was provided prior to that time.

REP. GREENWOOD: Okay. Mr. Fastow -- Mr. Fastow never did disclose, even to you, the amount of his compensation from the LJM deals. Is that correct?

MR. MINTZ: That's correct.

REP. GREENWOOD: Did you ask Mr. Causey to raise the issue of Mr. Fastow's compensation with the board of directors at its February 12th, 2001 meeting?

MR. MINTZ: I did.

REP. GREENWOOD: He did so.

MR. MINTZ: He did so.

REP. GREENWOOD: Okay. Did Causey raise it, too?

MR. MINTZ: With the board at that meeting?

REP. GREENWOOD: Did Mr. Causey raise it to the board?

MR. MINTZ: No, sir.

REP. GREENWOOD: Okay. Mr. McMahon, prior to firing Glisson, you had a conversation with Mr. Glisson where you asked him if he had any interest in the LJM partnerships. What did he say to you?

MR. MCMAHON: He -- this was prior to his termination. He said he had no interest -- actually, my question to him was a little bit broader, because I was not aware of all the partnerships. So I said, "I want to make sure that this new management team doesn't have any baggage. Do you have any interest in any of these partnerships? I don't even know the names to ask you, but you know what I'm asking, whether it's direct or indirect."

REP. GREENWOOD: So he knew what you were talking about.

MR. MCMAHON: There was no question he knew what --

REP. GREENWOOD: And so he didn't tell the truth to you.

MR. MCMAHON: Well, he responded no to that question.

REP. GREENWOOD: Okay. Would you consider that he was not telling the truth?

MR. MCMAHON: He responded no to the question. And subsequently I did learn that he was, in fact, an investor in one of these LJM partnerships.

REP. GREENWOOD: So it would appear to me that's why you fired him.

MR. MCMAHON: The grounds of Mr. Glisson's termination, I believe, were related to a violation of the code of ethics -- or the code of conduct, sorry.

REP. GREENWOOD: Mr. McMahon, I have a memo which is number 9, and it's been gone over a couple of times, which is -- some of the memo is talking about your negotiations with Mr. Fastow on Exxon -- with Enron -- (laughter) -- and also talking about, I guess, some of your conversation with Mr. Skilling. As a result of this memo, did you feel uneasy about the Enron stock at all?

MR. MCMAHON: No, not at the time. My concerns, frankly, were related to internal management of a conflict. I did not see this being a large issue from the stock price perspective.

REP. GREENWOOD: We have a schedule of March 2000, which is your calendar, which is tab number 10, I think, in which it shows that you met with numerous people; Mr. Skilling, with Mr. Fastow, all during this period, in which you also wrote this memo, which is document number 9, in which you're talking with these people. And looking at the calendar, and also looking at your notes, my first impression is that you had some concern here about Enron, its stock and its partnerships. And there seems to be some apprehension. Would that be a fair assumption?

MR. MCMAHON: I don't think that is a fair assumption. My concern was how the situation was affecting the management of the finance department internally.

REP. GREENWOOD: What does that mean?

MR. MCMAHON: Meaning that it was disruptive of the way the organization was set up, with Mr. Fastow and his personal interests, et cetera, et cetera, and him being the chief financial officer of the company. I did not, at that point in time, have concerns on the stock.

REP. GREENWOOD: I noticed that you had a sale of a large block of your stock, up to $1.8 million, that was exercised on March 16th, and I guess the sale was on March 16th. This is based upon insider trading list; had Mr. Baxter had a sale of almost a million dollars on March 22nd. Mr. Fastow had a sale on March 27th of almost seven and a half million dollars. Then, before that, on March 27th -- well, he exercised that option.

So, I mean, there was a lot of insider trading as a result of all these activities. And I'm just -- I don't know; I'm just asking, based upon the insider trading and some of the memos that you wrote to yourself, as well as the calendar of people you met with, is it possible that some alarms, some flags went up, and suddenly people started saying, "Wow, I better start moving on here and cash in my chips"? I mean, that's just an observation.

And my time has expired, and -- would you like to respond? You're welcome to.

MR. MCMAHON: I would like to respond to that. (Laughter.)

REP. GREENWOOD: Sure.

MR. MCMAHON: I can't respond to everyone else's stock sale program. But personally, I have a program of diversifying my investments. And, generally speaking, when our unvested options vest, I generally sold them in the market. And, given the other activities just described, it wouldn't surprise me at or around that point in time there was a vesting date that may have occurred.

REP. STEARNS: Mr. John for questions.

REP. JOHN: Yes, thanks, Mr. Chairman. I have a quick question, both to Mr. McMahon and Mr. Mintz. Give me a short description of Mr. Skilling's management style. I mean, you guys worked with him everyday.

MR. MINTZ: Congressman John, I did not a working relationship with Mr. Skilling, so I really can't answer.

REP. JOHN: you never interacted with him or had meetings with him at any time?

MR. MINTZ: No, sir.

REP. JOHN: You don't have an opinion formed because of your interactions with them about his management style?

MR. MINTZ: Really my only dealings with Jeff were in a social setting, company Christmas party.

REP. JOHN: Mr. McMahon?

MR. MCMAHON: My description of Mr. Skilling's management style would be he was an intense hands-on manager.

REP. JOHN: Intense hands-on. The New York Times this morning described him as, the quote, "ultimate control freak" -- this morning. Would you agree with that?

MR. MCMAHON: I did not actually catch that article, but --

REP. JOHN: It was there.

MR. MCMAHON: I think I stand by my intense hands-on description.

REP. JOHN: In fact, it goes on to say the sort of hands-on corporate leader who kept his fingers in all pieces of the puzzle. Do you agree generally with your --

MR. MCMAHON: My description is Jeff was actively involved in the businesses that Enron was in.

REP. JOHN: Okay. I have got one final question to ask, and this question is actually from Congresswoman Jackson Lee, who is not a member of this committee, who cannot ask a question. But I have decided that it's a very good question, and I'd like to ask you, because she hasn't been allowed to participate in the proceedings. Enron itself in many of the ex-Enron employees and retirees live in her district, in her congressional district. Do you guys have any plans short of the bankruptcy proceedings for interim finance relief to the ex-Enron employees and their families? Do you guy?

MR. MCMAHON: When you say short of the bankruptcy, you mean short of what was authorized via the bankruptcy?

REP. JOHN: Correct.

MR. MCMAHON: We are actually working with the creditors committee on a variety of matters that include that as well. The company at this point in time, because of the bankruptcy, cannot single-handedly authorize that type of activity. But there are discussions ongoing with the creditors committee for some additional relief, and we are going to have to see where that goes with the creditors committee at this point.

REP. JOHN: Okay, will there be any voluntary help that you are aware of amongst the Enron family for some of these folks?

MR. MCMAHON: If you are speaking about non-financial assistance that the employees are going to deal with, I am not exactly aware of exactly what the various employees are planning at this point in time. But, again, the financial side of it, unfortunately, the management and the company is not in complete control over it at this point.

REP. JOHN: Okay. Mr. Mintz, do you have anything to add to that?

MR. MINTZ: No, sir.

REP. JOHN: Okay. And, finally, my questioning and lines of question are always falling back on this SPE document that Mr. Skilling, who is the ultimate control freak, according to the New York Times, and a hands-on kind of guy, didn't sign. My question to Mr. Mintz is: Are you aware of any advice that he got, that he may have received from you or anyone else as to not -- as if it would be in his best interests not to sign this SPE document?

MR. MINTZ: I am not aware of that advice, congressman.

REP. JOHN: Okay, that's all I have. I yield --

REP. TAUZIN: But would the gentleman yield a second?

REP. JOHN: Sure, I'll yield to the gentleman from Chackbay, Louisiana.

REP. TAUZIN: I thank my friend from Crowley. Let me for the record indicate that Congresswoman Sheila Jackson Lee has been a welcome guest of our committee proceedings from the beginning of this inquiry, and that we are delighted that she is with us today because of her sincere interests on behalf of her constituents living in that area. The committee rules do not allow the participation -- it is not that we have forbidden here or anyone else to participate. The committee rules do not allow the participation of non-members of the committee in these kind of proceedings. But we have not only welcomed here, but encouraged her attendance because of her extraordinary interest obviously on behalf of her constituents. And I wanted to recognize her presence today, and thank her again for that help she has given us. Thank you.

REP. GREENWOOD: I thank the gentleman. The gentleman from Oklahoma, Mr. Largent.

REP. LARGENT: No additional questions.

REP. GREENWOOD: No additional question. The gentleman from Massachusetts, Mr. Markey?

REP. MARKEY: Thank you, Mr. Chairman. Mr. McMahon, before you were transferred you were treasurer at Enron. You were involved in numerous frenzies to deal with cash flow problems through SPEs. Could you describe what kinds of cash flow problems Enron had when you were treasurer at the end of 1999 and early 2000, and how they were dealt with? We are talking about some rather major crises with potential impacts of $100 million or more.

MR. MCMAHON: The -- I am not sure if I know exactly what you are referring to. But as part of the whole management of the liquidity of the company, cash flow was an important issue for the company.

REP. MARKEY: Well, let me move on. A week before the bankruptcy, when you were CFO, the company paid out retention bonuses to executives. As CFO, you would have known that the $100 million was about to be paid out. Did you also know about the imminent bankruptcy at that time, since you were CFO?

MR. MCMAHON: The retention payments were something that was recommended and approved by the board. And, in fact, yes, they were paid out prior to the bankruptcy, and the --

REP. MARKEY: Did you know about the bankruptcy, the imminent bankruptcy at the time that the bonuses were paid out?

MR. MCMAHON: We knew certainly that the bankruptcy was one of several optician that could occur.

REP. MARKEY: Were you a beneficiary? Did you receive a bonus?

MR. MCMAHON: Yes, I did.

REP. MARKEY: Did you have knowledge that a bankruptcy was looming at that time?

MR. MCMAHON: I think bankruptcy had been looming for a time period at that point in time. It was one of the many options that we were exploring.

REP. MARKEY: As CFO, did you raise objections that bonuses were being paid with bankruptcy looming?

MR. MCMAHON: The notion behind the retention payments, Congressman, was one that if we were to go into bankruptcy, that these key individuals would remain in the company to protect the businesses and assets value for the creditors.

REP. MARKEY: You could see though where ordinary investors and ordinary employees would think that this was just the first-class passengers in the company taking care of themselves, as the other passengers would all be going --

MR. MCMAHON: Well, again, the notion is preserve the value for all stakeholders, and predominantly the creditors at that point in time. So I think that it's not uncommon in bankruptcy for these type of things to happen. And I think frequently in the long run the asset values are protected by keeping certain individuals around long enough to --

REP. MARKEY: All right, let me ask this, Mr. McMahon. Earlier you said that you recall that in the Marlin, Osprey and Whitewing transactions Enron had agreed to provide these SPEs with Enron stock if there was a shortfall. Has the trigger been hit that results in Enron being required to issue stock to Marlin, Osprey or Whitewing?

MR. MCMAHON: Yes, I believe both the stock price trigger and the credit rating trigger --

REP. MARKEY: How much was issued, do you know?

MR. MCMAHON: I don't believe any additional stock has been issued, because of the bankruptcy stayed all those contracts, as I understand it.

REP. MARKEY: How much is the shortfall in those three?

MR. MCMAHON: I do not know the answer to that.

REP. MARKEY: Could you provide that for the record?

MR. MCMAHON: We can -- I will be happy to provide that to the committee as soon as we know the answer to that.

REP. MARKEY: Who are the investors and general partners in Marlin, Osprey or Whitewing?

MR. MCMAHON: I -- again, I don't know the investors here today, but I'll be happy to provide that to the committee when we get that information.

REP. MARKEY: What was your relationship with Osprey?

MR. MCMAHON: Osprey was initially put together --

REP. MARKEY: Did you have any relationship with it at all, Osprey?

MR. MCMAHON: Yes, I was -- well, I was treasurer at the time that the Osprey transaction was executed.

REP. MARKEY: What was your compensation in that deal, if any?

MR. MCMAHON: I had no compensation in that deal whatsoever.

REP. MARKEY: How about your relationship with Marlin or Whitewing?

MR. MCMAHON: Actually Osprey and Whitewing are the same. Marlin was a separate transaction, which was also executed when I was treasurer of the company.

REP. MARKEY: Did you have any financial benefit that you were the beneficiary of?

MR. MCMAHON: No, I had no financial benefit or interest whatsoever in Marlin.

REP. MARKEY: Mr. Chairman, I thank you.

REP. GREENWOOD: The chair thanks the gentleman. The gentleman from Texas, Mr. Green, I believe, has not yet had a second round.

REP. GREEN: Thank you, Mr. Chairman. And again, I want to thank my colleagues and I want to thank you for both your effort, but also in allowing some of us to sit in on the hearings.

Mr. McMahon, do you believe that Mr. Fastow would act independently of Mr. Skilling? And I ask because I have a feeling that when we hear testimony in the next panel, and of course whatever we find out from Mr. Fastow, they might want to blame each other. But do you think they worked independently of each other or did they work together -- in your relationship and your experiences?

MR. MCMAHON: Frequently they, as one being president and one being chief financial officer, frequently they worked together. I am not sure if I understand your question --

REP. GREEN: Okay, well, I'm just wondering if both in the congressional hearings -- but since we are not going to hear from one, but we'll hear from the other -- if he will just be saying -- oh, that was all -- if they were so close, and it looked like, at least from the paper trail we are seeing -- of course it hasn't been filled out -- it looks like they work fairly close together.

MR. MCMAHON: Again, I think organizationally one was a direct report of the other, and I really can't speak to the closeness of their relationship, frankly.

REP. GREEN: Let me ask another question. Out of concern for the former employees who received their $4,500 in severance pay, and lost their lives savings, were withdrawals made from the deferred compensation plan during the period when Enron's 401(k) was locked down by anyone that you could think of, like whether it be Kenneth Lay or Greg Whalley, or yourself, or any list of executives who received withdrawals during that period, during the lockdown?

MR. MCMAHON: I can only speak to myself, and I had no withdrawals during that time period. But, unfortunately, I don't have that information with me on the other parties, and I'll be happy to provide it to the committee.

REP. GREEN: So you did personally have withdrawals, or --

MR. MCMAHON: No, I did not.

REP. GREEN: You did not. Okay. Let me ask were you allowed a line of credit as an officer of Enron?

MR. MCMAHON: I was not.

REP. GREEN: Okay. Are you familiar with how many officers had lines of credit? Like, for example, I know Kenneth Lay had a line of credit. Do you know if Mr. Skilling had one or Mr. Fastow?

MR. MCMAHON: The only line of credit I'm familiar with of any officers was Mr. Lay. But I am not aware one way or the other, frankly.

REP. GREEN: And how do you know about Mr. Lay's line of credit? Just from the publicity?

MR. MCMAHON: No, shortly after I took over as chief financial officer, Mr. Lay had a drawdown on his line of credit. And I received a phone call from our cash management group to validate that that was an appropriate drawdown.

REP. GREEN: Okay. So while you were the chief financial officer, you didn't have any -- there was no other drawdowns by any of the other executives, if there was a line of credit?

MR. MCMAHON: I think I -- all I can respond to that is if there -- I was not aware of any other draw downs.

REP. GREEN: Okay, thank you, Mr. Chairman.

REP. GREENWOOD: The chair thanks the gentleman, and recognizes the gentleman from California, Mr. Waxman, for five minutes.

REP. WAXMAN: Thank you, Mr. Chairman. And I want to join Mr. Green, and thank him for making time available for those of us who are not on this subcommittee.

Mr. Olson, we talked in my last round about these partnerships, these special entities. And I want to discuss with you with mark-to- market accounting. According to press accounts, Enron pushed the limits to mark-to-market accounting. According to press accounts, Enron pushed the limits of mark-to-market accounting, which allows a company to recognize all revenues up-front on a long-term contract. In order to determine the profitability of a contract, Enron had great leeway to make assumptions about future energy prices, energy use, and other factors.

The New York Times reported that Enron Energy Services, or EES, deliberately used questionable revenue assumptions to inflate its profits. And the chairman of EES at the time that these questionable practices were occurring was Thomas E. White, who became the secretary of the Army in May 2001. A former Enron employee called this accounting practice a "license to print money."

Mr. Olson, did Enron abuse mark-to-market accounting, in your view?

MR. OLSON: I am not an accountant, congressman. From what I read in the press as well, it was certainly they were stretching the limits. And I think what you are alluding to is what is called a variation on that, is mark-to-model accounting, where you go out and make these assumptions which may or may not work out.

Everything else, if you again connect the dots, would suggest to me that they were using mark-to-market accounting very, very aggressively.

REP. WAXMAN: Do you know whether Enron was an aberration, or other energy companies are currently using the same accounting practices as they are pushing for electricity deregulation?

MR. OLSON: Mark-to-market accounting is used by lots of people -- banks, securities firms and the like. Except they are only marking to 12 months out, 18 months out and the like. There are people who do have power plant towing agreements out there which go out to seven or eight years, where they do make a significant impact on their current earning. But in terms -- I don't think it would tie at all to electricity deregulation. It -- there are many companies out there using mark-to-market accounting, or accrual accounting even, and they are still --they are more profitable under accrual accounting.

REP. WAXMAN: Should we be concerned that if these accounting practices are being used at other energy companies, that they could be hiding fundamental problems as they did with Enron?

MR. OLSON: You should be very concerned, yes.

REP. WAXMAN: Well, I think it's a very important issue, and I hope the committee will seriously examine it.

Mr. McMahon, I want to ask you about the mark-to-marketing accounting at Enron, and whether it might have been limited to EES. You were formerly the president and CEO of the Enron Industrial Market. Did that division also use mark-to-market accounting.

MR. MCMAHON: Yes, it did.

REP. WAXMAN: And did other divisions or subsidiaries of Enron also use this form of accounting?

MR. MCMAHON: To my knowledge, they did, yes.

REP. WAXMAN: This committee has heard testimony from economists and Wall Street analysts who claim that Enron abused the use of the mark-to-market accounting to inflate profits. In your view, did Enron abuse the mark-to-market accounting to inflate the appearance of profitability?

MR. MCMAHON: I am not sure I can respond to that as a global statement, because the -- I was not responsible for the accounting for Enron. But my understanding of the mark-to-market accounting was that was a requirement for the type of business activity that Enron's -- predominantly the wholesale business was undertaking -- my understanding was that it was a requirement to follow that type of accounting.

REP. WAXMAN: It was a requirement to follow that kind of accounting. Was it also helpful to inflate profits to use that kind of accounting?

MR. MCMAHON: Again, I don't know whether it was applied across the board appropriately or not, but my understanding is it was a requirement for the company to follow that type of accounting for those activities.

REP. WAXMAN: You are the president and CEO of Enron. You are the former chief financial officer of Enron. Based on what's happened at Enron, that we now know what has happened at Enron, that we know what has happened at Enron, do you believe that mark-to-market accounting is inappropriate for energy contracts, because of the difficult in assessing what the up-front value is?

MR. MCMAHON: I am not sure I am a qualified person to respond to whether that's the appropriate accounting for the activity, frankly, congressman.

REP. WAXMAN: Anybody else on the panel have any views on this issue? Mr. Olson?

MR. OLSON: I think the system has been gamed so much so that Wall Street -- that whether you use mark-to-market accounting or not -- will not believe the earnings. You see this in this collateral damage from the whole Enron shake-out. If you show me a dollar a share of incremental earnings, I will tell you the market won't pay for it. You see it in certain companies right now -- in Oklahoma for instance.

REP. GREENWOOD: The time of the gentleman has expired. Members of the panel, we thank you for your testimony. It's been a long day for you, and you are excused.

REP. GREENWOOD: Please be seated, Mr. Skilling, Mr. Jaedicke, Mr. Winokur.

I thank the witnesses for your attendance today. Gentlemen, you are aware that this committee is holding an investigative hearing and that it is the practice of this committee when holding an investigative hearing to take testimony from our witnesses under oath. Do any of you object to testifying under oath?

Seeing no such objection, I would advise you that under the rules of the committee and the rules of the House, you are entitled to be represented by counsel. Do any of you gentlemen choose to be represented by counsel today?

Mr. Skilling?

MR. SKILLING: My counsel is here, Mr. Bruce Hiler and Mr. Lee -- (last name inaudible).

REP. GREENWOOD: You'll be advised by -- your attorney may advise you during your testimony?

MR. SKILLING: I assume so.

REP. GREENWOOD: Mr. Jaedicke, do you have attorney advising you?

MR. JAEDICKE: Mr. Chairman, my counsel are -- would be (Rob ?) Gibbs and Neil Eggleston, and they are both here.

REP. GREENWOOD: They are with you as well?

Mr. Winokur, do you choose to be advised by counsel today?

MR. WINOKUR: Mr. Chairman, the same counsel.

REP. GREENWOOD: Okay, thank you.

In that case, if you gentlemen would rise and raise your right hands, I will swear you in.

(Witnesses are sworn.)

REP. GREENWOOD: Mr. Skilling, do you have an opening statement, sir?

MR. SKILLING: Yes, I do.

REP. GREENWOOD: The chair would recognize you for five minutes to offer your opening statement.

MR. SKILLING: Thank you, Chairman Greenwood, and members of the committee. My name is Jeff Skilling. I worked for Enron for over 10 years, leaving in August of 2001 after being CEO of the company for six months.

During my time at Enron, I was immensely proud of what we accomplished. We believed that we were changing an industry, creating jobs, helping to resuscitate an ailing energy industry. And by bringing choice to a 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 do accomplish at Enron, as I sit here today, I am devastated by and 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 commonplace in corporate America, and if properly established, they can effectively shift risk from a company's 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 14th, 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 that 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 1st, 2001, the start of my final year at Enron, owned approximately 1.1 million shares of Enron stock. On August 14th, the day I left, I owned about 940,000 shares of Enron stock. Indeed, in June of that year, I terminated an SEC-sanctioned stock sale 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 partnerships 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 being complied with, and that I was discharging to the full extend of my mandate my obligations to the board with respect to that process.

Fourth and finally, 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," unquote, 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 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 am prepared to answer any questions that you may have.

REP. GREENWOOD: Thank you, Mr. Skilling.

Mr. Jaedicke, do you have an opening statement, sir. You're recognized for that opening statement.

MR. JAEDICKE: 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 for 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 have 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 a 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 lifeblood 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 special -- 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 reviewed the economic benefits to Enron. We established numerous controls to ensure 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 consultants' 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 advisors 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.

REP. GREENWOOD: Thank you, Mr. Jaedicke. Mr. Winokur, do you have an opening statement?

MR. HERBERT WINOKUR: Yes sir.

REP. GREENWOOD: You are recognized then.

MR. 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's 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 surrounding the related party transactions. The other directors on the special committee, Dean Powers and Ray Trove (sp), and our legal and accounting advisors 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 on 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 that it is clear from the report that it was no whitewash on any front.

As a board member, I am 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. (Inaudible) -- have been criticized 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 superheated 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 as Arthur Andersen and Vinson & Elkins, that we believed 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 decisions 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 counsel 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 review each LJM transaction independently to ensure 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 been followed, the Raptor-3 and Raptor recapitalization 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 South Hampton 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 in 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 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 applied. 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.

REP. GREENWOOD: Thank you, Mr. Winokur. We certainly appreciate all of your testimony today. The chair recognizes himself for five minutes for the 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 -- the related transactions in question were beneficial to Enron and were not sham transactions. However, the special committee's report and additional documents make clear that these transactions were not true hedges. According to the minutes of the May 1st, 2000 finance committee, Ben Glisson presented 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 four in your -- 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 risks but transfers P&L" -- profit and loss -- "volatility." Was this the primary goal and benefit of these transactions, Mr. Skilling?

MR. 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-a-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.

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

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

REP. GREENWOOD: You were there, I believe.

MR. SKILLING: Well, there's an issue as to whether I was actually at a -- the particular meeting that you're 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. No, I'm sorry, that was the May meeting. Never mind. (Laughs.) That's incorrect. I take it back.

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

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

REP. GREENWOOD: You've not -- you've not checked records that you might have as to your whereabouts?

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

REP. GREENWOOD: Here's what we have. This is minutes of that meeting, May 1st. Committee members present, Ronnie Chanos, Jerome Meyers (sp), a whole long list, and it lists you as being there, as well as Mr. Buy, Mr. Causey, Mr. Fastow, Mr. Glisson, et cetera. So, you were there. Beginning -- the meeting was supposed to begin at four -- it actually began at four minutes after ten on May 1st. So, you are not disputing that you were at this meeting?

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

REP. 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?

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

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

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

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

MR. SKILLING: There's nothing I've seen that would suggest anything different to date.

REP. GREENWOOD: Let me go to this question. Mr. Skilling, the special committee's report is most critical of the lack of oversight by management of the transaction. 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 and 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." 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 these allegations, or do you?

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

REP. GREENWOOD: During the committee staff interview with you in December 2001, just four months after you left Enron on August 14th, 2001, you said that, quote, "the company was in the best shape it ever was." I would like for you to explain that statement in light of the fact that Enron has, subsequent to your departure, declared bankruptcy, fired its auditor, discovered massive insider dealing by the CFO and other employees, fired its CFO, treasurer and one of its general counsel, seen Ken Lay's resignation as president and CEO, and as a director laid off over 4,500 -- and its directors laid off over 4,500 employees and has since 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 write-down of $1.2 billion, not to mention likely additional earnings adjustments in excess of a billion dollars, 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?

MR. SKILLING: All I can say is on October -- or August 14th, 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, the crisis 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 activities.

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 14th, 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.

REP. 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, feel 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.

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

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

REP. STUPAK: Thank you, Mr. Chairman. Mr. Skilling, the New York Times this morning described you as, and I'm going to quote, "the ultimate control freak, a sort of hands-on corporate leader who kept his fingers on all pieces of the puzzle." And the Times isn't the first publication to describe you this way. Do 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?

MR. SKILLING: Well, 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 that probably a 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 control structure for the company. And if you'd like, I could go into some of the elements of that control structure --

REP. STUPAK: No, because the earlier panel, one of the witnesses there described you as being intense, hands-on, not a control 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've heard from your testimony today, you don't know what when on. Everything was fine when you left.

MR. 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 --

REP. STUPAK: With all due respect, Mr. Skilling, you couldn't even answer the chairman's question about a board meeting, you know, the board meetings -- that was May 1st, the one he asked you about. Every board meeting, when you leave the room, anyone leaves the room, it's all marked in there. Left the room for a short period of time. So, the transaction that the chairman was asking you about, you certainly were there. You certainly were there.

MR. SKILLING: Well, first of all -

REP. STUPAK: But let me ask you a couple of other questions and -- you were COO when LJM-I was initiated, were you not?

MR. SKILLING: Yes.

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

MR. SKILLING: Yes, that's correct.

REP. STUPAK: And you were also the COO when JEDI was created, were you not?

MR. SKILLING: I was not.

I believe at that time I was chairman and chief executive officer of Enron Capital and Trade, which was our wholesale merchant business.

REP. STUPAK: So you were the COO, then, when Chewco was set up.

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

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

MR. SKILLING: It was January -- I believe January of 1997. I think that's correct.

REP. STUPAK: And the side agreement between Chewco and JEDI was -- I believe testimony earlier today was December of 1997. So you'd be COO then.

MR. SKILLING: Then I would have been, yes.

REP. STUPAK: Okay.

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

A true statement, right, that's the code of ethics there?

MR. SKILLING: I assume that that is our code of ethics.

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

MR. SKILLING: You were asking a somewhat different question. You were asking about Chewco. Is it Chewco that you're interested in, or is it --

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

MR. SKILLING: Yes.

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

MR. SKILLING: Sir, I don't believe there were any transactions subsequent with Chewco -- to my knowledge, there were no transactions with Enron subsequent to the Chewco purchase of JEDI.

REP. STUPAK: There was a conflict on June 28th, 1999. I'm referring to the board meeting. I believe it's number seven 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, investment in 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 June 28th, 1999, you did it again for Mr. Fastow, again on October 11th and 12th of 1999. And on October 11th, 1999, it's found on page 18 of your board meetings. Is this part of your creative -- creative corporation that --

MR. SKILLING: Sir, I think we're going to need to go back -- if we want to answer this accurately, we are going to need to go back specifically at specific, separate transactions. The Chewco transaction, there was no waiver.

MR. STUPAK: Wait a minute.

MR. SKILLING: There was no waiver made of -- to my knowledge, there was no waiver of the code of conduct for the Chewco transaction. On LJM1, 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 interest of Enron shareholders. On LJM2, we recognized that there was a potential creation of conflict of interest. To mitigate or eliminate that conflict of interest, 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

REP. STUPAK: And the controls didn't work, and those controls were -- that were there in your court of ethics -- you waived them.

MR. SKILLING: The code of ethics does not have a description of codes or specific procedures to be followed.

REP. STUPAK: (Is that true ?)?

MR. SKILLING: 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 interest so that Enron could benefit from the creation of these entities?

REP. STUPAK: And they never did.

REP. GREENWOOD: The time of the gentleman --

MR. SKILLING: They never did benefit.

REP. GREENWOOD: -- from Michigan has expired.

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

REP. BILLY TAUZIN (R-LA): Thank you, Mr. Chairman.

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

MR. JAEDICKE: Sir, I missed it.

(Jeff, was this ?) directed at you?

REP. TAUZIN: I've asked Mr. Winokur a question.

MR. WINOKUR: Congressman, I believe the report says that we have conflicting information about the Raptor transaction.

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

MR. WINOKUR: I don't believe that Mr. Skilling ever lied to us. No, sir.

REP. TAUZIN: Did he tell you the whole truth?

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

REP. 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 mentioned in your testimony on page 10 -- and I'll go through four of them -- the first is that the board didn't know that Mr. Kopper was involved in LJM. Is that correct, Mr. Jaedicke?

MR. JAEDICKE: We did know he was involved in LJM. That is correct.

REP. TAUZIN: Right.

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

MR. SKILLING: Yes, I did.

REP. TAUZIN: Did you tell the board?

MR. SKILLING: I don't recall.

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

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

MR. SKILLING: I did not.

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

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

REP. TAUZIN: You didn't 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 on all these deals. And these deals outlined who was negotiating for and against the corporation, and they indicated, in one case, that the -- that Kopper was negotiating for LJM and Mr. Yeager (sp) was negotiating for the corporation. You've seen all these sheets?

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

REP. GREENWOOD: Give it to him.

REP. TAUZIN: Tab 26.

MR. SKILLING: Tab 26?

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

MR. SKILLING: I had no knowledge that Messrs. Glisson, Morant (sp), Yeager (sp) or Linn (sp) had interest in LJM.

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

MR. SKILLING: He never told me that.

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

MR. SKILLING: Chairman, I didn't know.

REP. TAUZIN: But you had your hands in everything. But you didn't know this.

MR. SKILLING: I -- have I said I had my hands in everything?

REP. TAUZIN: Well, but people have said you did.

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

REP. TAUZIN: One of the seven deadly secrets, apparently, that was kept from you, according to 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 -- buy them back immediately after the reporting period. Mr. Skilling, did you -- were you aware of that fact?

MR. SKILLING: I was not aware of that fact.

REP. TAUZIN: You didn't know that the company was selling assets and repurchasing them after the financial reporting period?

MR. SKILLING: There is only one asset that I was aware of that was sold and repurchased, and that was an interest in LJM1 in a project in Brazil -- a power project in Brazil that was called Quieba (ph).

REP. 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?

MR. 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.

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

MR. 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.

REP. TAUZIN: Let me quote you then. On page 9 of your testimony, you say that one of the 13 controls that you put in --

MR. JAEDICKE: Right.

REP. TAUZIN: -- to make sure that there weren't any conflicts of interest and that the special transactions would be reviewed correctly, look at number four. It says not only that Buy and Causey were to approve all of 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?

MR. JAEDICKE: That's correct, sir.

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

MR. JAEDICKE: No, sir, I was not.

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

MR. JAEDICKE: No, sir, I was not.

REP. TAUZIN: You also have on control number six that once a year, the audit committee, which I believe you chaired, is that correct?

MR. JAEDICKE: That's true.

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

MR. JAEDICKE: Yes, they did, sir.

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

MR. JAEDICKE: Not the approval forms.

REP. 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 Cortez. The deal name is Cortez. It's a deal negotiated by Michael Kopper for LJM and negotiated by Jaeger (sp) on behalf of the corporation -- I'm sorry, by Trustar Pattel (ph). 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?

MR. JAEDICKE: Sir, I don't have --

REP. TAUZIN: I'm -- ask him to look at that tab. I think it's number 26.

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

REP. TAUZIN: It's multiple pages, but if you'll look at the -- at page number two on the approval sheet, item number 3-F, you will see the question: "Has the audit committee of Enron board of director reviewed all Enron-LJM transactions within the past 12 months?" And the answer checked off "no."

The next question: "Have all recommendations of the audit committee relating 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 signed off on this.

MR. JAEDICKE: Wait.

REP. TAUZIN: I've got -- if you look at the next page, you will see where the business unit, 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?

MR. 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'm just -- I don't know what -- the date is what's hanging me up here. I don't -- I have not seen this information.

REP. TAUZIN: Well, let me ask Mr. Skilling, did you personally follow the control number four, which required you to review and approve every single one of these transactions?

MR. SKILLING: Chairman Tauzin, I think there are number of points that I would like to make, and I hope --

REP. TAUZIN: Could you just answer that first? Did you -- did you in fact review and approve all of these transactions as required by control number four?

MR. SKILLING: Did I meet my responsibilities as chief operating officer --

REP. TAUZIN: Just answer that question. Did you review and approve all of the transactions as required by number four of the controls?

MR. SKILLING: I was not required to approve those transactions.

REP. TAUZIN: So you disagree with the control provision?

MR. SKILLING: I think it is very clear that --

REP. TAUZIN: You -- Mr. Jaedicke's testimony --

MR. 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.

That's the process.

REP. TAUZIN: So, Mr. Jaedicke, let me go to your testimony. Look on page 9. Mr. Jaedicke, you tell us here, in writing, that Jeff Skilling, president, chief operating officer, and Mr. Fastow's superior, also was to review and approve any transactions. He's telling me that's wrong. Who's correct?

MR. JAEDICKE: Mr. Chairman, the -- in the audit committee meeting of -- 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.

REP. TAUZIN: In fact, I'm reading it right now. It's on page 2 of the minutes of October 6th, and let me quote it. It says that he then discussed the mechanisms that have 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. And number three, Misters Buy, Causey, and Skilling approve all transactions between the company and LJM funds.

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

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

REP. TAUZIN: Reference is on page 2 of the minutes of the meeting of the finance committee of the board of directors, Enron Corporation, October 6th, 2000.

MR. SKILLING: Which tab? Do you know which tab?

REP. TAUZIN: Tab 18.

MR. SKILLING: Tab 18.

REP. TAUZIN: I'm sorry. Eight.

MR. : Eight.

MR. : Eight.

REP. TAUZIN: Tab eight.

MR. SKILLING: Tab eight.

(Pause, off-mike remarks among panel and witnesses.)

I would refer you back earlier into the paragraph on page 2 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 of the board of directors of Enron --

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

MR. SKILLING: "Mr. Causey and Mr. Skilling then discussed the benefits" --

REP. TAUZIN: The lights weren't out, and 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'm not going to do that"?

MR. SKILLING: This -- I was -- got a little a confused. I mean, we're all under a tremendous amount of tension and a tremendous amount of pressure with what's going on here, and I will admit to being under a tremendous amount of pressure and an intense amount of --

REP. TAUZIN: I grant you that, Mr. Skilling. I'd just like a clear answer.

MR. SKILLING: This was --

REP. TAUZIN: Were you at that meeting?

MR. SKILLING: This meeting was the meeting that occurred in Palm Beach, Florida. This is October 6th 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 --

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

MR. SKILLING: I don't recall.

REP. TAUZIN: You just don't recall?

MR. SKILLING: I do not recall.

REP. TAUZIN: But you never, ever said to the board or the committee, "Uh-uh, I'm not going to do that. I'm not going to approve these transactions."

MR. SKILLING: I wouldn't have to. In October of 1999, when the process was established for approval of transactions with LJM, the process was absolutely crystal-clear. It involved approval by Mr. Causey and Mr. Buy --

REP. TAUZIN: Is that why you wouldn't sign these documents?

MR. SKILLING: No. (Inaudible) --

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

MR. SKILLING: May I give you -- you'll give me time to answer?

REP. TAUZIN: You got it. Please do.

MR. SKILLING: Okay. Thank you, sir. First, I did not receive that memo. Second of all --

REP. TAUZIN: Wait, wait. You're saying you did not receive Mr. Mintz's memo?

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

Second, I had no -- 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 there? Do you have a copy of that --

REP. TAUZIN: Mr. -- we have a copy of the memo.

MR. SKILLING: Can we turn to that?

REP. TAUZIN: We also have his testimony right before you got here. It said he tried three times to ask you for a meeting to talk about the memo. Do you recall that?

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

REP. TAUZIN: Sure.

MR. SKILLING: And which --

(Off-mike remarks from staff.)

REP. TAUZIN: Tab 15.

MR. SKILLING: Number 13?

MR. : Thirteen.

REP. TAUZIN: Thirteen. I'm sorry. Tab 13.

It is 15. I'm sorry.

MR. SKILLING: Fifteen.

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

REP. TAUZIN: Please do.

MR. SKILLING: The first one is, is that it says, "Accounting and RAC (?) 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 "it was decided to provide you with all finalized approvals in aggregate rather than a piece-meal fashion, and we are now ready to do so." Which --

REP. TAUZIN: In other words, everybody had signed, they were ready to get your signature --

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

REP. TAUZIN: Of course. I'm not arguing that. I'm just asking you --

MR. 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 couldn't have been done.

REP. TAUZIN: I'm not asking whether you authorized them. I'm asking whether 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're telling us, number one, you never got the Mintz memo. Number two, you don't recall anybody asking you to set up a meeting to discuss signing these documents. And number three -- I'm still asking you -- why didn't you sign them at all?

MR. SKILLING: They were not given to me.

REP. TAUZIN: You never saw them?

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

REP. TAUZIN: I've exceeded my time. Thank you, Mr. Chairman.

REP. GREENWOOD: The time of the gentleman has expired.

The chair recognizes the gentlelady from Colorado, Ms. DeGette.

REP. DIANA DEGETTE (D-CO): 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 interest with Mr. Fastow, did you not? Because Mr. Fastow --

MR. : Are you addressing that to Mr. Skilling or to me?

MR. SKILLING: Are you asking if I knew that there was a conflict of interest associated with LJM --

REP. DEGETTE: There was a potential conflict of interest --

MR. SKILLING: Absolutely. That's why we --

REP. DEGETTE: Absolutely.

MR. SKILLING: That's why we put the procedures in place to eliminate that conflict.

REP. DEGETTE: And that's why, as you said, you were a "control freak," to make sure that controls were in place, right?

MR. SKILLING: We would not have entered into the LJM --

REP. DEGETTE: Yes or no?

MR. SKILLING: -- transaction without adequate controls.

REP. DEGETTE: You wanted control, right? Yes or no?

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

REP. DEGETTE: Okay. 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?

MR. SKILLING: No, I don't. I do not recall.

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

MR. SKILLING: We were all --

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

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

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

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

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

MR. SKILLING: Actually, it's my recollection that Andy had represented that he would not negotiate for the LJM fund.

REP. DEGETTE: Okay.

So did you you, in your role, ever review the minutes of the Finance Committee?

MR. SKILLING: I did not review them.

REP. DEGETTE: You did not review the minutes. So what you're saying is if someone wrote this in here as (in ?) Exhibit A, that would be a lie?

MR. SKILLING: No. If that was an accurate representation of what Andy described to the Finance Committee, that's what's in the board's minutes.

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

MR. SKILLING: I was in the meeting. I don't recall if I was there at the time Mr. Fastow specifically went through the --

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

MR. SKILLING: No, I do not --

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

MR. SKILLING: Did not -- that was not my understanding.

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

MR. SKILLING: No. We had --

REP. DEGETTE: Okay.

MR. SKILLING: -- a process in place where Mr. Causey and Mr. Buy, who each had organizational units of several hundred people, probably in aggregate, several thousand controls people. We had Arthur Andersen --

REP. DEGETTE: Okay. Did you --

MR. SKILLING: -- (inaudible word) -- the transactions, and we had Vinson & Elkins reviewing the transactions.

REP. DEGETTE: Okay. Did you ever hear about a thing called a deal approval sheet, which was one of the controls that the board put into place?

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

REP. 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?

MR. 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 of a certain level of magnitude, there had to be a DASH generated.

REP. DEGETTE: Right.

MR. SKILLING: And that DASH had different authority levels within the company.

REP. DEGETTE: Right.

MR. SKILLING: So there were some people --

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

MR. SKILLING: For a 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 (sp), as vice chairman, had a level of authority.

REP. DEGETTE: Did you think --

MR. SKILLING: Mr. Lay, as --

REP. DEGETTE: Okay, I got you. Did you ever think that you had to sign the DASH sheet for any of the LJM transactions?

MR. 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 hierarchical chain of the company.

REP. DEGETTE: Do you recall ever seeing a DASH sheet for any LJM transaction?

MR. SKILLING: I don't recall.

REP. DEGETTE: Do you recall ever signing one?

MR. SKILLING: I don't recall.

REP. DEGETTE: Do you recall ever seeing one and then not signing it?

MR. 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 wouldn't have disbursed cash.

REP. DEGETTE: Okay. 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?

MR. SKILLING: The DASH sheets are a totally separate issue from the LJM transactions. The LJM transactions -- any transaction with LJM2 was governed in addition by the -- to the DASH process --

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

MR. SKILLING: Not initially. I think that there was a supplementary sheet that was developed later. But from the original, the original approval of LJM2, 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 --

REP. DEGETTE: So you remember '99; 2000, you're not so sure.

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

REP. DEGETTE: The lights were out and stuff like that. I understand.

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

REP. DEGETTE: Please take a look at -- right, the lights were out in 2000. But everything was okay in '99. I think that's kind of prophetic, Mr. Chairman.

Exhibit 13. I want you to just take a quick look at that. We talked about that before. The chairman talked about this. It's a memo from Jordan Mintz to Rick Buy and Rick Causey about the LJM approval process transaction substantiation. 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 doesn't say Jeff Skilling or someone else, does it?

MR. 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 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've 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've had no trouble signing for those transactions.

REP. GREENWOOD: Time of the gentlelady from Colorado has expired.

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

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

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

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

REP. STEARNS: So just as a -- just as a commentary, then, the fact that this went into bankruptcy and failed to provide liquidity is really a failure of your strategy for this company. I mean, just in a man-to-man talk here, that -- (brief laughter) -- you're going around telling all the literature and all these magazines 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're not trying to say this morning, this afternoon, that you're here saying this company was just flying along, 100 percent in good shape, and then you left, and the thing fell apart just because you left?

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

REP. STEARNS: Called what?

MR. SKILLING: Things called a run on the bank. You can a fundamentally solvent company that is profitable that has an illiquidity problem. That's my interpretation of it --

REP. STEARNS: No, I understand that. But it's just awfully hard to believe, after looking at all these partnerships and how they were 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. And so here we have all these partnerships, and you're saying -- you're saying today, basically, you did not know any of the financial structure of LJM. Isn't that what you're saying today?

MR. SKILLING: I said that we knew they --

REP. STEARNS: I mean you -- you.

MR. SKILLING: -- that --

REP. STEARNS: I mean --

MR. SKILLING: Me --

REP. STEARNS: Yeah, you saying you didn't know any --

MR. 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 -- in that entity -- we did know that, yes.

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

MR. SKILLING: Yes.

REP. STEARNS: Okay. Was he in his -- in your office regularly? Or did you talk to him infrequently?

MR. SKILLING: Pretty infrequently.

REP. STEARNS: Pretty infrequently. 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.

MR. SKILLING: I'm sorry. Say again?

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

MR. SKILLING: I think that happened last week.

REP. STEARNS: Not -- okay. Okay. Yeah. But you're saying you talked to him infrequently, then?

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

REP. STEARNS: We've got a calendar of his which shows that he met with you on March 16th at 11:30 a.m. Now this is tab number 10. You might want to just take a look at that. And -- and you know, one of the reasons he was meeting with you, because he had some concerns about the LJM partnerships. And we have tab number nine, 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?

MR. SKILLING: Yes, I do.

REP. STEARNS: Okay. Well, that's good.

We've established that Mr. McMahon's schedule is correct. He had you down for 11:30 appointment. We have his notes before he met with you, which you can look at, at tab nine. He had 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?

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

REP. STEARNS: He never talked about any conflict of interest in any of the partnerships? He never mentioned that -- anything like that to you?

MR. 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 and that that might -- this is my recollection -- that it might impact his compensation package.

REP. STEARNS: He never mentioned to you that "I'm concerned what's the best interest of the shareholders here"?

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

REP. STEARNS: Mm-hmm. Well, you know, and 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, then, of April -- he had appointment, and basically his job was changed. Did you know about that?

MR. SKILLING: Yes.

REP. STEARNS: And why did his job change?

MR. 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. And that search had been under -- the discussions in that search had been under way for quite some time.

REP. STEARNS: My time has 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 he didn't relay his angst about this whole process. And 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 the financing structure of these LJMs. I have a hard time believing that.

REP. GREENWOOD: The time of the gentleman from Florida has expired. The chair recognizes the gentleman from Illinois, Mr. Rush.

REP. BOBBY RUSH (D-IL): I want to 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, and I want to ask Dr. Jaedicke. Were you at that meeting in Florida?

MR. JAEDICKE: Yes, I was, sir.

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

MR. JAEDICKE: Sir, I don't -- that occurred, I believe, in the finance committee or the board of directors. I don't -- I know it is in the minutes. I do not personally recall that discussion.

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

MR. WINOKUR: Yes, sir, I was.

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

MR. 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.

REP. RUSH: Okay. Let me ask Mr. Skilling. Were you at that meeting?

MR. 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.

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

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

REP. RUSH: Okay. So he participated in the total discussion, all the conversations, particularly as it related to the issue of controls and his sign-off?

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

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

MR. WINOKUR: Congressman, if that's a question directed to me, no one ever told me of that.

REP. RUSH: How about you, Dr. Jaedicke?

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

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

MR. JAEDICKE: Yes, sir, I was.

REP. RUSH: Mr. Winokur?

MR. 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.

REP. RUSH: All right.

Let me refer you to the minutes here on page two. It says, "He" -- which is 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 approve 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 interest 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?

MR. WINOKUR: Yes, sir, I believe that the minutes reflect accurately the discussion to the best of my recollection.

REP. RUSH: Okay.

Now, on the fifth criterion that you have here, "a review of his economic interest in the company, and the LJM funds is presented to Mr. Skilling," was that ever done? Was that financial review -- economic interest review ever done by the company or by your committee?

MR. WINOKUR: Not by my committee, sir.

REP. RUSH: Okay. Was it ever done by Mr. Skilling?

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

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

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

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

MR. SKILLING: As best I recall, and 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 five-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.

That was a much smaller number, and I said to Andy, "How have you calculated or accounted 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've included the fees, but I have not included expenses associated with that fee."

REP. RUSH: Can you tell us what those numbers were?

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

REP. RUSH: Can you tell us the amounts?

MR. SKILLING: Well, horseshoes and hand grenades. If our -- my recollections is that if -- the number he had for total Enron-based compensation if the stock continue to escalate would have been something on the order of $50 million. And so a 10-to-1 ratio, it's my recollection that the number that was presented for LJM would have been something on the order of $5 million over the time period.

REP. RUSH: Said he would make 10 million, but he was really making 30 million over the two-year period -- is that right? Is that what you're saying?

MR. SKILLING: This -- the presentation that Mr. Fastow presented to me was a projection for a cumulative five-year rate of return. So this was from that -- from the inception of LJM for the next five years under a set of assumptions, which was a rate of return of the fund, how much he would make over five years. And my recollection is that that was something one-tenth of the order of the number at Enron --

REP. RUSH: But he really made 30 million (dollars) during this period of time -- is that right?

MR. SKILLING: I don't know. I've read the same newspaper accounts that I am sure you've read. I have seen those numbers. I have no first-hand knowledge of that.

REP. GREENWOOD: The time of the gentleman has expired. The chair recognizes the gentleman from Louisiana, Mr. John.

REP. JOHN: Thank you, Mr. Chairman. Mr. Skilling, do you believe that the implosion of Enron started August the 15th?

MR. SKILLING: No, I don't believe that.

REP. JOHN: Okay. So you left on the 14th, and what I am hearing from you is that you did not know about these documents or deals, and you were not apprised of that. And it just seems fascinating to me that the seventh largest corporation, the largest bankruptcy in America's history. If you like football somewhat, the analogy could be you were at times the quarterback as the CEO -- did not know of anything happening, in your departing words was everything seemed fine when you left on August 14th. So you think that maybe is started before you left, the deterioration of Enron, and what ultimately happened, and took only four months?

MR. SKILLING: Listen, all I can do is I can -- I don't have the facts. I left --

REP. JOHN: You were the quarterback.

MR. SKILLING: I left on August 14th, and I know what I know on August 14th, and I know what I don't know on August 14th. And a lot transpired subsequent to me leaving. Again, as I've said, my hypothesis, my conjecture, is that it was a run on the bank, it was a liquidity issue. That is pure conjecture on my part. It seems consistent with the sorts of panics and the sort of changes or meltdowns of financial institutions that you used to see at the turn of the century, because I can't for the life of me -- cannot for the life of me understand how we could go from where I thought the company was to bankruptcy in such a short period of time.

REP. JOHN: Mr. Jaedicke, do you -- in as short as you can, can you surmise what you think ultimately happened?

MR. JAEDICKE: I'm sorry --

REP. JOHN: I mean, what ultimately happened to the demise and the deterioration in four months. I mean, there -- in as few words as you possibly can -- I know it's a very complicated situation.

MR. JAEDICKE: Well, sir, I'm not the expert on this. I -- as I look back, I guess I would say that if some of our asset 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. JOHN: 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?

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

REP. JOHN: Okay, let me read -- Mr. Skilling, I would like to read a part of the Powers report, and I'd 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, from the third quarter of 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?

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

REP. JOHN: Is that a fact, that in a 15-year period that the earnings were overstated?

MR. SKILLING: 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 were that went into that.

REP. JOHN: Do you -- Mr. Winokur, do you, as an architect of this report, do you agree with what I just read?

MR. WINOKUR: Sir, the committee relied on the Deloitte & Touche accounting consultants for those numbers. So to the best of our knowledge -- well, 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.

REP. JOHN: Here's another statement of the Powers report, which really I think surmises I believe the root of what happened, and it was the non-transfer 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 it needed three percent outside funds at an arms-length, 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-come was going down. The partnership could not -- did not have the assets that they had 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 stock was supporting and capitalizing all of these partnerships. And 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 have lost their money.

I'm out of time, but I will be back.

REP. GREENWOOD: The time of the gentleman has expired. The chair recognizes the gentleman from Texas, Mr. Green.

REP. GREEN: Thank you, Mr. Chairman. And I guess the frustration that my colleague from Louisiana has expressed -- I can't believe a board of directors gets paid $300,000 that for two and a half hours on the finance committee did not see what was happening. And Mr. Skilling, sitting here and listening that you didn't know as the CEO -- let me quote your testimony earlier. You said, Financial statements, when you left on August the 14th were reflective of the good condition of the company. I'm paraphrasing, but is that what you said?

MR. SKILLING: I said that I believe that the financial statements that have been released were reflective of my understanding of the financial condition of the company.

REP. GREEN: Look, I don't know how you can 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 it was because that trust was lost, and that's what happened.

Let me follow up on the testimony of my colleague. On August the 14th, everything was fine. And yet in the Powers report from the board, as a result of Enron's partnerships, particularly the Raptors, it inflated its reported earnings for a 15-month period from the third quarter of 2000 to the third quarter of 2001 by more than a billion dollars. That means that 70 percent of Enron's reported earnings for this period were not real. How could this have happened? That was on your watch. How could it have happened without some inkling that the CEO would know?

MR. SKILLING: Congressman, again, I don't know where that number came from. What was the accounting firm that did it? Mr. Winokur --

REP. GREEN: Well, let me go on to continue to quote the Powers Report, so we -- we only have five minutes. By March of 2001, it appeared that Enron would be required to take a charge against earnings of more than $500 million. That's in March of 2001 -- didn't actually have to do it until October, that maybe started the run on the bank that you said -- $500 million to reflect the inability of the Raptors to pay. Rather than take that loss, Enron compounded the problem by making even more of its own stock available to the Raptors -- $800 million worth. Again, that was on your watch -- well before all August the 14th. And you know, again, that in the Powers Report from the board of directors that you served with. Again, how can someone who is a CEO and not have some inkling of what's happening?

MR. SKILLING: Well, again, the intent as I understood it -- and I believe the intent of the board and the rest of management understood it -- is that we were creating a hedge for some highly volatile, high technology stock investments. In the first quarter of 2001, many of those high technology investments were dropping in value. The entire optical fiber business was collapsing.

REP. GREEN: Okay, that was a half a billion hedge. Now, even with Enron that was more than pocket change.

MR. SKILLING: I did not hear that number, Mr. Congressman. I had asked, What is the status of our hedges? Are our hedges all right? And I was assured that our hedges were correct. So to the best of my knowledge it was not an issue.

REP. GREEN: Well, let me get on to another question with Mr. Winokur. Mr. Winokur, in your testimony you say, "I must tell you that as a member of the special investigative committee, and more generally as an independent member of the board, have been 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." Who didn't tell you the truth? Was it Mr. Skilling, before August the 14th? And what didn't they tell you? Was it the half a billion dollars that we knew about that management -- somebody in management knew about in March of last year.

MR. WINOKUR: Mr. Congressman, the Enron restatement, accounting restatement in September, included Chewco, and we were not told that Mr. Kopper was a participant as an Enron employee, and we of course did not know as a board that there was not adequate capitalization. It was the LJM Rhythms --

REP. GREEN: Excuse me -- let me finish. The Powers Report reported -- and I mentioned it -- the $800 million --

MR. WINOKUR: Yes, sir.

REP. GREEN: Did the board have any idea that that was being done?

MR. WINOKUR: We had no idea.

REP. GREEN: You know, the Powers Report also mentions that the finance committee met regularly -- five times a year -- for an hour and a half or two hours, typically before each regular board meeting. It seems like there should have been a lot more time spent, if a half a billion dollars and $800 million can be lost.

MR. WINOKUR: Sir, had we been presented with the prospect of an $800 million equity requirement to be issued to overcome the $500 million losses in Raptor, I believe we would have taken substantially more time.

REP. GREEN: I know a lot of members of Congress, and I was on a hospital board as an outside member, and we had to leave because as a member of Congress. But our job was to ask those questions of management -- on a very small scale compared to Enron. And those questions weren't asked. I can see maybe in an hour and a half or two hours, five times a year maybe the finance committee didn't have the time to do it. But, again, the board has a responsibility, and it looks like from the Powers Report you can only say, They didn't tell us so far. And I guess that's what's surprising. The testimony from both of you today, and Mr. Skilling, is that, you know, maybe we were born at night, but not last night. And that's just amazing what we are hearing that we didn't know as board members -- we were paid $300,000 a year to be board members, and you didn't ask questions. I know people who are paid $1,000 for a meeting or 500 a meeting who ask tougher questions.

REP. GREENWOOD: The time of the gentleman has expired. The chairman recognizes the gentleman from Massachusetts, Mr. Markey, for five minutes.

REP. MARKEY: Thank you, Mr. Chairman. What day, Mr. Skilling, did you leave Enron?

MR. SKILLING: August 14th.

REP. MARKEY: August 14th. Sherron Watkins wrote a memo on August 14th to Ken Lay. She said, "Skilling is resigning now for personal reasons, but I think he wasn't having fun. Looked down the road and knew this stuff was unfixable, and would rather abandon ship now than resign in shame two years later." The same day you're resigning. This woman down deep in the company knows about all these problems -- everything that's going on. And you are sitting here as the CEO saying you just decided on the same day, and you're walking away and you really don't know much about any of the things that any of the members here are asking about here today? Wasn't Ms. Watkins really correct that you were abandoning ship on a day that you already knew, as she did, that this company had deep problems, that you had already identified them, and you are just walking away, without warning investors, without warning employees, without telling everyone what the real reason was that you were quitting Enron?

MR. SKILLING: Congressman, I can just say it again -- on the date I left I absolutely unequivocally thought the company was in good shape.

REP. MARKEY: Well, it's hard to believe, Mr. Skilling, given your reputation or competence or hands-on knowledge, and the fact that there was plenty of evidence that other people knew all throughout the company that there was a big problem -- not just one big problem, but multiple problems.

Now, Mr. Skilling, according to the Watkins memo, Mr. McMahon and Mr. McMahon's testimony, and the Powers committee report, Mr. McMahon approached you with serious concerns about the inherent conflicts of interest in LJM. Is that true?

MR. SKILLING: Again, my recollection of the discussion that I had with Jeff is that he was concerned that because there was a conflict of interest with Andy, that in discussions that they had that that would somehow hurt his compensation.

REP. MARKEY: So, did he lay out specific steps he thought should be taken to address these conflicts?

MR. SKILLING: I don't recall.

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

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

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

MR. SKILLING: Well, first, I will say there was absolutely no connection -- no connection --

REP. MARKEY: He's warning you about conflicts of interest, you don't take any action -- three days later he gets reassigned. There's no connection?

MR. SKILLING: There is absolutely no connection.

REP. MARKEY: You resign on August 14th, Sherron Watkins writes a memo on August 14th -- there's no connection?

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

REP. MARKEY: Right.

MR. SKILLING: I wouldn't be at all surprised if that is 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.

REP. MARKEY: Huge promotion -- not viewed as --

REP. GREENWOOD: The time of the gentleman has expired. The chair recognizes the gentleman from California, Mr. Waxman, for five minutes. Mr. Waxman, do you care to inquire? You have five minutes.

REP. WAXMAN: Mr. Skilling, did you know -- you knew there were partnerships, didn't you?

MR. SKILLING: Yes.

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

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

REP. WAXMAN: So you knew there were thousands of partnerships. Did you know-- you 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've 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's editors that Ms. McLean was wrong. Kenneth Lay also called Fortune's managing editor to complain. Mr. Skilling, it's 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. If 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, sir, didn't you?

MR. 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, for about a week. And they had -- she had called up and said she wanted 15 minutes of time to discuss some issues, remaining issues related to this report. I said fine. And it was between two meetings -- 9:30 -- between 9:30 and 9:45 some Tuesday -- it might have been a Monday morning -- I forget the specific date -- but there was 15 minutes carved out of my calendar to spend some time with the Fortune reporter.

She called up and started asking some very, very specific questions about accounting treatment on things. I am not an accountant, and I could not answer them. And I said to her, Look, we can have our people come up -- I will have our chief accounting officer, I will have our chief financial officer -- I will have whoever you want come up to explain these specific transactions. I have got six minutes left before I have to be in a meeting, and I can't get into the details, and I am not an accountant. And she said, "Well, that's fine, we're going to do the article anyway." And I said, "If you do that, I personally think that's unethical, because we are making available whatever resources you need to get full and fulsome answers to the questions that you have." And the next day --

REP. WAXMAN: Mr. Skilling, let me interrupt --

MR. SKILLING: -- our chief financial officer and our chief accounting officer flew to New York at Enron's expense to sit down not with the editors, but to sit down with the reporter on that story and help her understand the questions that she was asking.

REP. WAXMAN: And was her article critical?

MR. SKILLING: Yes, it was.

REP. WAXMAN: And did that raise any concerns in your mind that maybe she knew something that you should know about?

MR. SKILLING: I think the gist of it -- again, my recollection of the gist of the article is basically she was saying that we continue to sell at a high P/E multiple, and that was at a time when anyone that had a high P/E multiple was being absolutely hammered in the stock market. This was February/March of 2001. And so I think the basic accusation was that we were at a high P/E multiple, and that P/E multiple was too high.

REP. WAXMAN: The next month, April of 2001, you were in a conference call with analysts to discuss the company's first quarter earnings. During that conference call, Richard Grubman (ph) of High Fields Capital Management was critical of you for not being able to produce the company's balance sheet, which is a basic piece of financial information. Instead of providing him with a balance sheet, you called him a vulgar name. As I understand, you called him an asshole.

Now, you were obviously upset that he was raising a question -- he was an outsider raising a question about the balance sheet of your company. Why were you so upset? And did it raise in your mind that maybe that he knew something that you ought to find out about?

MR. SKILLING: Congressman, he did not in my recollection raise an issue about our balance sheet. He was raising an issue about why we didn't publish our balance sheet on the same day that we came out with our earnings -- which we have never done. There is a three-day delay between the time that we issue our earnings release -- I think it's a three-day delay -- from the time we issue our earnings and when the balance sheet came out. And I explained that to him probably two or three times. And he kept coming back, so that we had a conference call. We had something on the order of 300 analysts who were waiting to ask questions on that conference call. And he refused to accept the fact that this was standard operating practice, and always had been standard operating practice with Enron.

If I could go back and redo things, I would not now have used the term that I used. I apologized to my shareholders, I apologized to you for having done that. At the time I was tired. The man, I believe, he was a short-seller of the stock, he had no interest in what was on the balance sheet in my opinion. I thought he was very interested in just monopolizing the conversation to suggest that there was something wrong that I didn't believe was the case.

REP. GREENWOOD: The time of the gentleman from California has expired. The chair notifies the committee and the witnesses that we are going to do a second round of questions. It probably will not take as long as the first round of questions. So we ask your forbearance. And the chair recognizes himself for five minutes.

Mr. Skilling, here's the problem I have at the end of this day. You came in here and you and I stood up and we raised our right hands, and you swore to tell the truth. And before you did that, Mr. McMahon came in here and he and I raised our right hands, and he swore to tell the truth. And when all is said and done, I can believe him or I can believe you, but there is no way in hell I can believe both of you, and that's the problem that I have.

And let me tell you why. On March 16th, 2000, at 11:30, Mr. McMahon came into your office, and he brought with him these notes. And these notes would indicate -- he says -- tab 9 in your book, if you would like to turn to it. And he says to you, "I am in an untenable situation." He says that Andy Fastow wears two hats, and his upside compensation is so great that it creates a conflict. He says, "I'm right in the middle of it." He says, "I find myself negotiating with Andy on Enron matters, and am pressured to do what Andy wants. I do not believe this is in the best interests of the shareholders. I did not ask to be put in this position," he says. He says, "My integrity forces me to continue to negotiate the way I believe is correct. However, Andy Fastow is my boss."

He says, "I must know, in order to continue to do this, I must know I have support from you, and there won't be any ramifications. I believe Andy Fastow has already affected my compensation." That is -- he poured his soul out to you. He told you he's conflicted, his integrity is at stake. And he essentially said to you, You've got a cesspool here, boss, and I need you to clean it up, because I am not comfortable swimming in this cesspool anymore. And he said, "If you can't clean up this cesspool" -- and this is the cesspool, of course, that took the company down not that long afterwards -- he says, "then get me out of it -- get me out of this cesspool, because I'm not comfortable here anymore."

And you say, according to him, "I'll fix it." "I'll fix it." And he brings additional matters up. He brings up the fact that LJM is on the same floor -- that the staff meeting has attendees from both folks -- this is all a description of how this is a cesspool. So he says to you, You either clean up the cesspool or you get me out of this cesspool. You say, "I'll fix it."

It looks to me like what you do is you say, "I'll get you out of the cesspool." Now, when you have been asked about that meeting -- you have been asked repeatedly about that meeting -- which, to me, if I were in your shoes, and one of my staff people came in and said, The situation I am in is untenable and it is compromising my integrity -- boss, help me -- I'd remember that. I would remember that if that was three years ago or 10 years ago. Okay? And your recollection of that meeting seems to me, Yeah, Jeff came to see me about his compensation package and we worked that out. Who is telling the truth?

MR. SKILLING: I can only tell you my recollection of the meeting. I don't think from what I have seen on this piece of paper that there is anything that is radically different in my recollection. What Jeff is saying here is that requests or options -- got to do one of two things: One, I must know I have support from you, and there won't be compensation ramifications. And I do remember --

REP. GREENWOOD: What did he want your support -- he wanted your support because his integrity was at stake.

MR. SKILLING: He wanted --

REP. GREENWOOD: He said it's untenable, it's wrong -- how can we be in a situation where --

MR. SKILLING: 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 the 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 have got that commitment from you, I'm okay.

REP. GREENWOOD: Well, why did he -- well --

MR. SKILLING: He switched jobs for -- it was a totally, totally unrelated --

REP. GREENWOOD: Let me retract that question for a second. Guy comes to you and he says, whether I'm in this job or the next guy is in this job, it is 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. And you don't walk out of that meeting saying, I've got to fix this?

MR. 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 --

REP. GREENWOOD: I am not asking you that question. I am asking you why it was that when he came to you and said either get me out of the 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 am going to go to bat, because that's my job. I'm the boss.

MR. 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 --

REP. GREENWOOD: Right, but he -- 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.

MR. SKILLING: I have no --

REP. 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 --

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

REP. GREENWOOD: And you say to him, We'll get you another job.

MR. 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 in those discussions. And I gave him my unequivocal support. There is no time -- no time that I have been at Enron Corporation that I have engaged in any decision that was not in the interest of --

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

MR. 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 of 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 influenced that. I have nothing but respect for Mr. McMahon, and there is absolutely no connection between those two activities.

REP. 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'll be right behind you.

REP. TAUZIN: Mr. Chairman.

REP. GREENWOOD: My time is --

REP. TAUZIN: Mr. Chairman, before you leave the line of question, if you'll 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. Glisson into that position, who not only was fairly willing to negotiate with Mr. Fastow, but later on actually invested in one of his deals, I think contrary to the board's policy, and turned a $6,000 investment into a million-dollar investment. Was that part of fixing it?

MR. SKILLING: As I said before, and I will absolutely conclusively tell you, I did not know that Mr. Glisson had any investment interest whatsoever in any of those partnerships.

REP. TAUZIN: And it should be stated for the record, Mr. Chairman, if you'll continue to yield, that Mr. Glisson has repeatedly declined an invitation to be interviewed by investigators, or to give us any statements in the matter. But it's important to put it in context, Mr. Chairman, that when Mr. McMahon, who has found a new job -- the guy brought into replace him not only apparently felt it 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 a million dollars. That was fixing it. Thank you, Mr. Chairman.

REP. GREENWOOD: The chair thanks the gentleman, and the chair recognizes the gentleman from Louisiana, Mr. John.

REP. JOHN: Thank you, Mr. Chairman. Mr. Jaedicke and Winokur, as board members, what do you know about the Southampton partnership?

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

MR. WINOKUR: I agree with that.

REP. JOHN: So 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 four and a half million in approximately two months. Two other employees, Mrs. Mordett and Mr. Glisson, invested $5,800 into that same partnership, Southampton, and two months later they returned a million dollars. You did, as the board of directors of this company, you didn't know anything about this?

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

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

MR. JAEDICKE: Well, sir, the original transaction to buy CalPERS was represented to us as an unaffiliated third party. That was the arrangement 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 the code of conduct would have required -- I think the code of conduct that was read says that if any officer engages in a transaction that is adverse to the interests of Enron, he needs to have prior approval of that. That was not done.

REP. JOHN: If this would have been gone through the proper channels, and you would have received this as a board of directors, do you think that the board would have signed off on this deal?

MR. JAEDICKE: No, sir, not if it was not proper. We also were assured that Arthur Andersen would be following the transaction of the buy-out of Jedi, and that we also understood that they were reviewing those kinds of transactions. So I think it could have come to the board from many different sources. It did not.

REP. JOHN: It's interesting. Let's move down to Chewco, too. For the life of me, I really can't understand how Mr. Kopper and his partners took a $125,000 investment in the Chewco deal and turned it into $10 million. Can you explain that? That is also part of the Powers Report of which, Mr. Winokur, you were a part of.

MR. WINOKUR: Sir --

REP. JOHN: How is this possible? How is this deal possible?

MR. WINOKUR: Congressman, the first I knew of those fees was what came to me during the investigation, the special committee report. I did not know, and I think no board member knew, as the report says, that Mr. Kopper was involved in Chewco. And on the Southampton matter that you asked before, again, none of those people should have been able to purchase the interest in Southampton without as specific waiver from the CEO. According to the code of conduct.

REP. JOHN: Mr. Skilling, have you ever heard of Southampton?

MR. SKILLING: No, I -- well, I had not heard of it until I believe the special committee asked some questions.

REP. JOHN: The special committee that Enron -- the board of directors put together of which Mr. Winokur was on?

MR. SKILLING: I think that was in November.

REP. JOHN: So you don't know -- not only you just heard of this partnership; you had no idea about this extraordinary rate of return with Enron employees and being partners in Southampton and Chewco?

MR. SKILLING: Did not.

REP. JOHN: Did not know anything about it? Thank you, Mr. Chairman.

REP. GREENWOOD: The chair recognizes Chairman Tauzin.

REP. TAUZIN: Thank you, Mr. Chairman. Mr. Skilling, I want you to look at tab 17 please. It's the Sherron Watkins letter to Ken Lay. In that letter, on page two, the very bottom, and I quote, she states, "employees quote our CFO as saying that he has a handshake deal with Skilling that LJM will never lose money." Unquote. The CFO she is talking about is Fastow.

And also, if you'll look at the committee's, the special committee's report on page 12, the special committee says, "We have identified some evidence that in three of the transactions where Enron ultimately bought back LJM's interests, Enron had agreed in advance to protect LJM partnerships against loss." That's on page 12. Very specifically: Is the allegation by Ms. Watkins' letter and the conclusions of the special committee report true? Did you in fact have an agreement, a handshake deal with Mr. Fastow to make LJM whole for any losses whatsoever?

MR. SKILLING: Absolutely not.

REP. TAUZIN: You totally unequivocally deny her allegation and the findings of the special committee?

MR. SKILLING: I believe Ms. Watkins said that rumor had it, so I don't believe it's her allegation. But, yes, I absolutely --

REP. TAUZIN: What she said was that employees quoted the CFO -- Mr. Fastow -- as saying that.

MR. SKILLING: Yes --

REP. TAUZIN: You say that is not true whatsoever?

MR. SKILLING: Mr. Chairman, there was no handshake deal between myself and Mr. Fastow, period.

REP. TAUZIN: And the committee, the special investigative committee for the board's finding of evidence to substantiate that is also incorrect?

MR. SKILLING: I don't believe that the special committee of the board used my name with relationship to that. I can only tell you what I know -- is that I had no handshake agreement with Mr. Fastow that would guarantee him a rate of return on his investment.

REP. TAUZIN: Mr. Skilling, what is the Office of the Chairman?

MR. SKILLING: The Office of the Chairman was a concept that we applied for reporting purposes. The Office of the Chairman, when I originally joined the Office of the Chairman, when I became chief operating officer, included myself, Ken Lay and Rebecca Mark. When Rebecca Mark left, it was myself, Ken Lay and Joe Sutton. And when Joe Sutton left it was myself and Ken Lay.

REP. TAUZIN: Now, according to the testimony given by Mr. Jaedicke, the code of conduct allows a senior office to participate in a transaction in which he has a conflict of interests with Enron, if the Office of the Chairman determines this would not adversely affect the interests of the company. Did the Office of the Chairman make such a determination when it came to Mr. Kopper and his dealings with Chewco or LJM partnerships?

MR. SKILLING: I do not recall that it did.

REP. TAUZIN: But you knew that Mr. Kopper was involved in those partnerships.

MR. SKILLING: I know that Mr. Kopper was involved in the management of some of the partnerships. I did not know if Mr. Kopper had --

REP. TAUZIN: Is it your understanding that according to Mr. Jaedicke's testimony that the Office of the Chairman, in which you were a part, must have approved his operations in Chewco or LJM?

MR. SKILLING: It's my understanding -- and actually it was my understanding that the CEO of the corporation would have to approve a waiver from the conflict of interests.

REP. TAUZIN: No, I just read you what Mr. Jaedicke said is the policy -- that the Office of the Chairman can authorize it if it is in the interests of the company.

MR. SKILLING: We --

REP. TAUZIN: Did you -- if you knew Mr. Kopper was involved with Chewco and LJM, did you as a member of the Office of the Chairman, understand that he has to get this approval from you and from Mr. Lay?

MR. SKILLING: It's -- to be quite honest, Mr. Chairman, it is not clear. I am not the person who makes the determination on whether there's a conflict of interests. We have lawyers and our lawyers to determine --

REP. TAUZIN: I am not asking you about conflicts 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.

MR. SKILLING: Neither do I.

REP. TAUZIN: I'm going to read it carefully: the code of conduct allows a senior officer to participate in a transaction in which he has a conflict.

MR. SKILLING: Say that again.

REP. TAUZIN: The code of conduct allows the senior officer to participate in a transaction in which he has a conflict of interest with Enron --

MR. SKILLING: Right.

REP. TAUZIN: -- if the Office of the Chairman determines this would 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?

MR. 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 interests involved.

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

MR. SKILLING: I don't recall.

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

MR. SKILLING: I am not aware that Ken knew. But the -- the -- Mr. Kopper's participation was well known throughout the company.

REP. TAUZIN: Mr. Jaedicke, on page --

MR. SKILLING: By the way, it was known by Vinson Elkins, who would have had responsibility --

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

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

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

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

REP. TAUZIN: Let me go back to page 9 then, Mr. Jaedicke. On number 7 of the controls that you say were instituted to protect the company in this extraordinary situation of these partnerships. On number 7, you say an LJM approval process check list was to be filled out to ensure compliance with the board's directive for transacting with LJM, including questions regarding alternative sales options, the determination the transaction was conducted at arms length, and a review of the transaction by Enron's Office of the Chairman. Now, you just heard Mr. Skilling define the Office of the Chairman as being Mr. Lay and himself and another officer from time to time. Is that correct, sir?

MR. JAEDICKE: Yes, sir.

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

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

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

MR. JAEDICKE: That was exactly our understanding, sir.

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

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

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

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

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

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

REP. TAUZIN: Including this control number 7?

MR. 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.

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

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

REP. TAUZIN: Right.

MR. JAEDICKE: That was there.

REP. TAUZIN: 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 and approving these transactions?

MR. JAEDICKE: If your question is did I think there was any misunderstanding on that? Is that the --

REP. TAUZIN: Yeah.

MR. JAEDICKE: No, I -- they knew the importance of these transactions must have been -- had to be well known throughout management. Certainly because the board spent a lot of time on these controls --

REP. TAUZIN: Yeah.

MR. JAEDICKE: And it was alleged to us that they were being followed, that they were in place and they were working -- they were being followed.

REP. TAUZIN: How do you react to Mr. Skilling, sitting right next to you today, saying he didn't know that -- didn't approve -- know he had to approve -- 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 the transactions -- must know about who is a party to them, who is running them, who is 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?

MR. 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, to my knowledge, that these approval sheets were not being signed and not being reviewed as these controls called for. I can only tell you what -- I cannot tell you what that happened.

REP. TAUZIN: In fact, Mr. Winokur, in your testimony you make it pretty clear. You say on page 7, "Mr. Skilling reported to us that he was discharging these obligations. It now appears that he did not do so." Do you stand by that testimony?

MR. WINOKUR: Sir, in the finance committee -- I don't -- I'd have to find the date -- we had a report from Mr. Causey, with Mr. Buy and Mr. Skilling present, is my recollection -- it said all of the controls have been put in place with respect to the LJM partnerships were working effectively.

REP. TAUZIN: I just want to leave you with one little fact that just astounds me -- that you had a control that said there was an approval process check list to be filled out -- to be filled out to guarantee that the Office of the Chairman approved these transactions. And I'm looking at one. And it says very clearly on it, "Person negotiating for LJM, Michael Kopper." This approval sheet under your controls had to be filled out, and one of the two top of the corporation -- at least -- perhaps Mr. Skilling specifically, if number four is correct -- had to sign it to say that everything was okay -- identifies Mr. Kopper as the guy negotiating for LJM, when everybody knows that he's an important official in Enron, that he never got a waiver from anybody to negotiate against Enron, and nevertheless you're doing deals with him under controls that require this thing to be filled out, signed, so that all of you could see that in fact things were being operated under the code of conduct that you guys obviously were there to enforce. How could this happen? Yes, sir, please.

MR. JAEDICKE: I don't know how it could happen, sir. I would expect that if it had happened it would have been brought to our attention. But it did.

REP. TAUZIN: And nobody brought it to your attention?

MR. JAEDICKE: Nobody brought it to our attention, sir.

REP. TAUZIN: And the gentleman sitting next to you, Mr. Skilling, is one of those who didn't bring it to your attention. Is that correct, Mr. Winokur?

MR. JAEDICKE: Well, sir, I would have expected -- there were a number of controls, I believed, where this could have come to our attention. One is the sign off of the Office of the Chairman. So if that control had worked, I think we would have known about it. To my knowledge, we did not know about it.

REP. TAUZIN: Do you believe that Mr. Lay is correct in the interviews that he gave to your investigative committee that he too is being deceived?

MR. JAEDICKE: Sir, I was not on the investigative committee.

REP. TAUZIN: Mr. Winokur?

MR. WINOKUR: Congressman I was not at the interview of Mr. Lay. I read the interview notes, and I believe that he did not know that Mr. Kopper participated in Chewco or LJM. But that's my belief. I was not there to question him.

REP. TAUZIN: Thank you very much, Mr. Chairman.

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

REP. STUPAK: Thank you, Mr. Chairman. Mr. Winokur, I'm looking at your testimony on page 7, and the third paragraph down it says, "We also required the Office of the Chair remain in control of Mr. Fastow's participation." Office of the Chair -- who was that at that time you are referring to here?

MR. WINOKUR: Well, I believe in the time period of 1999 and 2000 it was Mr. Skilling and Mr. Lay, to the best of my recollection.

REP. STUPAK: Okay, so both Mr. Skilling and Mr. Lay. Okay. "In order to ensure that this was going on, that this duty was honored, Mr. Skilling and Mr. Lay were given the authority to require Mr. Fastow to resign at any time from his involvement with LJM. Mr. Skilling was also charged with the responsibility to supervise Mr. Fastow's involvement to make sure it did not become a disruption to the company, and to ensure that his compensation on the LJM transactions were moderate. Mr. Skilling reported to us that he was discharging these obligations. Not it appears he did not do so." So this control that you had here, which really was at the hands of Mr. Skilling, failed in this aspect with Mr. Fastow. Is that your testimony?

MR. WINOKUR: Congressman, Mr. Fastow reported to Mr. Skilling and Mr. Lay. Mr. Skilling and Mr. Lay had every bit of their compensation tied totally to Enron stock. So it seemed to the board, when this was set in place, that they had two reasons to make sure that the compensation was moderate --

REP. STUPAK: I'm not talking about is moderate. I don't care what he is compensated. I care about the last line that I just read here: "Mr. Skilling reported to us that he was discharging these obligations. Now it appears he did not do so." He did not do what? What didn't he do?

MR. WINOKUR: Congressman, as we have seen --

REP. STUPAK: Mr. Winokur, this is your testimony -- nothing I'm making up. I want to know what does that line mean -- what did Mr. Skilling fail to do?

MR. WINOKUR: Congressman --

REP. STUPAK: What I've heard here so far today, we didn't have the information, we don't know -- the lights went out during this board room -- this is pretty explicit here. It is your statement, sir. I would like you to tell me what does that statement mean.

MR. WINOKUR: Congressman, the special committee report found that the Office of the Chairman in several instances did not review the LJM deal approval sheets, and that the compensation -- the -- I'm sorry, that those sheets were to be signed by Mr. Causey, Mr. Buy and Mr. Skilling. In the October 2000 meeting we were told they were -- had been done so.

REP. STUPAK: So in the first part of this sentence, "Mr. Skilling reported to us that he was discharging these obligations" -- what did he tell you he was doing to lead you to believe he was discharging these obligations?

MR. WINOKUR: Mr. Fastow told us in October of --

REP. STUPAK: Mr. Skilling. What did Mr. Skilling say? What did -- "Mr. Skilling reported to us that he was discharging these obligations" -- not Mr. Fastow -- Mr. Skilling. What did he say that led you to believe that he was doing -- discharging his duties?

MR. WINOKUR: We were told by people with Mr. Skilling present that these duties were being fulfilled.

REP. STUPAK: That's not what it says. So that said Mr. -- other people reported to us with Mr. Skilling present certain things. What did Mr. Skilling report to us that he was discharging these obligations? I don't think my question -- it's not my question -- your words are that difficult. All I want to know, what did he tell you -- what did he report to you that he was doing his duties as CEO, COO. What was it? You put your faith in this man. He reported back to you. What did he report to you?

MR. WINOKUR: Congressman, I don't recall a specific report of his dealing with each of these controls. We had reports by other people with him present about his responsibilities that the controls were working properly.

REP. STUPAK: Mr. Winokur, this is your testimony under oath.

MR. WINOKUR: Yes, sir.

REP. STUPAK: That's not what you are telling me now. You said under oath in your testimony, "Mr. Skilling reported to us that he was discharging" -- reported to you, as a member of the board, that he was discharging these obligations. It now appears he did not do so. What did Mr. Skilling report to you as a member of the board that he was discharging his obligations? You're the board -- reported to you. You're the only one who can answer that -- not what someone else told you --- what did Mr. Skilling tell you as a board member?

MR. WINOKUR: Congressman, Mr. Skilling did not report to me personally. I believe that he reported to the board in a variety of circumstances that the partnerships were being managed properly, and that all of the controls were in place. There is not a specific instance in which he reported to me personally that --

REP. STUPAK: He reported to you as a board member, right? He reported to you as a board member -- you are a member of the board?

MR. WINOKUR: Yes, sir.

REP. STUPAK: Okay. And you wrote this, right, this testimony?

MR. WINOKUR: Yes sir.

REP. STUPAK: So, when it says Mr. Skilling reported to us, I'll give you that, board -- that he was discharging these obligations, and now it appears he did not do so. Is that your testimony you're going to give today?

MR. WINOKUR: Yes sir.

REP. STUPAK: And you can't remember exactly what it was that he reported to you? Now, in hindsight, he did not do it?

MR. WINOKUR: I do not recall a specific instance of a report, but I recall specific instances of reports to the finance committee, with Mr. Skilling present, that the controls were all working, including the ones that Dr. Jaedicke referred to.

REP. STUPAK: So, when the written portion here, at least this line-and-a-half that I read to you and we have in the record now, that's not correct? Is that what you're saying?

MR. WINOKUR: Well, Congressman, I believe I've tried to answer that question.

REP. STUPAK: If the controls don't work, these controls that you all wanted, to make sure that these SPEs worked and that Enron would be back up and running, they don't work. Who's responsible?

MR. WINOKUR: The senior officials, the chief executive, the chief operating officers, the executive vice presidents -- all of those people are responsible.

REP. STUPAK: Mr. Skilling? Mr. Lay? Mr. Buy? Mr. Causey?

MR. WINOKUR: Yes sir.

REP. STUPAK: Where is the board's responsibility here?

MR. WINOKUR: Sir, the board is responsible to, as I said in my opening statement, to direct, to set policy, to review strategic directions, oversee corporate policy, and to monitor. And we were told by senior officials that many times -- and it's all, I think, laid out in the Powers Report --

REP. STUPAK: Page three. A number of senior Enron officials we now know did not tell us the full truth. Page three, middle of the page. Who are -- who are these senior Enron employees we now know did not tell us the full truth? Who are they? This is your testimony.

MR. WINOKUR: Well, sir, the board did not know that Mr. Kopper, Mr. Glisson and others who participated in the Chewco and the Southampton partnerships had taken actions that appear to be adverse to Enron without getting code of conduct approval.

REP. STUPAK: So, when you say a number of senior officials -- I'm sorry, a number of senior Enron employees, are you only referring to Mr. Kopper and Mr. Glisson?

MR. WINOKUR: I'm referring to them as far as I do not believe, as we now know, as the Powers committee report says, that we got the full story of what was going on from others in the company.

REP. STUPAK: Going back to my earlier question, did Mr. Skilling then give you all the information that the board requested when he reported to you, all the relevant information you needed?

MR. WINOKUR: Well, I don't know that. I know that the finance committee did not receive full reports from Mr. Causey and Mr. Buy.

REP. STUPAK: I'm just taking here, retrospect after the investigation -- these are your words. One page you said Mr. Skilling told us he was discharging the obligation and he did not do it. Page three, you said a number of senior Enron employees did not tell us the full truth.

MR. WINOKUR: Sir --

REP. STUPAK: And I'm asking if Mr. Skilling would be one of them.

MR. WINOKUR: In the Powers Report, with respect, for example to the Raptor restructure transaction in the spring of 2001, I believe the report says that there were conflicting experiences, conflicting indications about the extent to which Mr. Skilling knew or didn't know about the Raptor restructure.

REP. STUPAK: And he didn't tell the board?

MR. WINOKUR: Well, the board did not know at all about the Raptor restructure until --

REP. STUPAK: And Mr. Skilling never told you about it?

MR. WINOKUR: Well, the committee report says there was conflicting evidence as to whether he knew or not, but the board never knew from anybody -- Mr. Skilling, Mr. Causey, Mr. Buy, or anybody -- about the Raptor restructure.

REP. STUPAK: So, see no evil, speak no evil, hear no evil. Right?

MR. WINOKUR: I don't understand, sir.

REP. STUPAK: Thank you, Mr. Chairman.

REP. GREENWOOD: Thank you. Mr. Skilling, let me touch on something that is sort of sad, and that is, of course, the suicide of Cliff Baxter. And you mentioned he was best friend in your opening statement. And I'm just wondering, before he died, did you have any conversations with him?

MR. SKILLING: Yes sir.

REP. GREENWOOD: And in any of the conversations, did you have any indication what went wrong or why he was upset? Did he relate to you any of his concerns about anything that would explain what happened?

MR. SKILLING: Yes.

REP. GREENWOOD: And were any of them relative to Enron?

MR. SKILLING: Yes.

REP. GREENWOOD: And these that were relative to Enron, were they dealing with the financial condition of Enron?

MR. SKILLING: No.

REP. GREENWOOD: Were they dealing with the conflicts in the partnerships?

MR. SKILLING: No.

REP. GREENWOOD: Were they dealing with the management?

MR. SKILLING: No.

REP. GREENWOOD: Were they all just personal, or were they business?

MR. SKILLING: They were serious business and personal issues.

REP. GREENWOOD: And the serious business issues, were they dealing with Enron?

MR. SKILLING: Yes.

REP. GREENWOOD: And, without being indiscreet, is it possible that you could give us just a brief explanation of what these serious business problems were that would create in his mind so much angst and concern that he took his life?

MR. SKILLING: There's -- I personally believe the --

REP. GREENWOOD: Could you pull the mike up just a little bit? I know you're -- it's a long day and you're coming to the end of this. I appreciate your help here.

MR. SKILLING: Cliff's family has gone through a lot. I don't know if it's my job, or my role to describe some of the things Cliff talked with me about. I would prefer leaving that to the family, if you could.

REP. GREENWOOD: I understand. That's why I say that if there's something that was relative to this hearing, to this investigation, by this committee, that would help us understand what happened.

MR. SKILLING: I don't think there is anything -- I don't think there's anyone that knew Cliff and spend time with Cliff toward the end that didn't realize -- and I don't think this is betraying any confidence with the family -- there is no one that knew Cliff toward the end that didn't realize that he was heartbroken by what had happened. He believed that his reputation, my reputation, the reputation of the board of directors, the reputation of Ken Lay -- people that we had worked with for a long time -- and his own personal reputation were ruined by what had happened to the company and the treatment of what happened to the company by the press. And he was -- he was heartbroken by that. He believed, as I believed, that we had created a great company, that we were doing good things. And to have a lifetime of work denigrated, as it was in the press, was very painful to Cliff.

And it -- I can tell one other -- Carol, if you're out there, and I hope you're okay with this, Carol, his wife, is a very private person. He told this story to a number of people, so I don't believe I'm -- I mean, you'll get the story sooner or later. But Cliff -- Cliff was a very articulate individual. He was a fine man. And Cliff came over to my house a week before he took his life -- maybe a week and a half before he took his life. And we spent an -- almost three hours talking. And Cliff summed it. He was very angry about the plaintiffs' lawyers, and they were coming after him. He was very angry about that because he had spent a lifetime building security for his family. But he said -- he said, Jeff, the thing that really gets me -- he says -- it's like this. He said it's like it's a beautiful day in Houston, Texas, and you're out in your front yard, and you've got a hose, and you've got a nozzle on it and you're watering your front lawn. And it's a beautiful day, and all the kids in the neighborhood are out. Your neighbors are out drinking coffee. They're all talking to one another, and it's just a great day. And then suddenly the guy that lives next door to you comes crashing out of his front door. He walks up to you and says in a voice loud enough for everyone to hear, that I hear you're a child molester, and then he turns around and he walks back inside his house and closes the door. And Cliff said, you know, from that day forward, your life is changed. He said they're calling us child molesters. He said that will never wash off.

REP. GREENWOOD: But, Mr. Skilling, you don't believe that.

MR. SKILLING: I don't believe what?

REP. GREENWOOD: You don't believe that the press and everybody calling Cliff Baxter, or yourself, or anybody on the board of directors, denigrating or tainting you -- you don't think it's accurate. That's what you're saying here today, that you're standing up here saying everything the press is saying, everything that Sherron Watkins is saying, all the testimony we've have before you, including the dean of the laws school at the University of Texas -- all of that is wrong -- is what you're saying to us here today.

MR. SKILLING: I will not say that. I've read everything I can read -- every press account I can read over the last four months, for the specific meetings or representations that the press has made that I was intimately familiar with, where I was there -- I'd say the press is getting it right maybe one-third of the time. And the other two- thirds of the time, they are just totally, totally off base.

REP. GREENWOOD: And the special committee report that the board of directors, that the dean of the law school at the University of Texas, is off base, in your opinion?

MR. SKILLING: I can only comment on what I know. To the extent that that report in any way says I did something that was not in the interest of the shareholders of Enron Corporation, then yes, I disagree with those passages in the report vehemently. I do not believe -- I did not do anything that was not in the interest, in all of the time I worked for Enron Corporation that wasn't in the interest of the shareholders of the company.

REP. GREENWOOD: Mr. Skilling, I am not an attorney, but you're practicing plausible deniability, which is a term you're using to deny all what people have said. Sherron Watkins said Cliff Baxter complained mightily to you and all who would listen about the inappropriateness of these transactions with LJM. Jeff McMahon did the same thing. You have Cliff Baxter --

MR. SKILLING: I related --

REP. GREENWOOD: -- you have Jeff McMahon and you have Sherron Watkins are the three people who have said that you were told specifically all about these transactions, the conflict of interest. In fact, Jeff McMahon --

MR. SKILLING: Wait.

REP. GREENWOOD: -- laid out five steps to you on how he thought this should be corrected because of all the conflict of interest, inherent conflict of interest. So, you're asking me to --

MR. SKILLING: Congressman, you are --

REP. GREENWOOD: -- to just sit back --

MR. SKILLING: -- you are flat out misreading -- misreading this --

REP. GREENWOOD: I'm reading right from Sherron Watkins' letter. Cliff Baxter complained mightily to Skilling and all who would listen about the inappropriateness of these transactions. Are you saying Sherron Watkins is not telling the truth? Are you telling me that today?

MR. SKILLING: Will you give -- will you give me time --

REP. GREENWOOD: Just yes or no -- is Sherron Watkins telling the truth?

MR. SKILLING: -- to go specifically -- can you give me time to specifically go through -- this is serious stuff, sir --

REP. GREENWOOD: It's serious stuff, but I'm just asking you --

MR. SKILLING: This is very serious stuff --

REP. GREENWOOD: -- whether Sherron Watkins' letter is truthful or not.

MR. SKILLING: The discussion that I had with you about what Cliff Baxter said to me related to times subsequent to me leaving the company. Did Cliff Baxter raise and issue about LJM? Cliff Baxter raised an issue with me probably in January or February of last year. To my best recollection, Cliff said I don't know anything about the transaction because he would have no basis for knowing about the transaction. But he said he and Andy were not -- they had a very strained personal relationship, and he said I don't think you ought to be doing anything for Andy Fastow. That was the sum total of our discussion about it. And then Cliff, I think subsequent to that, was -- was open with people that he did not particularly like any investment vehicle that Andy would have a personal interest in.

REP. GREENWOOD: So, Sherron Watkins, what she's saying here is not truthful?

MR. SKILLING: If Sherron Watkins says that Cliff complained mightily, as I think she said, to anyone who listened, I would say that is probably true. If you are asking when Cliff Baxter and I discussed the situation, I have a very clear recollection that Cliff said -- in fact, I even asked him, it was my recollection, I asked him, do you think there's anything wrong with the structure in place. And his answer to me was -- I don't know what the structure in place is. I said, "Do you have any reason to think that there's anything bad going on?" He said no. He said I think it looks bad to have a related party transaction. Period. And that was the last discussion that we had about it.

REP. GREENWOOD: Mr. Skilling, I'm going to give you the last word. My time has expired. Ms. DeGette.

REP. DEGETTE: Thank you, Mr. Chairman. Mr. Winokur, you have three degrees from Harvard. You've been chairman and chief executive officer of an investment firm, Capricorn Holdings Inc. You've also been the managing general partner of three affiliated limited partnerships. Correct?

MR. WINOKUR: Congresswoman, yes, that's correct.

REP. DEGETTE: And so, you're familiar with -- well, let me ask you this. You're on the Enron board. You have a fiduciary duty to Enron's stockholders, shareholders, as a member of that board, do you not?

MR. WINOKUR: Yes, ma'am.

REP. DEGETTE: As do the senior management, like the CEO or COO, correct?

MR. WINOKUR: Yes.

REP. DEGETTE: And, you also are aware that when you have a potential conflict of interest by a member of the senior management of the board -- or of a company like Enron -- for example, Mr. Fastow, that's a very serious potential conflict, is it not?

MR. WINOKUR: Yes, it is.

REP. DEGETTE: And in fact, that's why in the finance committee, which you chair -- do you still chair that now, sir?

MR. WINOKUR: Yes, Congresswoman.

REP. DEGETTE: Okay. There was lengthy discussion about Mr. Fastow's potential conflict of interest in the LJM funds, correct?

MR. WINOKUR: Yes.

REP. DEGETTE: And why the finance committee and the board felt that it was important to put a set of controls in place so that Mr. Fastow's dual role would be disclosed, and I assume any other officers or employees of the corporation, correct? Those would be disclosed --

MR. WINOKUR: Yes.

REP. DEGETTE: -- and there would be firewalls ensured to make sure that those individuals' fiduciary duties would be preserved, correct?

MR. WINOKUR: Yes.

REP. DEGETTE: And that's all laid out in tab eight. You don't have to look at it, but it's those meetings we've been talking about from October 6th, 2000, right?

MR. WINOKUR: Yes.

REP. DEGETTE: So, you and all the other board members were aware of the potential conflict that Mr. Fastow had, correct?

MR. WINOKUR: Yes.

REP. DEGETTE: And Dr. Jaedicke, you also knew of the potential conflict, did you not?

MR. JAEDICKE: Of Mr. Fastow?

REP. DEGETTE: Of Mr. Fastow, or anyone else who would have an interest in --

MR. WINOKUR: No, Congresswoman, we didn't -- I didn't know of any other person who was conflicted, was in this conflict position but Mr. Fastow.

REP. DEGETTE: But what you thought you would do is put controls into place so if there was anyone like that, you would know about it and make sure the controls were followed --

MR. WINOKUR: That's correct.

REP. DEGETTE: -- right? Because that's your duty as a board member, isn't it?

MR. WINOKUR: That's correct.

REP. DEGETTE: Now, in your testimony today, your written testimony on page six, you talk about this dash sheet. We've been talking about it at length today, right? That's the sheet that discloses the conflicts and all these people are supposed to sign off, correct? The dash sheet.

MR. WINOKUR: Congresswoman, the dash sheet, as Mr. Skilling said, applies to all capital investments.

REP. DEGETTE: Right.

MR. WINOKUR: There was a separate LJM approval sheet that was put in place -- I don't know exactly when -- but put in place during this same period of time, which was another, not replacement, but incremental sheet.

REP. DEGETTE: But you didn't -- you, as the chairman of the finance committee, never saw those sheets, did you?

MR. WINOKUR: We saw dash sheets, but never the LJM approval sheets. And we didn't see dash sheets that related to the LJM transactions, to the best of my knowledge.

REP. DEGETTE: Well, did you see the dash sheets that are included in tab 26 here? Those relate to a variety of LJMs.

MR. WINOKUR: Congresswoman, we would --

REP. DEGETTE: But did you see those dash sheets?

MR. WINOKUR: I have no recollection of having seen these during the time in which they were done. I saw them during the context of the special committee report.

MR. SKILLING: I'm sorry, what tab were you talking about?

REP. DEGETTE: Tab -- exhibit 26.

MR. WINOKUR: These are not dash sheets. These are LJM approval sheets.

REP. DEGETTE: I'm sorry. The LJM approval sheets. I'm sorry. But LJM approval sheets, have you seen those? Thank you, Mr. Skilling.

MR. WINOKUR: No, I have not. I had not until the special committee.

REP. DEGETTE: You didn't see them at the time?

MR. WINOKUR: No.

REP. DEGETTE: Okay. But, you felt that you didn't need to see those, correct?

MR. WINOKUR: I didn't feel that the finance committee needed to review them.

REP. DEGETTE: Because you felt, as the finance committee, that you would get assurances from the senior management --

MR. WINOKUR: The senior management --

REP. DEGETTE: -- that the procedures were being followed, right?

MR. WINOKUR: Yes, ma'am.

REP. DEGETTE: What did you do to get that assurance if you didn't look at the paperwork?

MR. WINOKUR: We had presentations from the chief accounting officer, the chief risk officer, Mr. Skilling, president. We had presentations from the chief financial officer, then Mr. Fastow.

REP. DEGETTE: Were those presentations written presentations?

MR. WINOKUR: Well, there usually were three or four pages of slides, slide format or handout.

REP. DEGETTE: And what did the slides say?

MR. WINOKUR: Well, I'd have to refer to each meeting, but I recall that Mr. Causey told us at one meeting that all of the controls were being followed, and that they were all working effectively.

REP. DEGETTE: And so you, in your fiduciary duty as a member of the board, thought that was enough to ensure that all of the controls were taken care of.

MR. WINOKUR: Congresswoman, that presentation had other senior officials of the company in attendance who didn't speak up and say otherwise. I also knew that the --

REP. DEGETTE: So, by silence you thought that was assent. Correct?

MR. WINOKUR: I believe that if somebody sitting there hears something that's not true, they should say something -- absolutely.

REP. DEGETTE: And Mr. Skilling never spoke up and said anything?

MR. WINOKUR: Not to my recollection. I also knew that the audit committee would receive additional presentations from similar people and from Arthur Andersen about the controls.

REP. DEGETTE: Mr. Jaedicke, then --

MR. JAEDICKE: Yes, ma'am.

REP. DEGETTE: Did you get additional presentations?

MR. JAEDICKE: Our review is from slides or list showing the transactions, usually categorized by what kind of transactions they are. We did have the -- we did not look at every -- whatever they're called -- deal approval sheet --

REP. DEGETTE: The LJM approval?

MR. JAEDICKE: -- the LJM.

REP. DEGETTE: Well, let me ask you this. Did you ever see a slide that showed that in the LJM Cayman LP, which is the first sheet of Exhibit 26, persons negotiating for Enron, Joe Deffner (sp), Tim Proffit (sp), persons negotiating for LJM, Michael Kopper, Greg Caudell (sp), did you ever -- did you ever know that?

MR. JAEDICKE: No ma'am.

REP. DEGETTE: Did you know that Michael Kopper was involved in any of these things?

MR. JAEDICKE: No ma'am. They --

REP. DEGETTE: So, what did they just show you some of the slides?

MR. JAEDICKE: They did not show us the deal approval sheets. They -- we have the -- the control in this says no one who is allowed to negotiate for Enron who reports to Mr. Fastow. And then we have requirements like -- they're listed here -- the transaction must take place at arm's length.

REP. DEGETTE: It would be fair to say you told them that, but then you never actually got the information on every deal, correct?

MR. JAEDICKE: Well, we asked -- yes, we were assured that --

REP. DEGETTE: You did get the information on every deal?

MR. JAEDICKE: No, I'm sorry. I'm sorry. I misunderstood you.

REP. DEGETTE: Okay.

MR. JAEDICKE: They -- we --

REP. DEGETTE: You told them to have the firewalls in place, but you did not actually have the information on every deal as the audit committee, did you?

MR. JAEDICKE: Of every deal sheet?

REP. DEGETTE: Right.

MR. JAEDICKE: No ma'am, we did not.

REP. DEGETTE: Thank you.

I just want to say one final thing, Mr. Chairman. Here's what I think has happened after the last week. I've been listening to all of this, and I think that everybody in the company knew that Mr. Fastow had a conflict. I think that there were a whole lot of people paying attention every other place. You have a CEO who is an admitted control freak. You have a board that puts controls into place. In 1999, Mr. Skilling says, well, I remember, I looked at the controls, but I wasn't involved. In 2000, then, this fellow who says he's a control freak says, well, I don't remember the part that said I was supposed to sign off because the lights were on and off -- which, by the way, I find ironic for an energy company, but that's a different issue for a different day. And then you have a board that says, well, we told these guys to put controls in place -- we don't really know what happened. To me, it's not so surprising that a ship with captains like this sank, and sank big.

And I'll yield back the balance of my time.

REP. GREENWOOD: And I thank the gentlelady. The gentleman, Mr. Rush, is recognized.

REP. RUSH: Thank you, Mr. Chairman. I want to return to a line of questions that you engaged in, Mr. Chairman, but I don't want to get into with the intense level of intensity that was prevalent in your questioning. And I just want to ask Mr. Skilling, when you came here, part of your opening testimony was that you came voluntarily, and I commend you for that. There are some others from Enron who are taking advantage of the Fifth Amendment provisions and they decided not to testify. You've testified voluntarily. You indicated the reason -- at least one of the reasons you came was because of the tragedy concerning your friend, Mr. Baxter. And we've heard testimony to the fact that he complained mightily to you. And you said that was subsequent to his resignation from Enron, is that right? Or subsequent -- was it subsequent to his resignation --

MR. SKILLING: No. It probably occurred, I'm guessing, oh, maybe late 2000, so it would have been probably three or four months before he left Enron.

REP. RUSH: When did he leave?

MR. SKILLING: He left, I believe, in March.

REP. RUSH: In March of 2001?

MR. SKILLING: 2001.

REP. RUSH: And you left in --

MR. SKILLING: August --

REP. RUSH: August of 2001. Okay. And Mr. McMahon complained to you, according to the letter to Mr. Lay from Watkins, Mr. McMahon complained to you mightily also, is that correct?

MR. SKILLING: Well, I -- again, characterizations, as I've said, I would not use the term mightily with Cliff. Cliff --

REP. RUSH: He complained to you?

MR. SKILLING: He didn't complain. Cliff brought up the issue. I knew he and Andy had had a degree of animosity that was not insignificant. My discussion with Jeff McMahon was related to what I believe, my perception was, a compensation issue. And I recall telling Mr. McMahon that if he did anything to support Enron shareholders, there was no compensation issue, because the name of the game here was to protect our shareholders.

REP. RUSH: Was there anyone else who complained to you about LJM transaction?

MR. SKILLING: I don't recall.

REP. RUSH: Let me ask you -- you are represented by counsel here? Do you have counsel with you there? Is there any reason for that?

MR. SKILLING: I'm sorry?

REP. RUSH: What is the reason for having counsel here with you?

MR. SKILLING: I'm not a lawyer. And I'll tell you what, this is one of the most complex set of events I've ever gone through. And I, to be quite frank, am very, very happy to have someone that understands this working with me.

REP. RUSH: Okay. Mr. Winokur, earlier testimony from Mr. Olson stated that every investment Enron made was unsuccessful, that the international power and water projects, the broadband and the energy supply contracts, all of these were unsuccessful. And as a result, in Enron's last year before bankruptcy, a billion dollars, or 70 percent of its earnings came from Raptor. And the Powers Report, on page 24, said that the finance committee was on notice that LJM's transactions were contributing very large percentages of Enron's earnings. But the finance committee still didn't look at those transactions. Did that surprise you when you found out about that?

MR. WINOKUR: Congressman, I was aware that the water business was not performing well because I was also involved with (Zurichs ?). The board took action with respect to Enron Energy Services and restructured -- suggested to management that it be restructured. It was restructured. That was reported in March of 2000 in the 10-Q. I was not aware until the special committee report because we received reports at the board by division -- divisional income before interest and taxes, and it showed every division was performing well, and we saw those reports even at the October board meeting of this year. The Raptor transactions did not actually come to my attention in the form that it later appeared in the Powers committee report.

REP. RUSH: Well, the special committee also reported that the LJM made money on every single deal it signed with Enron, even if Enron lost money. Wasn't that kind of strange? Did you find that strange also as a part of the -- as the head of the finance committee?

MR. WINOKUR: Congressman, I didn't know that until the Powers Committee Report. But I would say as someone who deals in investments I found that very unusual.

REP. RUSH: Mr. Skilling, did you ever tell Mr. Fastow that he -- that the -- that the investors would never lose money? Did you tell them that they would never lose money?

MR. SKILLING: No. As I've said earlier, Andrew Fastow and I had absolutely no understanding of any sort, any nature, that suggested that the partnership would be guaranteed a rate of return.

REP. RUSH: Thank you, Mr. Chairman, I yield back. I yield back, Mr. Chairman.

REP. GREENWOOD: I thank the gentleman. The gentleman from Massachusetts, Mr. Markey, is recognized.

REP. MARKEY: Thank you, Mr. Chairman. Mr. Winokur, you were on the Power Committee, and I see that on page 21 of the Powers Report that there is evidence from other employees that Mr. Skilling approved the March 2001 restructuring of Raptor. And you say on page 121 of the report that senior Enron employees told you that Mr. Skilling was aware of the problems with Raptor and, quote, "was intensely interested in its resolution."

Your report says again, on page 121, that, quote, "We are told that during the first quarter of 2001, Mr. Skilling said that fixing the Raptor's credit capacity problem was one of the company's highest priorities. When the Raptor's restructuring was accomplished, Skilling called one of the accountants who worked on the project to thank him personally. Skilling disputes that account." Can you identify the senior Enron employees, Mr. Winokur, who told you these things?

MR. WINOKUR: Sir, I believe Dean Powers testified -- I have not read his testimony -- but I did not attend the interviews of any of those people. And so it would be -- I would not be in a position to tell you who exactly said what in those interviews.

REP. MARKEY: Did you find the testimony of those Enron employees credible?

MR. WINOKUR: I believe that the interviews, as presented to us by our legal counsel, seemed credible. But I wasn't there.

REP. MARKEY: Whose account do you think is accurate, theirs or Mr. Skilling's?

MR. WINOKUR: Sir, I don't have any basis to speculate, other than to report what we heard from our counsel.

REP. MARKEY: You were on the Powers Commission, were you not?

MR. WINOKUR: Yes, sir. Yeah.

REP. MARKEY: Just a continuation, Mr. Winokur, of the obvious attitude that the board has towards these important matters. Mr. Skilling, were you involved in approving the March 2001 Raptor restructuring?

MR. SKILLING: Not to my recollection.

REP. MARKEY: Did you ever say during the first quarter of 2001 that fixing Raptor's credit capacity problem was one of the company's highest priorities?

MR. SKILLING: I do not recall ever saying that.

REP. MARKEY: Did you ever call one of the accountants working on the Raptor restructuring to thank him for his role?

MR. SKILLING: It is very possible that I called accountants any time a senior executive in the company thought that someone had gone to extraordinary efforts -- for example, missing Christmas dinner or something --

REP. MARKEY: I'm talking about on the Raptor restructuring. Did you call a senior accountant on the Raptor restructuring?

MR. SKILLING: I don't recall, but it would be possible.

REP. MARKEY: You don't recall. It is possible. Now, by August 14th, Sherron Watkins says in her memo that, quote, "The Raptor entities are technically bankrupt." Was she right or wrong?

MR. SKILLING: I don't know.

REP. MARKEY: You don't know. The Powers Committee, on page 122 of its report, says that, quote, "The potential impact of the problem and the chosen solution to Raptor's problems were of considerable consequence to the company in Skilling's first quarter as CEO" -- that's the first quarter of 2001. Do you agree with that statement?

MR. SKILLING: No, I don't.

REP. MARKEY: You do not. Do you really expect us to believe that you had little knowledge or involvement in a transaction in March of 2001 that allowed Enron to avoid taking a $500 million pre-tax charge against earnings?

MR. SKILLING: Congressman, again, I don't know where that number came from. I will tell you that if you think of the way we operated our business, we had electricity sales obligations on one side, electricity and natural gas -- I'm sorry, electricity and natural gas sales obligations on one side, electricity sales and natural gas purchase obligations on the other. The total amount of that on our balance sheet at year end was in excess of $30 million, if you include all risk -- what are called risk management assets, plus accounts receivable related to our core natural gas and electricity market.

REP. MARKEY: This is --

MR. SKILLING: To suggest --

REP. MARKEY: However, Mr. Skilling, I understand that $30 billion is a big corporation. But what I am saying here is we have got $500 million -- much of that is already something that is already in progress over the preceding 10 years. Now we are adding in something new. When you are adding something new into something that is already there, you don't have to look at the old. You are looking at the new. You are the CEO, it's March of 2001 --

MR. SKILLING: Congressman, that's not -- that is not --

REP. MARKEY: You say --

MR. SKILLING: That's not the way it works.

REP. MARKEY: Well --

MR. SKILLING: What happened was prices for natural gas and electricity quadrupled in the last six months of the year 2000. So our risk management assets went from a number on the order of six or seven billion dollars up to close to $30 billion. So we had losses on one side of the portfolio of a significant amount; we had gains on the other side of the portfolio of a significant amount. That was no different in concept from having gains that we had on stock purchases. The high technology companies had done very well at, and we had hedges on the other side of that. So to suggest that this in the grand scheme of things was something that I would have been lying awake at night sweating over is just -- it's just not the case.

REP. MARKEY: A $500 million charge, which allowed for the maintenance of a myth that the company was profitable is no small number to be concerned with.

MR. SKILLING: Our company was profitable. That is no myth.

REP. MARKEY: Well, all -- the Powers Report disputes that, a do all of the other --

MR. SKILLING: The Powers --

REP. MARKEY: -- all the other surrounding evidence that this was a corporation cascading downwards rapidly. All of the evidence -- of course, you know, people say you live life forward and understand it backwards. But it is quite clear that from the outside now -- it is clear that it was already in a free fall. Now, you were the CEO at the time, and you were a self-avowed, as you are right here today brilliant control freak CEO. But what you have done today is invoked the Hogan Heroes' Sergeant Schultz defense of "I see nothing, I hear nothing." You were basically in the final six months of your tenure as CEO oblivious to all of these surrounding events which clearly we're bringing to your attention -- the numbers, the circumstances, the concerns -- which by August 14th made it quite clear that you weren't leaving because of personal reasons. You were leaving because this corporation was in a state of complete collapse, which had not yet come to the full attention of the public investors or employees of this corporation.

MR. SKILLING: On the date I left the company, on August 14th, 2001, I had every reason to believe the company was financially stable. And you can say today that everybody agrees there was a problem. I challenge that. I challenge that. Let's go ahead and go back and look at the numbers.

REP. MARKEY: Well, but, Mr. Winokur, where did the $500 million figure in the Powers Report come from? Where did it come from?

MR. WINOKUR: Sir, there were risk management reports provided regularly, I am told, to Mr. Causey and Mr. Buy, that showed the Raptor negative position. And the action that was taken was to issue forwards on stock, which did not come to the board's attention. And those transactions apparently were recorded improperly, because that led to the -- part of the $1.2 billion reduction in shareholders equity that was discussed October 16th, I think.

REP. MARKEY: Do you stand by the Powers report, Mr. Winokur?

MR. WINOKUR: Yes, sir, except for on the part on the board, which I in my statement believe I have taken exception to, because I was not associated with that section.

REP. MARKEY: I think Mr. Powers did a good job, Mr. Winokur, and I think he did the job that the board should have done, and I think they identified a problem that already existed inside of that company long before, and I think the CEO should have known about it.

Mr. Chairman, I thank you for this great hearing. I think it was a very important public service you provided here today.

REP. TAUZIN: Thank you, Mr. Markey.

REP. MARKEY: Ms. Jackson Lee, if I might --

REP. TAUZIN: I understand.

REP. MARKEY: -- wants to ask a couple of questions in writing for the panel, if that would be permissible.

REP. TAUZIN: Under our procedures, only members of our committee can do that, but you may submit any questions on her behalf -- you certainly may. In fact, let me make a couple of announcements as we wrap this hearing up. First of all, let me announce that the committee record will remain open for 30 days. If either any of you wish to submit additional testimony or clarifications for the record, as this was a record under oath, you may wish to do that once you have reviewed your testimony. We certainly welcome any clarifications, additions or corrections for the record.

We would also invite you to answer written questions as they may be submitted to you, and I understand a number of members have suggested, including Mr. Markey, that he has some written questions for you. We would appreciate your response, in writing if possible.

And, third, let me thank you for appearing and testifying. There was -- obviously I know this has not been pleasant for you, any one of you -- and I wish you to know it is not pleasant or easy for us as well. I would much prefer our committee busy legislating on some important health care issues and technology issues any energy issues rather than doing this. But we, as Mr. Markey said, are trying to fulfill our national obligation to examine this, understand it, and perhaps help make sure it doesn't happen again to any other company or to any other group of citizens who have been so severely affected by it.

Finally, let me also -- before we finish, I understand Mr. Rush wants to ask one additional question.

REP. RUSH: Mr. Chairman, if I could --

REP. TAUZIN: Let him do that, and then I want to get something for the good of the committee on the record before we finish as well. Mr. Rush?

REP. RUSH: If I could just -- I have another minute and a half. I just wanted to ask each one of the panelists -- we might not have this opportunity again. I just want to ask in light of the situation that we are confronted with as a nation, and Enron is confronted with, is there anything that you, with 20/20 hindsight, that you could do differently to avoid this situation, that you would do? And I'd start with Mr. Winokur, and I would just ask each one of you to answer that question, please.

MR. WINOKUR: Congressman, I have thought extensively about that question since October. I believed in Enron. I never sold a share of stock. I had confidence in the management. I had confidence that we had the best consultants -- Arthur Andersen and Vinson Elkins -- available to us. I believe we acted with good business judgment, reasonable business judgment. We understood the risks of the decisions. We set in place lots of controls.

What I am deeply saddened by particularly is that it has become apparent from the Powers Committee Report that there were many people inside the company and at Arthur Andersen and Vinson Elkins who knew something was right, and nobody, to the best of my knowledge, came forward to the board of directors until August of this year, when frankly it was very late to do anything about it. And I feel terrible about -

REP. RUSH: Knew something was right or knew something was wrong?

MR. WINOKUR: Knew something -- I'm sorry, knew something was wrong, had intimations that something was wrong. And these were people who had contact in some cases with the board on a regular basis. In some cases they had contacts with Arthur Andersen and Vinson Elkins. And not one person came to the board and said, We are uneasy -- we are uncomfortable. We think something could be done -- before it turned out to be too late.

REP. RUSH: Dr. Jaedicke? And I'd like to just ask what you would do differently, not what someone else would do differently.

MR. JAEDICKE: Well, like my colleague, sir, I have thought a lot about it also. And it is hard for me to understand why none of the controls that we put into place, of which there were many, seemed to work. And even without making the judgment of people knew something was wrong and they didn't come forth -- it's if they had simply -- been some indication that there was concern out there. But somehow that just did not surface. We were not made aware of that. There were a number of memoranda that we read about in the papers, such as the discussion among the Arthur Andersen partners, about the risks in Enron. And then three or four days later we have an audit committee, and we don't hear word one about any of those concerns. I don't know why.

So, like my colleague, I am disappointed that somehow all of the effort we put in and all of the controls we put in place, and all of the assurances that we had that those controls were adequate and were in fact working, and our policies were being complied with, turned out not to be the case -- at least according to the Power Report. I don't know why. I can only tell you that they didn't. And as an audit committee chairman that took pride in the work of the committee, as well as had, as my colleague said, very strong feelings for the company -- I believed in it -- I too did really not sell shares, except to exercise some options that were expiring. I accumulated shares I think during this year. I cared about this company. I cared about my position on the board, and I cared about my reputation. So I, too, have great regrets that --

REP. RUSH: But there isn't anything that you would do differently in other words? Is there anything -- I'm trying to find out if there is anything that the three of you would do differently in order to avoid this situation if -- you know, if you were confronted with a similar situation in the future? Mr. Skilling, maybe you could answer that. What would you do differently?

MR. SKILLING: I'll echo Mr. Winokur -- Mr. Winokur's comments and Mr. Jaedicke's comments. And I guess I'd also say that I think we all will have a better picture two months from now after we have gotten more of the facts about what really did happen, that there may be some mechanical things that could be done that could be helpful for the system -- mechanical things, systemic issues. But I just don't know at this point that we have the facts of what happened. I wasn't there when it all came --

REP. RUSH: Thank you, Mr. Chairman.

REP. TAUZIN: I thank my friend. I should add for his purpose too that we are going through the same exercise: What could we have done differently, in terms of our rules, procedures? We are going to look very hard next week at the accounting standards and we are going to look hard at the issues of the energy markets and this whole situation in which these trading organizations were created and operate -- examine them to make sure that they work in the national interests as well. We have got a lot of work to do there.

In that regard, first of all, let me on behalf of the committee express to you our condolences on the loss of your friend, Mr. Baxter. I know that was horrid for you to talk about it today, and I am -- I want you to know we sympathize with him and his family as well, and we extend our condolences to them.

Before we conclude, however, I would like Mr. Jaedicke and Mr. Winokur, for you to give us, on behalf of the entire committee and our bipartisan investigative staff, some idea about what you know about the shredding that is going on or has gone on at Enron. Can you tell us anything about that shredding --

MR. WINOKUR: Congressman --

REP. TAUZIN: -- and what you -- who has authorized it and what does it consist of?

MR. WINOKUR: Congressman, I know nothing about it, other than what I have seen on television or read in the newspapers.

REP. TAUZIN: Mr. -- Dr. Jaedicke?

MR. JAEDICKE: Sir, the only thing I could tell you is that probably the last notice that was sent out was sent out at least partially at the request of the audit committee when we heard and read about the Arthur Andersen matter. The only thing I can tell you is I called the company and asked that another --

REP. TAUZIN: The company -- Shredco, Inc?

MR. JAEDICKE: No, Enron -- I'm sorry -- and asked that another reminder be sent out. That was even before Enron was --

REP. TAUZIN: A reminder not to get rid of documents?

MR. JAEDICKE: Pardon me?

REP. TAUZIN: Was is a reminder not to get rid of documents?

MR. JAEDICKE: That's exactly right, yes. I asked -- I asked if there had been steps taken to preserve the documents, to preserve any documents. They said, yes, there were several e-mails that went out -- I think they were e-mails -- several notifications that went out. I asked them what the date was that they started, and they gave me the date. I'm just reporting to you my only knowledge of this. They gave me the date that they had started. I suggested that they send out one more -- at least.

REP. TAUZIN: We received reports, as did I think Americans generally, that shredding was going on in January, that a company called Shredco had been hired to do extensive shredding, and that this was going on in spite of the fact the FBI, SEC, everybody else is investigating. Can you tell us whether or not you think that's true?

MR. JAEDICKE: Sir, I have no knowledge of that at all. I am reporting to you that the only thing I did was to try to get another -- not try to, but ask if another notice be sent out. I am not a lawyer.

REP. TAUZIN: Our investigators will obviously want to examine that issue more thoroughly with you, and others with the board, if you can obviously gather information for us we would certainly appreciate it.

One of the things that obviously we cannot tolerate, either with Arthur Andersen or with officials at Enron is the destruction of documents pertinent to this investigation. And we intend to be very diligent about finding out what happened there and who might be responsible for it, and what might have been destroyed, if anything was destroyed.

Secondly, while you are all here without subpoena -- and I thank you for coming voluntarily and for testifying -- the committee obviously reserves the right to continue forward with possible other visits or interviews, or perhaps even a request for you to return, if necessary, to come and testify.

I can give you the general outline of where we go from here. Our investigators are still at work trying to indeed uncover what it still yet to be uncovered in terms of documentary evidence as to what occurred and how it occurred and when it occurred, and who knew it was going on. We are still trying to learn whether the rules were broken or whether the rules themselves are broken, and how they get fixed. In that regard, we are holding two hearings next week -- one by the Committee on Commerce and Consumer Protection Mr. Cliff Stearns chairs, which will look at the issues of accounting, which were seriously challenged in this collapse, and to see whether or not we have some work to do in terms of stiffening those rules or improving the enforcement of those rules.

We will also look at the energy markets. One of the good news stories out of all this mess is that somehow the energy markets kept working, and electricity and gas kept being delivered at prices consumers could afford, and there was no real rocking or shaking or dislocation of that marketplace, in spite of this tremendous collapse. That's a good news story. We need to understand why that good news happened in spite of all this massive collapse. And we'll take a look at that, because we are still trying to figure out what's some good electric policy for this country, and what makes sense for the future.

And the O&I Committee will be announcing very shortly a series of additional hearings. We intend before the end of February to bring the head of the Arthur Andersen before the committee, and to subpoena if necessary the appearance of Mr. Ken Lay to give us a view of what might have occurred from the top of the corporation, and to help us understand the final parts of this puzzle.

I have asked all of the committees involved, subcommittee involved, to work at diligent speeds that we can as quickly as possible try to corner and start working on solutions.

To that end, let me make a request of you. You have seen this thing from the inside. If you think you can make some suggestions to us as to how we can make sure that boards of directors are better equipped to handle these kinds of situations, and that information flows more thoroughly, more transparently, to consumers and investors, so that the system works better and confidence is restored in this marketplace as quickly as possible. We need your help.

We thank you for coming voluntarily today. We appreciate your testimony. And the hearing will stand adjourned, with the notion that we have 30 more days to receive testimony. The hearing is adjourned. (Sounds gavel.)

END.

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